SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended January 29, 1994 or
[ ] Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 [Fee Required]
For the transition period from ______________ to ______________
Commission File Number 1-7562
THE GAP, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1697231
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Harrison
San Francisco, California 94105
(Address of principal executive offices)
Registrant's telephone number, including area code: (415)952-4400
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.05 par value New York Stock Exchange, Inc.
(Title of class) Pacific Stock Exchange, Inc.
(Name of each exchange where registered)
Securities registered pursuant to Section 12(g) of the Act: None
_______________________
Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of March 28, 1994 was
approximately $4,350,722,367, based upon the last price reported
for such date in the NYSE-Composite transactions.
The number of shares of the Registrant's Common Stock
outstanding as of March 28, 1994 was 145,572,634.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 24, 1994 (hereinafter
referred to as the "1994 Proxy Statement") are incorporated into
Parts I and III.
Portions of the Registrant's Annual Report to Stockholders for
the fiscal year ended January 29, 1994 (hereinafter referred to
as the "1993 Annual Report to Stockholders") are incorporated
into Parts II and IV.
<PAGE>
PART I
Item 1 - BUSINESS
General
The Gap, Inc. (hereinafter referred to as the "Company") is a
specialty retailer which operates stores selling casual apparel,
shoes and other accessories for men, women and children under six
trade names: Gap, GapKids, babyGap, GapShoes, Banana Republic and
Old Navy Clothing Co. The Company was incorporated in the State
of California in July 1969 and was reincorporated under the laws
of the State of Delaware in May 1988. On March 28, 1994, the
Company operated 1,383 stores, including 841 Gap, 316 GapKids,
179 Banana Republic and 47 Old Navy Clothing Co. stores (40 of
the Gap and GapKids stores are located in the United Kingdom, 64
are located in Canada and 1 is located in France).
All of the Company's merchandise is private label. The Gap
stores offer casual clothing for men and women. GapKids was
introduced in 1986 to provide well-designed, comfortable clothing
for boys and girls ages 2-12. The babyGap line, offering mostly
natural fiber clothing for infants and toddlers, was added in
1990 and is sold in most GapKids stores. Banana Republic, Inc., a
wholly-owned subsidiary acquired by the Company in 1983, offers
classic, casual fashions for men and women. Old Navy Clothing Co.
was introduced in 1993 under the name Gap Warehouse and offers
basic and fashion casual clothing for men, women and children at
lower price points.
Merchandise Inventory, Replenishment and Distribution
The retail apparel specialty business fluctuates according
to changes in customer preferences dictated by fashion and
season. These fluctuations especially affect the inventory owned
by apparel retailers, since merchandise usually must be ordered
well in advance of the season and sometimes before fashion trends
are evidenced by customer purchases. The Company is vulnerable to
changing fashion trends. In addition, the cyclical nature of the
retail business requires the Company to carry a significant
amount of inventory, especially prior to peak selling seasons
when the Company and other retailers generally build up their
inventory levels. The Company must enter into contracts for the
purchase and manufacture of private label apparel well in advance
of the applicable selling season. As a result, the Company is
vulnerable to demand and pricing shifts and to errors in
selection and timing of merchandise purchases.
The Company reviews its inventory levels in order to
identify slow-moving merchandise and broken assortments (items no
longer in stock in a sufficient range of sizes) and may use
markdowns to clear merchandise. Markdowns may be used if
inventory exceeds customer demand for reasons of style, seasonal
adaptation, changes in customer preference or if it is determined
that the inventory in stock will not sell at its currently marked
price. Such markdowns may have an adverse impact on earnings,
depending on their extent and the amount of inventory affected.
Because the Company does not carry much replenishment
inventory in its stores, replenishment inventory is maintained in
the Company's distribution centers in California, Kentucky,
Maryland and Canada and in a distribution center owned and
operated by a third party in the United Kingdom, and then shipped
to the stores.
Store Operations and Expansion
The Company's stores offer a shopper-friendly environment
with a select assortment of casual clothing and accessories which
emphasize style, quality and good value. The range of apparel
displayed in each store varies significantly depending on the
selling season and the size of the store.
The Company's stores generally are open seven days per week
(where permitted by law), three to six nights per week and most
holidays. All sales are made for cash, personal checks or on
credit cards issued by others.
The Company opened 108 new stores and expanded 130 stores
during the 1993 fiscal year; the Company anticipates that it will
open approximately 185 to 200 new stores and expand approximately
90 stores during the 1994 fiscal year. Over the past four years,
the Company has increased the average size of its new stores and
expanded the size of existing stores. For fiscal 1993, the
average size of new and expanded stores was about 8,000 square
feet for The Gap, 4,400 square feet for GapKids, and 7,000 square
feet for Banana Republic. Expanded stores are excluded from
comparable store calculations until they have been open over one
year in their new size.
The Company's continued success depends, in part, upon its
ability both to increase sales at existing store locations and to
open and operate stores on a profitable basis. There can be no
assurance that this expansion will result in enhanced
profitability or that it will continue at the same rate in future
years. In addition, the Company's strategy of expanding
domestically through new concepts (such as Old Navy Clothing
Co.), and internationally in countries in which the Company has
no, or limited, operating history could result in reduced
profitability if such expansion is not successful.
The Company is monitoring proposed federal health care
legislation and anticipates an increase in its operating costs if
such legislation is passed because the Company is a multi-state,
labor-intensive employer. The Company believes that it is too
early to quantify the economic impact of such legislation on the
Company due to uncertainty as to what legislation may ultimately
be adopted.
Suppliers
The Company purchases merchandise from over 700 suppliers
located domestically and overseas. No supplier accounted for more
than 5% of the Company's fiscal 1993 purchases. All suppliers
manufacture the Company's private-label merchandise according to
the Company's specifications. During fiscal 1993, approximately
40% of all the Company's merchandise was produced domestically
while the remaining 60% was imported from overseas vendors.
Approximately 23% of foreign dollar purchases were from Hong
Kong, or about 15% of the Company's total merchandise, with the
remainder coming from 42 other countries. Any event causing a
sudden disruption of imports from Hong Kong, including the
imposition of additional import restrictions, could have a
materially adverse effect on the Company's operations.
Substantially all of the Company's foreign purchases are
negotiated and paid for in U.S. dollars.
The Company cannot predict whether any of the foreign
countries in which its products are currently manufactured or any
of the countries in which the Company may manufacture its
products in the future will be subject to future import
restrictions by the U.S. government, including the likelihood,
type or effect of any trade retaliation. For example, currently
the United States government is considering imposing various
restrictions on the importation of goods from China, including
denial of most favored nation (MFN) status. Trade restrictions,
including increased tariffs or quotas, or both, against apparel
items could affect the importation of apparel generally, and, in
that event, could increase the cost or reduce the supply of
apparel available to the Company and adversely affect the
Company's business, financial condition and results of
operations. In addition, the Company's import operations may be
adversely affected by political instability resulting in the
disruption of trade from exporting countries, significant
fluctuation in the value of the U.S. dollar against foreign
currencies and restrictions on the transfer of funds.
Seasonal Business
The Company's business follows a seasonal pattern, peaking
over a total of about 10 weeks during the late summer (August
through early September) and holiday (Thanksgiving through
Christmas) periods. During fiscal year 1993, these periods
accounted for approximately 30% of the Company's annual sales.
Competition
The Company's business is highly competitive. The Company's
stores compete with national and local department, specialty and
discount store chains and independent retail stores which handle
similar lines of merchandise. Some competitors have larger sales
and assets than the Company.
Depth of selection in sizes, colors and styles of
merchandise, merchandise procurement and pricing, ability to
anticipate fashion trends and customer preferences, inventory
control, reputation, quality of merchandise, store design and
location, advertising and customer service are all important
factors in competing successfully in the retail industry. Given
the large number of companies in the retail industry, the Company
cannot estimate the number of its competitors or its relative
competitive position.
The performance of the Company in recent years has increased
imitation by other retailers. Such imitation has made and will
continue to make the retail environment more competitive. In
addition, the success of the Company's operations depends upon a
number of factors relating to consumer spending, including
future economic conditions affecting disposable consumer income
such as employment, business conditions, interest rates and
taxation. A decline in consumer spending could adversely affect
the Company's net sales and profitability.
Advertising
The Company's marketing strategy primarily involves
advertising in major metropolitan newspapers and their Sunday
magazines and in The New Yorker, with smaller amounts of print
advertising in lifestyle and fashion magazines, such as Vanity
Fair and Glamour. Other advertising media include various outdoor
venues, such as bus shelters, mass transit posters, billboards,
telephone kiosks and exterior bus panels,including double-decker
London buses. In addition, the Gap Division introduced in 1993 a
new print campaign for its khaki pants featuring celebrities in
the fields of the arts and motion pictures wearing khakis.
Employees
On January 29, 1994, the Company had a work force of
approximately 44,000 employees. Additionally, the Company hires
temporary employees during the peak late summer and holiday
seasons. The Company considers its employee relations to be good.
Trademarks and Service Marks
The trademarks and service marks for Gap, GapKids, babyGap,
GapShoes, Banana Republic and Old Navy Clothing Co., and other
trademarks either have been registered, or have trademark
applications pending, with the United States Patent and Trademark
Office and with the registries of many foreign countries.
Executive Officers of the Registrant
The Chairman and Chief Executive Officer of the Company is
Donald G. Fisher. Millard S. Drexler is the President and Chief
Operating Officer of the Company and Chief Executive Officer of
the operating divisions. Robert J. Fisher is Executive Vice
President and Chief Financial Officer of the Company. Each of
Messrs. Donald G. Fisher, Robert J. Fisher and Drexler is a
director of the Company and the required information with respect
to each of them is set forth in the table located in the Section
entitled "Nominees for Election as Directors" of the 1994 Proxy
Statement and is incorporated by reference herein. The following
are also executive officers of the Company:
Name Age Position
Patricia DeRosa 41 President, GapKids Division
William S. Fisher 37 President, International Division
Magdalene Gross 45 Executive Vice President - Advertising, Gap Division
Warren R. Hashagen 43 Senior Vice President - Finance
Richard M. Lyons 37 President, Gap Division
Ms. DeRosa joined the Company in 1975 and has served as
President, GapKids Division since July 1993. From August 1992 to
July 1993 she was Executive Vice President, Gap Division and from
March 1991 to August 1992 she served as Executive Vice President -
Merchandising, Gap Division. From April 1989 to March 1991 she
was Senior Vice President, General Merchandise Manager, Men's,
Gap Division, and from 1988 to March 1989 she was Vice President,
General Merchandise Manager, Men's. From 1986 to 1988 she was
Merchandise Manager, Men's.
Mr. William S. Fisher joined the Company in 1984 and has
served as President, International Division since July 1993. From
August 1992 to July 1993 he was Executive Vice President,
International Division and from April to August 1992 he served as
Senior Vice President - International, Gap Division in charge of
United Kingdom and Canada operations. He served as Senior Vice
President - International from April 1991 to April 1992 and as
Vice President - International, Canada Operations from December
1989 to April 1991. From 1988 to 1989 he was Regional Manager,
Gap Division and from 1987 to 1988 he was Vice President of
Stores and Operations, Banana Republic, Inc.
Ms. Gross joined the Company in 1984 and has served as
Executive Vice President - Advertising, Gap Division since April
1992. From 1989 to 1992, she was Senior Vice President -
Advertising. She served as Senior Vice President - Advertising of
the Gap Division from 1986 to 1989.
Mr. Hashagen joined the Company in 1982 and has served as
Senior Vice President - Finance since April 1992. From February
1991 to April 1992, he was Senior Vice President - Finance and
Treasurer. He served as Vice President, Treasurer from 1988 to
1991 and as Corporate Treasurer from 1987 to 1988.
Mr. Lyons joined the Company in 1984 and has served as
President, Gap Division since July 1993. From August 1992 to July
1993 he was Executive Vice President, GapKids Division and from
November 1989 to August 1992 he was Senior Vice President -
General Merchandise Manager, GapKids Division. He served as
General Merchandise Manager, GapKids from 1988 to 1989, at which
time he was promoted to Vice President - General Merchandise
Manager, GapKids. From 1986 to 1988 he was Buyer for GapKids.
Item 2 - PROPERTIES
During fiscal year 1993, the Company opened 108 stores and
closed 45. The newly-opened stores include 45 Gap stores
(including 1 store in the United Kingdom, 5 stores in Canada and
1 store in France), 44 GapKids stores (including 2 stores in the
United Kingdom and 6 stores in Canada) and 19 Banana Republic
stores. In addition, during fiscal year 1993, the Company
expanded 130 stores. The expanded stores include 81 Gap stores
(including 2 stores in the United Kingdom and 6 stores in
Canada), 34 GapKids stores, 14 Banana Republic stores and 1 Old
Navy Clothing Co. store. The 1,370 stores operating on January
29, 1994 aggregated approximately 7.5 million square feet. The
Company leases virtually all of its store premises for terms
generally ranging from 12 to 15 years. Most leases provide for
additional rent based on a percentage of store sales in addition
to or in lieu of minimum rentals, as well as for the payment of
certain other expenses. Some leases contain cancellation clauses
in favor of the Company if specified sales levels are not
achieved. In the United States, the Company's stores are located
in all of the 50 largest metropolitan statistical areas.
During fiscal year 1994, the Company plans to increase store
space by 15% to 20%, after taking into account store closings.
This increase is expected to include the opening of approximately
185 to 200 stores worldwide and the expansion of approximately 90
of the Company's existing stores.
The Company leases its headquarters and regional office
buildings, as well as its Eastern (EDC) and Canadian (CDC)
Distribution Centers. The EDC in Erlanger, Kentucky consists of
approximately 1,042,000 square feet. It distributes Gap, GapKids
and Banana Republic merchandise and its lease term runs through
February 28, 2003, with options to extend the lease for an
additional 30 years. The Company leases approximately 112,000
square feet in Brampton, Ontario to serve as its Canadian
distribution facility. The CDC distributes Gap and GapKids
merchandise and its lease term runs through August 23, 2000, with
options to extend the lease for an additional ten years.
The Company owns its Western Distribution Center (WDC)
located in Ventura, California. This facility, which is
approximately 334,000 square feet, distributes Gap and GapKids
merchandise. The Company also owns an adjacent five acre parcel
for possible future expansion. The Atlantic Distribution Center
(ADC), a facility owned by the Company in Edgewood, Maryland,
covers approximately 745,000 square feet and distributes Gap
merchandise. The Company also owns 156 additional acres, portions
of which could be used for potential expansion of the ADC.
The Company also owns and operates a data center located on
seven acres of land in Rocklin, California; it covers
approximately 40,000 square feet and serves as a corporate
computer processing center.
The Company continues to explore alternatives for expanding
its headquarters facilities in San Francisco and San Bruno,
California.
Item 3 - LEGAL PROCEEDINGS
The Company is a party to routine litigation incident to its
business. Some of the lawsuits to which the Company is a party
are covered by insurance and are being defended by the Company's
insurance carriers. The Company has established reserves which
management believes are adequate to cover any litigation losses
which may occur.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated herein
by reference to page 23 of the paper version of the 1993 Annual
Report to Stockholders and as electronically filed under the heading
"Management's Discussion and Analysis of results of Operations
and Financial Condition" of Exhibit 13 to this Annual Report on
Form 10-K.
Item 6 - SELECTED FINANCIAL DATA
The information required by this item is incorporated herein
by reference to pages 20 and 21 of the paper version of the 1993
Annual Report to Stockholders and as electronically filed under
the heading "Five Year Selected Financial Data" of Exhibit 13 to
this Annual Report on Form 10-K.
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is incorporated herein
by reference to pages 22 and 23 of the paper version of the 1993
Annual Report to Stockholders and as electronically filed under the
heading "Management's Discussion and Analysis of results of
Operations and Financial Condition" of Exhibit 13 to this Annual
Report on Form 10-K.
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
($000) January 29, 1994 January 30, 1993
Short-term Deferred Tax Asset $25,119 $36,755
Accrued Payroll 27,238 24,628
The information required by this item is incorporated herein
by reference to pages 24-33 of the paper version of the 1993
Annual Report to Stockholders and as electronically filed under the
headings "Management's Report on Financial Condition, Independent
Auditor's Report, Consolidated Statements of Earnings,
Consolidated Balance Sheets, Consolidated Statements of Cash
Flows, Consolidated Statements of Stockholders' Equity and Notes
to Consolidated Financial Statements" of Exhibit 13 to this
Annual Report on Form 10-K.
Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein
by reference to the Section entitled "Nominees for Election as
Directors" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the 1994 Proxy Statement. See also Item
1 above.
Item 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated herein
by reference to the Sections entitled "Compensation of
Directors," "Executive Compensation" and "Employment Contracts
and Termination of Employment Arrangements" in the 1994 Proxy
Statement.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein
by reference to the Section entitled "Beneficial Ownership of
Shares" in the 1994 Proxy Statement.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein
by reference to the Sections entitled "Other Reportable
Transactions" and "Indebtedness of Management" in the 1994 Proxy
Statement.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
ON FORM 8-K
1. The following consolidated financial statements,
schedules and exhibits are filed as part of this report or are
incorporated herein as indicated.
A. Financial Statements
(i) Independent Auditors' Report. Incorporated by reference
to Page 24 of the paper version of the 1993 Annual
Report to Stockholders and as electronically filed
under the heading "Independent Auditors' Report: of
Exhibit 13 to this Annual Report on Form 10-K.
(ii) The consolidated balance sheets as of January 29, 1994
and January 30, 1993 and the related consolidated
statements of earnings, cash flows, and stockholders'
equity for each of the three fiscal years in the period
ended January 29, 1994 are incorporated by reference to
pages 25-33 of the paper version of the 1993 Annual
Report to Stockholders and as filed electronically
under the headings "Consolidated Statements of
Earnings, Consolidated Balance Sheets, Consolidated
Statements of Cash Flows, Consolidated Statements of
Stockholders' Equity" of Exhibit 13 to this Annual
Report on Form 10-K.
B. Financial Statement Schedules
Schedules and Independent Auditors' Report thereon for the three
years ended January 29, 1994, filed as part of this Annual Report on Form
10-K.
Independent Auditors' Report on Schedules
II - Amounts Receivable From Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties
V - Property, Plant and Equipment
VI - Accumulated Depreciation and Amortization of Property,
Plant and Equipment
IX - Short-Term Borrowings
X - Supplementary Statements of Earnings Information
Schedules other than those referred to above have been omitted
because they are not required or are not applicable or because the
information required to be set forth therein either is not material or
is included in the financial statements or notes thereto.
Individual financial statements of the Company have been omitted
since the Company is primarily an operating Company and the indebtedness
of the wholly owned subsidiaries to any person other than the Company does
not exceed five percent of the total assets.
C. Exhibits
Incorporated herein by reference is a list of the Exhibits
contained in the Exhibit Index which begins on sequentially numbered
page 21 of the paper version of this Report.
D. Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed for
the last quarter of the fiscal year.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE GAP, INC.
Date: April 15, 1994 By /s/ Donald G. Fisher
Donald G. Fisher, Chairman and Chief
Executive Officer (Principal Executive Officer)
Date: April 15, 1994 By /s/ Robert J. Fisher
Robert J. Fisher, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: April 15, 1994 By /s/ John G. Bowes
John G. Bowes, Director
Date: April 15, 1994 By /s/ Millard S. Drexler
Millard S. Drexler, Director
Date: April 15, 1994 By /s/ Donald G. Fisher
Donald G. Fisher, Director
Date: April 15, 1994 By /s/ Doris F. Fisher
Doris F. Fisher, Director
Date: April 15, 1994 By /s/ Robert J. Fisher
Robert J. Fisher, Director
Date: April 15, 1994 By /s/ William A. Hasler
William A. Hasler, Director
Date: April 15, 1994 By /s/ John M. Lillie
John M. Lillie, Director
Date: April 15, 1994 By /s/ Charles R. Schwab
Charles R. Schwab, Director
Date: April 15, 1994 By /s/ Brooks Walker, Jr.
Brooks Walker, Jr., Director
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES (page references are to the
paper version of the Annual Report on Form 10-K)
Independent Auditors' Report on Schedules F-1
II -Amounts Receivable From Related Parties
and Underwriters, Promoters and Employees
Other Than Related Parties F-2
V -Property, Plant and Equipment F-4
VI -Accumulated Depreciation and Amortization of
Property, Plant and Equipment F-5
IX -Short-Term Borrowings F-6
X -Supplementary Statements of Earnings Information F-7
<PAGE>
Deloitte & Touche
50 Fremont Street Telephone:(415)247-4000
San Francisco, California 94105-2230 Facsimile:(415)247-4329
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Stockholders and Board of Directors of The Gap, Inc.
We have audited the consolidated financial statements of The Gap, Inc. and
subsidiaries as of January 29, 1994 and January 30, 1993, and for each of
the three fiscal years in the period ended January 29, 1994 and have issued
our report thereon dated March 3, 1994: such financial statements and
report are included in your 1993 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the
consolidated financial statement schedules of The Gap, Inc. and
subsidiaries, listed in Item 14. These consolidated financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our
opinion,such consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/S/ Deloitte & Touche
March 3, 1994
<PAGE>
<TABLE>
THE GAP, INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
<CAPTION>
Balance at Deductions Balance at
beginning Amounts Amounts end of period
Name of debtor of period Additions collected written off Current Non-Current
<S> <C> <C> <C> <C> <C> <C>
Year Ended January 29, 1994:
Christopher Fiore $150,000 $ - ($150,000) $ - $ - $ - <F1>
Ronald G. Franks 130,000 - - - - 130,000 <F1>
Kevin M. Lonergan 130,000 - (15,000) - 115,000 - <F1><F4>
George P. Blankenship 100,000 - - - 100,000 - <F1>
David M. DeMattei 100,000 - - (50,000) 50,000 - <F1>
Stanley L. Moore 100,000 - (50,000) - - 50,000 <F1>
T. Robert Bell IV 100,000 - (100,000) - - - <F3>
Laura J. Loda - 134,179 (91,679) - - 42,500 <F1>
Joann C. Kuss - 103,414 - - 103,414 - <F3>
Year Ended January 30, 1993:
Millard S. Drexler $500,000 $ - ($500,000) $ - $ - $ - <F2>
J. Patrick Spainhour 179,000 210,000 (375,000) (14,000) - - <F1><F4>
Ronald G. Franks 170,000 - (40,000) - - 130,000 <F1><F5>
Stanley L. Moore 159,508 - (59,508) - - 100,000 <F1><F3>
Kevin M. Lonergan 145,000 - - (15,000) 15,000 115,000 <F1><F4>
T. Robert Bell IV 100,000 - - - - 100,000 <F3>
George P. Blankenship 100,000 - - - - 100,000 <F1>
David M. DeMattei 100,000 - - - 50,000 50,000 <F1>
Gail Pfeifer 16,456 - (2,689) - 2,855 10,912 <F1>
Christopher Fiore - 164,375 (14,375) - - 150,000 <F1>
Brian W. Falk - 177,986 (132,986) - - 45,000 <F1><F3>
Walter N. Moll - 183,049 (120,549) - - 62,500 <F1>
Year Ended February 1, 1992:
Millard S. Drexler $500,000 $ - $ - $ - $ - $500,000 <F2>
J. Patrick Spainhour 186,000 - - (7,000) 7,000 172,000 <F1><F4>
Ronald G. Franks 40,000 130,000 - - 130,000 40,000 <F1><F5>
Stanley L. Moore - 159,508 - - 59,508 100,000 <F1><F3>
Kevin M. Lonergan 160,000 - - (15,000) 15,000 130,000 <F1><F4>
T. Robert Bell IV 467,037 - (367,037) - - 100,000 <F1><F3>
George P. Blankenship 100,000 - - - - 100,000 <F1>
David M. DeMattei 15,181 100,000 (15,181) - - 100,000 <F1>
James A. Gargiulo 390,000 - (390,000) - - - <F1><F3>
Raymond C. Attanasio 192,072 176,364 (368,436) - - - <F3>
Robert T. Amato - 138,645 (138,645) - - - <F3>
Daniel E. Walker - 125,000 (125,000) - - - <F1>
Gail Pfeifer 132,762 - (116,306) - 2,689 13,767 <F1><F3>
Steven S. Krajenka - 114,178 (114,178) - - - <F3>
Carole J. Whitacre 100,000 - (100,000) - - - <F1>
_________________________________________
</TABLE>
<F1> Loan is (was) secured by a deed of trust on debtor's principal residence
and, in some cases, by the debtor's restricted stock or stock options.
Interest at a rate of 4% to 9% is (was) paid monthly with outstanding
principal and any unpaid interest due in full at dates ranging from
September 1993 to August, 1998.
<F2> The loan was securted by a first deed of trust on real property owned
by the debtor. The loan and all related interest was paid in full on
April 8, 1992.
<F3> Loan is (was) a non-interest bearing bridge loan due upon the sale of
the debtor's principal residence.
<F4> A portion of loan was a non-interest bearing personal loan.
<F5> Loan was secured by a deed of trust on debtor's principal residence and
was due upon the exercise of the debtor's stock options. Loan was non-
interest bearing until April 1, 1992, at which time interest at a rate
of 8% became payable monthly.
<PAGE>
<TABLE>
THE GAP, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
($000)
<CAPTION>
Reclassification
Balance at of costs from Balance at
beginning Additions construction- end of
Classification of period at cost Retirements in-progress period
<S> <C> <C> <C> <C> <C>
Year Ended January 29, 1994:
Leasehold Improvements $490,791 $ 7,713 ($21,118) $ 79,174 $ 556,560
Furniture and Equipment 388,219 80,472 (7,117) 43,378 504,952
Construction-in-progress 16,623 134,897 - (122,552) 28,968
Total $895,633 $223,082 ($28,235) - $1,090,480
Year Ended January 30, 1993:
Leasehold Improvements $394,835 $ 1,198 ($25,757) $ 120,515 $ 490,791
Furniture and Equipment 255,665 72,232 (26,847) 87,169 388,219
Construction-in-progress 86,967 137,340 - (207,684) 16,623
Total $737,467 $210,770 ($52,604) - $ 895,633
Year Ended February 1, 1992:
Leasehold Improvements $289,266 $ 522 ($21,101) $ 126,148 $ 394,835
Furniture and Equipment 178,109 54,768 (14,914) 37,702 255,665
Construction-in-progress 60,992 189,825 - (163,850) 86,967
Total $528,367 $245,115 ($36,015) - $ 737,467
Note: Refer to Note A of the Consolidated Financial Statements for
description of depreciation methods.
</TABLE>
<PAGE>
<TABLE>
THE GAP, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
($000)
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end of
Description of period expenses Retirements period
<S> <C> <C> <C> <C>
Year Ended January 29, 1994:
Leasehold Improvements $121,235 $41,883 ($12,035) $151,083
Furniture and Equipment 124,030 79,647 (4,702) 198,975
Total $245,265 $121,530 ($16,737) $350,058
Year Ended January 30, 1993:
Leasehold Improvements $100,878 $35,067 ($14,710) $121,235
Furniture and Equipment 88,849 59,117 (23,936) 124,030
Total $189,727 $94,184 ($38,646) $245,265
Year Ended February 1, 1992:
Leasehold Improvements $86,259 $27,846 ($13,227) $100,878
Furniture and Equipment 58,560 42,274 (11,985) 88,849
Total $144,819 $70,120 ($25,212) $189,727
Note: Refer to Note A of the Consolidated Financial Statements for
description of depreciation methods.
</TABLE>
<PAGE>
<TABLE>
THE GAP, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
($000)
<CAPTION>
Maximum Average Weighted
Weighted amount amount average
Balance average outstanding outstanding interest
Category of aggregate at end interest during during rate during
short-term borrowings of period rate the period the period the period
<F6> <F7>
<S> <C> <C> <C> <C> <C>
Year ended January 29, 1994:
Notes Payable to Banks $7,603 5.42% $18,950 $ 5,993 5.65%
Commercial Paper - - - - -
Year ended January 30, 1993:
Notes Payable to Banks $ - - $27,900 $ 3,383 3.28%
Commercial Paper - - 22,500 3,616 3.27%
Year ended February 1, 1992:
Notes Payable to Banks $ - - $52,700 $12,321 5.82%
Commercial Paper - - 30,100 2,983 6.18%
_________________________________________
</TABLE>
<F6> The average amount outstanding during the period is computed
by dividing the total of daily outstanding balances by the number
of days in the year.
<F7> The weighted average interest rate during the period is computed by
dividing the actual short-term interest expense by the average short-term
debt outstanding.
Note: Refer to Note B of the Consolidated Financial Statements for
general terms of short-term borrowings. Short-term borrowings
have original maturities of three months or less.
<PAGE>
THE GAP, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY STATEMENTS OF EARNINGS INFORMATION
($000)
Item Charged to Costs and Expenses
Fiscal Years
1993 1992 1991
Advertising Costs $37,510 $46,249 $34,674
Note: Costs and expenses which are not stated above have been omitted
because the information required to be set forth therein either
is not material or is included in the financial statements or
notes thereto.
<PAGE>
EXHIBIT INDEX
<F8> 3.1 Registrant's Amended and Restated Certificate of
Incorporation, filed as Exhibit 3.1 to
Registrant's Annual Report on Form 10-K for the
year ended January 30, 1993, Commission File No.
1-7562.
<F8> 3.2 Registrant's By-Laws, filed as Exhibit C to
Registrant's definitive proxy statement for its
annual meeting of stockholders held on May 24,
1988, Commission File No. 1-7562.
<F8> 10.1 Credit Agreement, dated as of March 2, 1990,
among Registrant and Citibank, N.A.; Bank of
America National Trust & Savings Association;
Continental Bank N.A.; National Westminster Bank
PLC; Security Pacific National Bank; Deutsche
Bank, AG New York Branch and Cayman Islands
Branch; Harris Trust and Savings Bank; NCNB
National Bank of North Carolina; The Royal Bank
of Canada; Algemene Bank Nederland N.V., Cayman
Islands Branch; The Sumitomo Bank Limited; and
Swiss Bank Corporation, filed as Exhibit 10.6 to
Registrant's Annual Report on Form 10-K for the
year ended February 3, 1990, Commission File No.
1-7562.
<F8> 10.2 Amendment to Credit Agreement, dated as of March
4, 1991, filed as Exhibit 10.7 to Registrant's
Annual Report on Form 10-K for the year ended
February 2, 1991, Commission File No. 1-7562.
<F8> 10.3 Second Amendment to Credit Agreement, dated as
of September 16, 1992, filed as Exhibit 10.3 to
Registrant's Annual Report on Form 10-K for the
year ended January 30, 1993, Commission File No.
1-7562.
<F8> 10.4 Third Amendment to Credit Agreement, dated as of
January 22, 1993, filed as Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the
year ended January 30, 1993, Commission File No.
1-7562.
<F8> 10.5 Note Agreement, dated as of February 22, 1991,
among Registrant and The Prudential Insurance
Company of America; Prudential Property and
Casualty Insurance Company; Nationwide Life
Insurance Company; West Coast Life Insurance
Company; Financial Horizons Life Insurance
Company; Farmland Life Insurance Company;
Wisconsin Health Care Liability Insurance Plan;
and Allstate Life Insurance Company filed as
Exhibit 10.8 to Registrant's Annual Report on
Form 10-K for the year ended February 2, 1991,
Commission File No. 1-7562.
<F8> 10.6 Lease Agreement (Canadian Distribution Center),
dated as of 4/5/90, between Registrant and
Bramalea Limited filed as Exhibit 10.9 to
Registrant's Annual Report on Form 10-K for the
year ended February 2, 1991, Commission File No.
1-7562.
<F8> 10.7 First Amendment to Lease Agreement (Canadian
Distribution Center), dated as of July 5, 1990,
filed as Exhibit 10.7 to Registrant's Annual
Report on Form 10-K for the year ended January
30, 1993, Commission File No. 1-7562.
<F8> 10.8 Lease Agreement (Eastern Distribution Center),
dated as of July 6, 1979, between Registrant and
Corporate Property Associates, filed as Exhibit
10.8 to Registrant's Annual Report on Form 10-K
for the year ended February 3, 1980, Commission
File No. 1-7562.
<F8> 10.9 Amendment to Lease Agreement (Eastern
Distribution Center), dated as of October 10,
1986, filed as Exhibit 10.10 to Registrant's
Annual Report on Form 10-K for the year ended
January 30, 1988, Commission File No. 1-7562.
<F8> 10.10 Second Amendment to Lease Agreement (Eastern
Distribution Center), dated as of February 16,
1988, filed as Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the year ended
January 30, 1988, Commission File No. 1-7562.
<F8> 10.11 Lease Agreement (Kentucky Distribution Center),
dated as of February 16, 1988, between
Registrant and Corporate Property Associates 7,
filed as Exhibit 10.12 to Registrant's Annual
Report on Form 10-K for the year ended January
30, 1988, Commission File No. 1-7562.
<F8> 10.12 Lease Agreement (One Harrison, San Francisco),
dated as of September 1, 1987, between
Registrant's wholly-owned subsidiary, Banana
Republic, Inc. ("Banana Republic"), and JMC
Associates Limited Partnership, filed as Exhibit
10.13 to Registrant's Annual Report on Form 10-K
for the year ended January 30, 1988, Commission
File No. 1-7562.
<F8> 10.13 First Amendment to Lease Agreement (One
Harrison, San Francisco), dated as of December
21, 1987, filed as Exhibit 10.14 to Registrant's
Annual report on Form 10-K for the year ended
February 1, 1992, Commission File No. 1-7562.
<F8> 10.14 Second Amendment to Lease Agreement (One
Harrison, San Francisco), dated as of October
16, 1991, filed as Exhibit 10.15 to Registrant's
Annual report on Form 10-K for the year ended
February 1, 1992, Commission File No. 1-7562.
<F8> 10.15 Sublease Agreement (One Harrison, San
Francisco), dated as of December 21, 1987,
between Registrant's wholly-owned subsidiary,
Banana Republic, Inc. and Hillman Properties
West, Inc., filed as Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for the
year ended January 30, 1988, Commission File No.
1-7562.
<F8> 10.16 First Amendment to Sublease Agreement (One
Harrison, San Francisco), dated as of December
17, 1990, filed as Exhibit 10.17 to Registrant's
Annual report on Form 10-K for the year ended
February 1, 1992, Commission File No. 1-7562.
<F8> 10.17 Second Amendment to Sublease Agreement (One
Harrison, San Francisco), dated as of September
30, 1991, filed as Exhibit 10.18 to Registrant's
Annual report on Form 10-K for the year ended
February 1, 1992, Commission File No. 1-7562.
<F8> 10.18 Third Amendment to Sublease Agreement (One
Harrison, San Francisco), dated as of October
16, 1991, filed as Exhibit 10.19 to Registrant's
Annual report on Form 10-K for the year ended
February 1, 1992, Commission File No. 1-7562.
<F8> 10.19 Lease Agreement (Two Harrison, San Francisco),
dated as of May 31, 1991, between Registrant and
Harrison Plaza, Ltd., a California limited
partnership, filed as Exhibit 10.20 to
Registrant's Annual report on Form 10-K for the
year ended February 1, 1992, Commission File No.
1-7562.
<F8> 10.20 Purchase Agreement (Atlantic Distribution
Center), dated as of April 9, 1990, between
Registrant and Greater Harford Industrial Park
Partnership, filed as Exhibit 10.13 to
Registrant's Annual Report on Form 10-K for the
year ended February 3, 1990, Commission File No.
1-7562.
<F8> 10.21 Purchase and Installation Agreement (Materials
Handling Equipment for Atlantic Distribution
Center), dated as of December 18, 1990, between
Registrant and Computer Aided Systems, Inc.
filed as Exhibit 10.17 to Registrant's Annual
Report on Form 10-K for the year ended February
2, 1991, Commission File No. 1-7562.
<F8> 10.22 Construction Agreement (Atlantic Distribution
Center), dated as of July 31, 1990, between
Registrant and Robert A. Kinsley, Inc., filed as
Exhibit 10.18 to Registrant's Annual Report on
Form 10-K for the year ended February 2, 1991,
Commission File No. 1-7562.
<F8> 10.23 Purchase Agreement (Rocklin Data Center), dated
as of November 20, 1990, between Registrant and
Stanford Ranch, Inc., filed as Exhibit 10.19 to
Registrant's Annual Report on Form 10-K for the
year ended February 2, 1991, Commission File No.
1-7562.
<F8> 10.24 Construction Agreement (Rocklin Data Center),
dated as of January 11, 1991, between Registrant
and The Austin Company, filed as Exhibit 10.20
to Registrant's Annual Report on Form 10-K for
the year ended February 2, 1991, Commission File
No. 1-7562.
<F8> 10.25 Purchase Agreement (Canadair Corporate Jet),
dated as of July 11, 1991, between Registrant
and Canadair Challenger, Inc., a Delaware
corporation, filed as Exhibit 10.26 to
Registrant's Annual report on Form 10-K for the
year ended February 1, 1992,
<F8> 10.26 Construction Agreement, dated as of January 1,
1992, between Registrant and Fisher Development,
Inc., filed as Exhibit 10.26 to Registrant's
Annual Report on Form 10-K for the year ended
January 30, 1993, Commission File No. 1-7562.
<F8> 10.27 Letter Agreement, dated as of December 17, 1992,
amending the Restated Construction Agreement
between Registrant and Fisher Development, Inc.,
filed as Exhibit 10.27 to Registrant's Annual
Report on Form 10-K for the year ended January
30, 1993, Commission File No. 1-7562.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
<F8> 10.28 1981 Stock Option Plan, filed as Exhibit 4.1 to
Registrant's Registration Statement on Form S-8,
Commission File No. 33-54690.
<F8> 10.29 Form of Nonqualified Stock Option Agreement
under Registrant's 1981 Stock Option Plan, filed
as Exhibit 4.2 to Registrant's Registration
Statement on Form S-8, Commission File No. 33-
54690.
<F8> 10.30 Management Incentive Restricted Stock Plan II,
filed as Exhibit 4.1 to Registrant's
Registration Statement on Form S-8, Commission
File No. 33-54686.
<F8> 10.31 Form of Restricted Stock Agreement under
Registrant's Management Incentive Restricted
Stock Plan II, filed as Exhibit 4.2 to
Registrant's Registration Statement on Form S-8,
Commission File No. 33-54686.
<F8> 10.32 GapShare, filed as Exhibit 4.1 to Registrant's
Registration Statement on Form S-8, Commission
File No. 33-40505.
<F8> 10.33 Nonqualified Supplemental Executive Retirement
Plan, effective January 1, 1988, filed as
Exhibit 10.29 to Registrant's Annual Report on
Form 10-K for the year ended February 3, 1990,
Commission File No. 1-7562.
10.34 Description of Management Incentive Cash Award Plan.
<F8> 10.35 Executive Management Incentive Cash Award Plan,
filed as Exhibit A to the Registrant's
definitive proxy statement for its annual
meeting of stockholders held on May 24, 1994,
Commission File No. 1-7562 Proxy.
10.36 Deferred Compensation Plan.
<F8> 10.37 Relocation Loan Plan, filed as Exhibit A to
Registrant's definitive proxy statement for its
annual meeting of stockholders held on October
25, 1977, Commission File No. 1-7562.
<F8> 10.38 Certificate of Corporate Resolution amending the
Relocation Loan Plan, adopted by the Board of
Directors on November 27, 1990, filed as Exhibit
10.34 to Registrant's Annual Report on Form 10-K
for the year ended February 2, 1991, Commission
File No. 1-7562.
<F8> 10.39 Agreement, dated as of October 22, 1985, between
Registrant and Millard S. Drexler, together with
an amendment thereto dated as of November 21,
1985, filed as Exhibits 19.1 and 19.2,
respectively, to Registrant's quarterly Report
on Form 10-Q for the quarter ended November 2,
1985, Commission File No. 1-7562.
<F8> 10.40 Amendment to the Agreement between Registrant,
Millard Drexler and Donald Fisher, dated October
23, 1992, filed as Exhibit 10.38 to Registrant's
Annual Report on Form 10-K for the year ended
January 30, 1993, Commission File No. 1-7562.
<F8> 10.41 Amended and Restated Restricted Stock Agreement,
dated January 30, 1992, between Registrant and
Millard Drexler, filed as Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for the
year ended January 30, 1993, Commission File No.
1-7562.
<F8> 10.42 First Amendment to the Amended and Restated
Restricted Stock Agreement, dated October 23,
1992, between Registrant and Millard Drexler,
filed as Exhibit 10.40 to Registrant's Annual
Report on Form 10-K for the year ended January
30, 1993, Commission File No. 1-7562.
<F8> 10.43 Restricted Stock Award Agreement, dated April
13, 1992, between Registrant and Millard
Drexler, filed as Exhibit 10.41 to Registrant's
Annual Report on Form 10-K for the year ended
January 30, 1993, Commission File No. 1-7562.
<F8> 10.44 First Amendment to Restricted Stock Award
Agreement, dated October 23, 1992, between
Registrant and Millard Drexler, filed as Exhibit
10.42 to Registrant's Annual Report on Form 10-K
for the year ended January 30, 1993, Commission
File No. 1-7562.
<F8> 10.45 Non-Employee Director Retirement Plan, dated
October 27, 1992, filed as Exhibit 10.43 to
Registrant's Annual Report on Form 10-K for the
year ended January 30, 1993, Commission File No.
1-7562.
11 Computation of Earnings per Share.
13 Registrant's annual report to security holders
for the fiscal year ended January 29, 1994.
21 Subsidiaries of Registrant.
23 Consent of Deloitte & Touche.
<F8> Incorporated by reference as indicated
MANAGEMENT INCENTIVE CASH AWARD PLAN
Purpose
The purpose of the Gap Management Incentive Cash Award Program (MICAP) is
to provide financial incentives for Officers to meet the Company's annual
performance goals.
Administration
The Plan will be administered by the Compensation and Stock Option
Committee of the Board of Directors, who have the authority to determine
plan participants, target award levels, the times when awards will be
granted, the financial performance objectives on which the plan is based
and final payments.
Eligibility and Participation
MICAP is designed for Officers whose responsibilities significantly
influence Company results. Plan participants are normally selected at the
beginning of each fiscal year. An Officer who becomes eligible to
participate in the plan during a fiscal year (whether by promotion or hire)
may participate on the basis of their earnings.
Bonus Pool Funding
Each Officer is assigned a Bonus Target expressed as a percent of salary.
The sum of these awards equals the Target Award Pool.
At the beginning of the fiscal year, Management and the Compensation and
Stock Option Committee set overall Corporate and Divisional Earnings
Targets. Achievement of the target will result in the creation of an
actual pool called the Target Award Pool. A Funding Threshold and a
Funding Maximum are also established and the corresponding level of award
pool funding are determined.
Threshold Performance Level
No awards will be paid under this program (either Company or Division)
unless the Company or Division achieves at least 80% of its primary
financial goal for the year.
Award Calculation
Awards under the plan are based on a combination of individual bonus
eligibility, (Target Bonus), and Corporate and Individual performance.
Each Officer is assigned a Bonus Target expressed as a percent of salary.
This is referred to as Target Bonus.
Corporate or Divisional Earnings performance adjusts each individual's
Target Bonus based on the percent of target achieved.
The resulting bonus is further adjusted based on the Individual Performance
Multiplier, and management discretion can be used to modify the final bonus
award amount.
Final bonuses are determined by adjusting the initial award up or down by
the Performance Multiplier. Management discretion can be used to modify
the final bonus award amount.
Corporate Performance
Corporate Earnings directly impact the funding of this bonus plan.
Corporate Earnings Before Taxes performance determines the percentage of
Target Bonus paid.
Individual Performance
For the purpose of determining the Individual Performance adjustment to
their Target Bonus, each participant should determine three to six specific
performance objectives (which will be weighted) at the beginning of the
fiscal year. These objectives should relate to significant Company or
Division goals and to the degree possible should be measurable. Monitoring
and controlling expenses so as to stay within established operating budget
(unless written approval to exceed has been received) will be a
consideration for all Executives.
Individual Performance Multiplier
Performance on objectives is evaluated to determine an overall rating.
The overall rating corresponds to a range of "Performance Multipliers."
Payment of Award
Payment of the Incentive Awards will be made on or about April 1st
following completion of the fiscal year.
Effective Date
The effective date of this plan is February 1, 1991. The plan shall
continue in effect for subsequent years unless it is terminated by the
Compensation Committee.
Board's Rights
Under certain circumstances, the Board may want to take discretionary
actions that are beyond the planned parameters of this program:
- - The Board reserves the right to establish a "contingency fund" which
would provide for the possibility of limited/reduced awards should the
Funding Threshold not be met.
- - The Board also reserves the right to pay no awards if operating
results or the Company's financial condition is unacceptable.
THE GAP, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
THE GAP, INC. (the "Company") hereby establishes The Gap, Inc.
Executive Deferred Compensation Plan, effective January 1, 1994, for the
benefit of a select group of management and highly compensated employees of
the Company and its participating Affiliates, in order to provide such
employees with certain deferred compensation benefits. The Plan is an
unfunded deferred compensation plan that is intended to qualify for the
exemptions provided in sections 201, 301, and 401 of ERISA.
SECTION 1
DEFINITIONS
The following words and phrases shall have the following meanings
unless a different meaning is plainly required by the context:
1.1 "Affiliate" shall mean a corporation, trade or business which is,
together with the Company, a member of a controlled group of corporations
or an affiliated service group or under common control within the meaning
of section 414(b), (c), (m) or (o) of the Code.
1.2 "Board" shall mean the Board of Directors of the Company, as from
time to time constituted.
1.3 "Bonus" shall mean an award of cash payable to an Employee in
April of any fiscal year which is contingent upon the degree of the
Employee's achievement of performance goals established by the Employer for
the preceding fiscal year.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code shall include such section, any
valid regulation promulgated thereunder, and any comparable provision of
any future legislation amending, supplementing or superseding such section.
1.5 "Committee" shall mean the Retirement Committee appointed
pursuant to GapShare, the qualified profit sharing plan maintained by the
Company.
1.6 "Company" shall mean The Gap, Inc.
1.7 "Deferral Contributions" shall mean the amounts credited to
Participants' Accounts under the Plan pursuant to their deferral elections
made in accordance with Section 2.1. A Participant's Deferral
Contributions shall include his or her Bonus Deferral Contributions and
Salary Deferral Contributions, as described in Section 3.1.
1.8 "Eligible Employee" shall mean an Employee of an Employer who is
employed at the level of "director" or higher and who has a Salary greater
than 150% of the Social Security taxable wage base. Eligible Employee
shall not include any Employee who is employed in a foreign country, unless
he or she has been temporarily transferred to employment with an Employer
in a foreign country and is a citizen or resident alien of the United
States at the time of the transfer. An Employee's eligibility for any Plan
Year shall be determined as of November 1 of the preceding Plan Year, based
on the Employee's position and salary and on the taxable wage base in
effect on that date; provided, however, that in the case of an Employee who
first satisfies the conditions for being an Eligible Employee on or before
June 1 of any Plan Year, eligibility shall be determined as of that June 1.
If a Participant ceases to be an Eligible Employee, no further Deferral
Contributions shall be made to the Plan on his or her behalf unless he or
she is again determined to be an Eligible Employee, but the balance
credited to his or her Account shall continue to be credited with earnings
under the terms of the Plan, and shall be distributed to him or her at the
time and in the manner set forth in Section 5.
1.9 "Employee" shall mean an individual who is employed by one of the
Employers as a common-law employee.
1.10 "Employer" shall mean the Company and each participating
Affiliates. At such times and under such conditions as the Board may
direct, one or more other Affiliates may become participating Affiliates or
a participating Affiliate may be withdrawn from the Plan.
1.11 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended. Reference to a specific section of ERISA shall include
such section, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation amending, supplementing or
superseding such section.
1.12 "Participant" shall mean an Eligible Employee who has become a
Participant in the Plan pursuant to Section 2.1 and has not ceased to be a
Participant pursuant to Section 2.3.
1.13 "Participant's Account" or "Account" means as to any Participant
the separate account maintained on the books of the Company in order to
reflect his or her interest under the Plan. Each Participant's Account
shall comprise one or both of the following separate subaccounts:
1.13.1 "Bonus Deferral Account" shall be the subaccount
maintained to record the Bonus Deferral Contributions made by the
Participant, and the earnings relating thereto. To the extent necessary to
reflect a Participant's distribution elections, a separate Bonus Deferral
Account may be maintained with respect to amounts credited to the
Participant's Bonus Deferral Account for any Plan Year.
1.13.2 "Salary Deferral Account" shall be the subaccount
maintained to record the Salary Deferral Contributions made by the
Participant, and the earnings relating thereto. To the extent necessary to
reflect a Participant's distribution elections, a separate Salary Deferral
Account may be maintained with respect to the amounts credited to the
Participant's Salary Deferral Account for any Plan Year.
1.14 "Plan" shall mean The Gap, Inc. Executive Deferred Compensation
Plan, as set forth in this instrument and as hereafter amended from time to
time.
1.15 "Retirement" shall mean a Participant's termination of employment
with all Employers and all Affiliates at or after age 50.
1.16 "Salary" shall mean a Participant's basic yearly salary,
excluding bonuses and taxable and nontaxable fringe benefits; provided,
however, that Salary shall include Salary Deferral Contributions and all
amounts contributed by an Employer pursuant to a salary reduction agreement
which are not includable in the Employee's gross income under sections 125,
402(a)(8),or 402(b) of the Code.
1.17 "Termination Date" shall mean a Participant's termination of
employment with all Employers and Affiliates.
SECTION 2
PARTICIPATION
2.1 Participation. Each Eligible Employee's decision to become a
Participant shall be entirely voluntary.
2.2 Elections. An Eligible Employee may elect to become a
Participant (or to reinstate active participation) in this Plan by electing
to make Deferral Contributions under the Plan.
2.2.1 Salary Deferral Elections. An Eligible Employee may
elect to make Salary Deferral Contributions for any Plan Year no later than
December 31 of the preceding Plan Year. An Employee who first is
determined to be an Eligible Employee as of June 1 of any Plan Year may
elect before June 30 of that Plan Year to make Salary Deferral
Contributions with respect to Salary paid on and after July 1 of that Plan
Year. An election to make Salary Deferral Contributions shall be effective
only for the Plan Year with respect to which the election is made, and
shall be irrevocable as to amounts deferred as of the effective date of any
suspension pursuant to Section 2.2.3.
2.2.2 Bonus Deferral Elections. An Eligible Employee may
elect to make Bonus Deferral Contributions with respect to his or her bonus
payable on April 1 of any Plan Year no later than June 30 of the preceding
Plan Year. An election to make Bonus Deferral Contributions shall be
irrevocable.
2.2.3 Election to Suspend Contributions. A Participant may
elect, during a Plan Year for which he or she has elected Salary Deferral
Contributions, to suspend such contributions for the remainder of that Plan
Year. A Participant who has elected to suspend contributions during a Plan
Year may not elect further Salary Deferral Contributions during that Plan
Year.
2.2.4 Method of Elections. All elections of Deferral
Contributions shall be made in writing at the times and in the manner
prescribed by the Committee from time to time.
2.3 Termination of Participation. An Employee who has become a
Participant shall remain a Participant until his or her entire Account
balance is distributed. However, an Employee who has become a Participant
may or may not be an active Participant, depending upon whether he or she
is an Eligible Employee and has elected to make Deferral Contributions for
such Plan Year.
SECTION 3
DEFERRAL CONTRIBUTIONS
3.1 Amount of Contributions. At the times and in the manner
prescribed in Section 2.2, each Eligible Employee may elect to defer up to
75% of his or her Salary and up to 100% of his or her Bonus for a Plan Year
and to have the amounts of such deferrals credited on the books of the
Company to his or her Account under the Plan. In the case of a an Eligible
Employee who becomes a Participant on July 1 of any Plan Year, his or her
Salary Deferral Contributions shall be effective only with respect to
payments of Salary and Bonuses after such date.
3.2 Crediting of Deferral Contributions. The amounts deferred
pursuant to Section 3.1 shall be credited to the Participant's Account as
of the last day of the month in which the amount would otherwise have been
paid to the Participant.
3.3 Deemed Investment Return. Before the beginning of each Plan
Year, the Board shall specify a "Deemed Earnings Rate," which shall, at a
minimum, be equal to the one-year U.S. Treasury bill interest rate in
effect for Treasury bills issued on October 1 of the preceding year, plus 3
percentage points. For each Plan Year, there shall be credited to each
Participant's Account an amount equal to the interest, compounded monthly,
that would have been paid had the Account been deposited in a savings
account paying interest at the Deemed Earnings Rate applicable to that Plan
Year.
SECTION 4
ACCOUNTING
4.1 Participants' Accounts. At the direction of the Committee, there
shall be established and maintained for each Participant:
(a) A Salary Deferral Account to which shall be credited all
Salary Deferral Contributions made by the Participant; and
(b) A Bonus Deferral Account to which shall be credited all
Bonus Deferral Contributions made by the Participant.
To the extent necessary to reflect a Participant's distribution elections,
the Committee may direct the establishment of a separate Salary Deferral
and/or Bonus Account with respect to amounts credited to a Participant's
Account for any Plan Year. Each Participant's Account shall also be
credited at the end of each month with deemed earnings in accordance with
Section 3.3. No funds shall be set aside or earmarked for a Participant's
Account, which shall be purely a bookkeeping device.
4.2 Accounting Methods. The accounting methods or formulae to be
used under the Plan for the purpose of maintaining the Participants'
Accounts shall be determined by the Committee and may be revised by the
Committee from time to time.
4.3 Reports. Each Participant shall be furnished with periodic
statements of his or her Account, reflecting the status of his or her
interest in the Plan, at least annually.
SECTION 5
DISTRIBUTIONS
5.1 Salary Deferral Account. Distribution of a Participant's Salary
Deferral Account shall be made only after his or her Termination Date.
Except as provided in Section 5.3, such distribution shall be made in a
lump sum as soon as practicable following that Termination Date. For
purposes of such distribution the value of the Participant's Salary
Deferral Account shall be determined as of the last day of the month
following the Termination Date.
5.2 Bonus Deferral Account. Except as provided in Section 5.3, a
Participant's Bonus Deferral Account shall be distributed in a lump sum as
soon as practicable following his or her Termination Date, unless the
Participant has elected an earlier in-service distribution date or dates
for all or a portion of such Account.
5.2.1 In-Service Distribution Election. A Participant's
election of an in-service distribution date must be made at the time of his
or her Bonus Deferral Contribution election for a Plan Year, shall apply
only to amounts deferred pursuant to that election and shall be
irrevocable. An in-service distribution date with respect to a Bonus
Deferral Contribution may not be earlier than the Plan Year following the
year in which the bonus would have been paid absent the deferral.
5.2.2 In-Service Distribution Payments. Payments made
pursuant to an in-service distribution election shall be made on or before
the last working day of April of the Plan Year in which such payment was
elected to be made. For purposes of such payment the value of the
Participant's Bonus Deferral Account shall be determined as of the December
31 preceding the date of distribution.
5.3 Retirement Installment Distributions. A Participant may elect to
receive payments from his or her Account that are made after his or her
Retirement in annual installments for 5, 10 or 15 years.
5.3.1 Installment Elections. A Participant's election of
installment distributions must be made at the time of his or her Salary
and/or Bonus Deferral Contribution election for a Plan Year and shall apply
only to amounts deferred with respect to that Plan Year. No such election
shall be effective if the Participant's Termination Date occurs before he
or she attains age 50, or if the value of the Participant's Account is less
than $5,000 as of the last day of the month following his or her
Termination Date.
5.3.2 Installment Payments. The first installment payment
shall be made as soon as practicable following the Participant's Retirement
date and succeeding payments shall be made on or before the last working
day of April in each succeeding year. In no case, however, shall a
Participant receive more than one installment payment in any calendar year.
The amount to be distributed in each installment payment shall be
determined by dividing the value of the Account as of the Valuation Date
preceding the date of each distribution by the number of installment
payments remaining to be made. The "Valuation Date" shall be: (a) for the
first installment distribution, the last day of the month immediately
preceding the distribution date; and (b) for all succeeding distributions,
the December 31 immediately preceding each distribution date.
5.4 Death Distributions. If a Participant dies before the entire
balance of his or her Account has been distributed, the remaining balance
of the Participant's Account shall be distributed to his or her beneficiary
in a lump sum as soon as practicable.
5.5 Payments to Incompetents. If any individual to whom a benefit is
payable under the Plan is a minor, or if the Committee determines that any
individual to whom a benefit is payable under the Plan is incompetent to
receive such payment or to give a valid release therefor, payment shall be
made to the guardian, committee or other representative of the estate of
such individual which has been duly appointed by a court of competent
jurisdiction. If no guardian, committee or other representative has been
appointed, payment may be made to any person as custodian for such
individual under the California Uniform Transfers to Minors Act or may be
made to or applied to or for the benefit of the minor or incompetent, the
incompetent's spouse, children or other dependents, the institution or
persons maintaining the minor or incompetent, or any of them, in such
proportions as the Committee from time to time shall determine; and the
release of the person or institution receiving the payment shall be a valid
and complete discharge of any liability of the Employers with respect to
any benefit so paid.
5.6 Beneficiary Designations. Each Participant may designate, in a
signed writing delivered to the Committee on such form as it may prescribe,
one or more beneficiaries to receive any distribution which may become
payable as the result of the Participant's death.
5.7 Undistributable Accounts. Each Participant and (in the event of
death) his or her beneficiary shall keep the Committee advised of his or
her current address. If the Committee is unable to locate the Participant
or beneficiary to whom a Participant's Account is payable under this
Section 5, the Participant's Account shall be frozen as of the date on
which distribution would have been completed in accordance with this
Section 5, and no further earnings be credited thereto. If a Participant
whose Account was frozen (or his or her beneficiary) files a claim for
distribution of the Account within 7 years after the date that it was
frozen, and if the Committee determines that such claim is valid, then the
frozen balance shall be paid by the Company in a lump sum cash payment as
soon as practicable thereafter.
5.8 Committee Discretion. Within the specific time periods described
in this Section 5, the Committee shall have sole discretion to determine
the specific timing of the payment of any Account balance under the Plan.
SECTION 6
ADMINISTRATION OF THE PLAN
6.1 Plan Administrator. The Committee is hereby designated as the
administrator of the Plan (within the meaning of section 3(16)(A) of
ERISA). The Committee shall have the authority to control and manage the
operation and administration of the Plan. Any member of the Committee may
resign at any time by notice in writing mailed or delivered to the Board,
who may remove any member of the Committee at any time and may fill any
vacancy that exists.
6.2 Actions by Committee. Each decision of a majority of the members
of the Committee then in office shall constitute the final and binding act
of the Committee. The Committee may act with or without a meeting being
called or held and shall keep minutes of all meetings held and a record of
all actions taken by written consent.
6.3 Powers of Committee. The Committee shall have all powers
necessary to supervise the administration of the Plan and to control its
operation in accordance with its terms, including, but not by way of
limitation, the following powers:
(a) To interpret the provisions of the Plan and to determine any
question arising under, or in connection with the administration or
operation of, the Plan;
(b) To determine all considerations affecting the eligibility of
any Employee to become a Participant or remain a Participant in the Plan;
(c) To cause one or more separate Accounts to be maintained for
each Participant;
(d) To cause Deferral Contributions to be credited to
Participants' Accounts;
(e) To establish and revise an accounting method or formula for
the Plan, as provided in Section 4.2;
(f) To determine the manner and form in which any distribution
is to be made under the Plan;
(g) To determine the status and rights of Participants and their
spouses, beneficiaries or estates;
(h) To employ such counsel, agents and advisers, and to obtain
such legal, clerical and other services, as it may deem necessary or
appropriate in carrying out the provisions of the Plan;
(i) To establish, from time to time, rules for the performance
of its powers and duties and for the administration of the Plan;
(j) To arrange for annual distribution to each Participant of a
statement of benefits accrued under the Plan;
(j) To publish a claims and appeal procedure satisfying the
minimum standards of section 503 of ERISA pursuant to which individuals or
estates may claim Plan benefits and appeal denials of such claims; and
(l) To delegate to any one or more of its members or to any
other person, severally or jointly, the authority to perform for and on
behalf of the Committee one or more of the functions of the Committee under
the Plan.
6.4 Decisions of Committee. All decisions of the Committee, and any
action taken by it in respect of the Plan and within the powers granted to
it under the Plan, shall be conclusive and binding on all persons.
6.5 Administrative Expenses. All expenses incurred in the
administration of the Plan by the Committee, or otherwise, including legal
fees and expenses, shall be paid and borne by the Employers.
6.6 Eligibility to Participate. No member of the Committee who is
also an Employee shall be excluded from participating in the Plan if
otherwise eligible, but he or she shall not be entitled, as a member of the
Committee, to act or pass upon any matters pertaining specifically to his
or her own Account under the Plan.
6.7 Indemnification. Each of the Employers shall, and hereby does,
indemnify and hold harmless the members of the Committee, from and against
any and all losses, claims, damages or liabilities (including attorneys'
fees and amounts paid, with the approval of the Board, in settlement of any
claim) arising out of or resulting from the implementation of a duty, act
or decision with respect to the Plan, so long as such duty, act or decision
does not involve gross negligence or willful misconduct on the part of any
such individual.
SECTION 7
FUNDING
7.1 Unfunded Plan. All amounts credited to a Participant's Account
under the Plan shall continue for all purposes to be a part of the general
assets of the Company. The interest of the Participant in his or her
Account, including his or her right to distribution thereof, shall be an
unsecured claim against the general assets of the Company. Although the
Company may choose to invest a portion of its general assets for purposes
of enabling it to make payments under the Plan, nothing contained in the
Plan shall give any Participant or beneficiary any interest in or claim
against any specific assets of the Company.
SECTION 8
MODIFICATION OR TERMINATION OF PLAN
8.1 Employers' Obligations Limited. The Plan is voluntary on the
part of the Employers, and the Employers do not guarantee to continue the
Plan. Complete discontinuance of all Deferral Contributions shall be
deemed a termination of the Plan.
8.2 Right to Amend or Terminate. The Board reserves the right to
alter, amend or terminate the Plan, or any part thereof, in such manner as
it may determine, for any reason whatsoever. Any alteration, amendment or
termination shall take effect upon the date indicated in the document
embodying such alteration, amendment or termination, provided that no such
alteration or amendment shall divest any amount already credited to a
Participant's Account under the Plan. The Company may (but shall have no
obligation to) seek a private letter ruling from the Internal Revenue
Service regarding the tax consequences of participation in the Plan. If
such private letter ruling is sought, the Committee shall have the right to
adopt such amendments to the Plan (whether retroactive or prospective) that
the Internal Revenue Service may require as a condition to the issuance of
such ruling.
8.3 Effect of Termination. If the Plan is terminated, the balances
credited to the Accounts of the affected Participants shall be distributed
to them at the time and in the manner set forth in Section 5; provided,
however, that the Committee, in its sole discretion, may authorize
accelerated distribution of Participants' Accounts as of any earlier date.
SECTION 9
GENERAL PROVISIONS
9.1 Inalienability. In no event may either a Participant, a former
Participant or his or her spouse or estate sell, transfer, anticipate,
assign, hypothecate, or otherwise dispose of any right or interest under
the Plan; and such rights and interests shall not at any time be subject to
the claims of creditors nor be liable to attachment, execution or other
legal process.
9.2 Rights and Duties. Neither the Employers nor the Committee shall
be subject to any liability or duty under the Plan except as expressly
provided in the Plan, or for any action taken, omitted or suffered in good
faith.
9.3 No Enlargement of Employment Rights. Neither the establishment
or maintenance of the Plan, the making of any Deferral Contributions nor
any action of any Employer or the Committee, shall be held or construed to
confer upon any individual any right to be continued as an Employee nor,
upon dismissal, any right or interest in any specific assets of the
Employers other than as provided in the Plan. Each Employer expressly
reserves the right to discharge any Employee at any time.
9.4 Apportionment of Costs and Duties. All acts required of the
Employers under the Plan may be performed by the Company for itself and its
Affiliates, and the costs of the Plan may be equitably apportioned by the
Committee among the Company and the other Employers. Whenever an Employer
is permitted or required under the terms of the Plan to do or perform any
act, matter or thing, it shall be done and performed by any officer or
employee of the Employer who is thereunto duly authorized by the board of
directors of the Employer.
9.5 Applicable Law. The provisions of the Plan shall be construed,
administered and enforced in accordance with the laws of the State of
California.
9.6 Severability. If any provision of the Plan is held invalid and
unenforceable, its invalidity or unenforceability shall not affect any
other provision of the Plan, and the Plan shall be construed and enforced
as if such provision had not been included.
9.7 Captions. The captions contained in and the table of contents
prefixed to the Plan are inserted only as a matter of convenience and for
reference and in no way define, limit, enlarge or describe the scope or
intent of the Plan nor in any way shall affect the construction of any
provision of the Plan.
EXECUTION
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
executed this Plan on the date indicated below.
THE GAP, INC.
(seal)
Dated: NOVEMBER 5, 1993 By: \s\ Sheila Peters
Title: Senior Director Human Resources
<TABLE>
THE GAP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Fifty-two weeks ended
January 29, 1994 January 30, 1993 February 1, 1992
<S> <C> <C> <C>
Net earnings ($000) $258,424 $210,701 $229,873
Weighted average shares of
common stock outstanding
during the period 144,841,137 143,672,924 142,139,577
Add incremental shares from
assumed exercise of stock
options (primary) 687,009 1,054,393 1,396,912
subtotal 145,528,146 144,727,317 143,536,489
Primary earnings per share $1.78 $1.46 $1.60
Weighted average shares of
common stock outstanding
during the period 144,841,137 143,672,924 142,139,577
Add incremental shares from
assumed exercise of stock
options (fully diluted) 973,372 1,083,742 1,481,455
subtotal 145,814,509 144,756,666 143,621,032
Fully-diluted earnings
per share $1.77 $1.46 $1.60
</TABLE>
Note: The information provided in the exhibit is presented in
accordance with Regulation S-K, Item 601(b)(11), while net
earnings per share on the Consolidated Statements of Earnings is
presented in accordance with APB Opinion 15. This information is
not required under APB Opinion 15, as the difference between
primary and fully - diluted earnings per share and earnings per
share calculated on a weighted average shares basis is less
than 3%.
ANNUAL REPORT
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Years 1993 1992 1991 1990 1989
Operating Results ($000)
<S> <C> <C> <C> <C> <C>
Net sales $3,295,679 $2,960,409 $2,518,893 $1,933,780 $1,586,596
Cost of goods sold and occupancy
expenses, excluding depreciation
and amortization 1,996,929 1,856,102 1,496,156 1,187,644 1,006,647
Percentage of net sales 60.6% 62.7% 59.4% 61.4% 63.4%
Depreciation and amortization<F1> 124,860 99,451 72,765 53,599 39,589
Operating expenses 748,193 661,252 575,686 454,180 364,101
Interest expense (net) 809 3,763 3,523 1,435 2,760
Earnings before income taxes 424,888 339,841 370,763 236,922 162,714
Percentage of net sales 12.9% 11.5% 14.7% 12.3% 10.3%
Income taxes 166,464 129,140 140,890 92,400 65,086
Net earnings<F2> 258,424 210,701 229,873 144,522 97,628
Percentage of net sales 7.8% 7.1% 9.1% 7.5% 6.2%
Cash dividends 53,041 44,106 41,126 29,625 22,857
Capital expenditures<F3> 215,856 213,659 244,323 199,617 94,266
Per Share Data<F4>
Net earnings<F2> $1.78 $1.47 $1.62 $1.02 $ .69
Cash dividends .38 .32 .30 .22 .17
Stockholders equity (book value)<F5> 7.76 6.16 4.76 3.30 2.40
<F1> Excludes amortization of restricted stock.
<F2> 1989 includes a non-recurring after tax charge of $6,471 ($.05 per
share) taken in the fourth quarter for costs associated with closing
the Hemisphere stores.
</TABLE>
<PAGE>
<TABLE>
FIVE-YEAR SELECTED FINANCIAL DATA (continued)
<CAPTION>
Fiscal Years 1993 1992 1991 1990 1989
Financial Position ($000)
<S> <C> <C> <C> <C> <C> <C>
Property and equipment (net) $ 740,422 $ 650,368 $ 547,740 $ 383,548 $ 238,103
Merchandise inventory 331,155 365,692 313,899 247,462 243,482
Total assets 1,763,117 1,379,248 1,147,414 776,900 579,483
Working capital 494,194 355,649 235,537 101,518 129,139
Current ratio 2.07:1 2.06:1 1.71:1 1.39:1 1.69:1
Total debt, including current
installments 75,000 75,000 80,000 17,500 20,000
Ratio of total debt
to stockholders equity .07:1 .08:1 .12:1 .04:1 .06:1
Stockholders equity 1,126,475 887,839 677,788 465,733 337,972
Return on average stockholders
equity 25.7% 26.9% 40.2% 36.0% 31.8%
Statistics
Number of stores opened 108 117 139 152 98
Number of stores expanded 130 94 79 56 7
Number of stores closed 45 26 15 20 38
Number of stores open at year end 1,370 1,307 1,216 1,092 960
Net increase in number of stores 4.8% 7.5% 11.4% 13.8% 6.7%
Comparable store sales growth
(52-week basis) 1.0% 5.0% 13.0% 14.0% 15.0%
Sales per square foot<F6>
(52-week basis) $463 $489 $481 $438 $389
Square footage of gross store
space at year end 7,546,300 6,509,200 5,638,400 4,762,300 4,056,600
Percentage increase in square feet 15.9% 15.4% 18.4% 17.4% 4.6%
Number of employees at year end 44,000 39,000 32,000 26,000 23,000
Average number of shares
outstanding<F4> 144,841,137 143,672,924 142,139,577 141,500,888 141,080,200
Number of shrs. outstanding at yr.
end net of treasury stock<F4> 145,248,728 144,185,238 142,523,334 141,264,030 140,551,404
<F3> Includes property and equipment, as well as lease rights.
<F4> Reflects the 2-for-1 splits of common stock to stockholders of
record on June 17, 1991 and September 17, 1990.
<F5> Based on the number of shares outstanding at year end.
<F6> Based on average quarterly gross square footage.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Sales
Fiscal Year Ended
Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
(Fiscal 1993) (Fiscal 1992) (Fiscal 1991)
Net sales ($000) $3,295,679 $2,960,409 $2,518,893
Total net sales
growth percentage 11 18 30
Comparable store sales
growth percentage 1 5 13
Number of
New stores 108 117 139
Expanded stores 130 94 79
Closed stores 45 26 15
The sales growth reflected above for 1993, 1992 and 1991 is attributable to
the opening of new stores (net of stores closed), the expansion of existing
stores, and positive comparable store sales growth.
Net sales per average square foot was $463 in 1993, $489 in 1992, and
$481 in 1991. Over the past four years the Company has increased the
average size of its new stores and expanded existing stores as a long-term
investment which has resulted in a net increase in total store square
footage of 16 percent in 1993, 15 percent in 1992, and 18 percent in 1991.
The expansion program reduced net sales per average square foot in both
1993 and 1992. However, in 1992 the 5 percent growth of comparable store
sales caused total sales per square foot to increase 2 percent.
Cost of Goods Sold and Occupancy Expenses
Cost of goods sold and occupancy expenses as a percentage of net sales was
64.4 percent in 1993, 66.1 percent in 1992 and 62.3 percent in 1991.
The resulting 1.7 percentage point increase in gross margin net of
occupancy expenses in 1993 from 1992 was attributable to a 2.5 percentage
point increase in merchandise margins as a percentage of net sales offset
by a .8 percentage point increase in occupancy expenses as a percentage of
net sales. The increase in merchandise margins in 1993 from 1992 was
primarily attributable to more merchandise being sold at regular prices and
higher initial merchandise margins.
The 3.8 percentage point decrease in gross margin net of occupancy
expenses in 1992 from 1991 was attributable to a 3.0 percentage point
decrease in merchandise margins as a percentage of net sales and a .8
percentage point increase in occupancy expenses as a percentage of net
sales. Initial merchandise margins in 1992 were lower than those in 1991
due to the reduction of retail prices on selected items during the second
half of the year. In addition, more goods were sold at markdown and margins
achieved on markdown goods were lower than in 1991.
The Company reviews its inventory levels in order to identify slow-
moving merchandise and broken assortments (items no longer in stock in a
sufficient range of sizes) and uses markdowns to clear merchandise. Such
markdowns may have an adverse impact on earnings, depending upon the extent
of the markdown and the amount of inventory affected.
The increase in occupancy expenses as a percentage of net sales
between 1993 and 1992, as well as between 1992 and 1991, was primarily
attributable to the addition of larger new stores and the expansion of
existing stores. Based on current expansion plans, occupancy expenses are
expected to continue to increase as a percentage of net sales in 1994.
Operating Expenses
Operating expenses as a percentage of net sales were 22.7 percent, 22.3
percent, and 22.9 percent for fiscal years 1993, 1992 and 1991.
The .4 percentage point increase in 1993 from 1992 was attributable to
increases, as a percentage of net sales, in bonus expense of .5 percentage
points and a provision for a write-off of certain store fixtures of .3
percentage points. These increases were offset by a .4 percentage point
decrease in advertising costs as a percentage of net sales.
The .6 percentage point decrease in operating expenses in 1992 from
1991 was primarily due to decreases, as a percentage of net sales, in payroll
costs of .4 percentage points and store closing costs of .3 percentage points.
Net Interest Expense
Net interest expense was $809,000, $3,763,000 and $3,523,000 for fiscal
years 1993, 1992 and 1991. The decrease in 1993 from 1992 of $2,954,000 was
attributable to an increase in gross average investments partially offset
by lower average investment rates. The increase in 1992 from 1991 of
$240,000 reflected a decrease in investment interest rates, partially off
set by a decrease in average borrowings.
Income Taxes
The effective tax rate was 39.2 percent in 1993 compared to 38.0 percent in
1992 and 1991. The 1.2 percentage point increase in the effective tax rate
for 1993 reflects recent changes in federal income tax law. The Company
expects the effective tax rate to be 39.5 percent for fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth material measures of the Company's liquidity:
Fiscal Year
1993 1992 1991
Cash provided by operating
activities ($000) $551,298 $306,978 $333,696
Working capital ($000) 494,194 355,649 235,537
Current ratio 2.07:1 2.06:1 1.71:1
Debt to equity ratio .07:1 .08:1 .12:1
The Company's improved cash flow and working capital from the prior year
reflects an increase in earnings before depreciation expense, an increase
in income taxes payable, as well as improved inventory management which
resulted in decreased inventory levels. At January 29, 1994, inventory
decreased 9.4 percentage points to approximately $331 million from
approximately $366 million at January 30, 1993. For 1992, the Company's
reduced cash flow was primarily due to increased income tax payments and
reduced accrued expenses. (See accompanying Consolidated Financial
Statements).
The Company funds inventory expenditures during normal and peak
periods through a combination of cash flows provided by operations and
normal trade credit arrangements. The Company's business follows a seasonal
pattern, peaking over a total of about ten weeks during the late summer and
holiday periods. During 1993, these periods accounted for approximately 30%
of the Company's annual sales. During 1992, peak periods accounted for
approximately 32% of the Company's annual sales.
Capital expenditures, net of construction allowances and dispositions,
totaled approximately $200 million in 1993. These expenditures resulted in
a net increase in store space of approximately 1 million square feet or 16
percent due to the addition of 108 new stores, the expansion of 130 stores
and the remodeling of certain stores. Also included in capital expenditures
was the purchase of computer equipment. Capital expenditures for 1992 and
1991 were $203 million and $227 million, resulting in a net increase in
store space of approximately 871,000 square feet or 15 percent in 1992 and
approximately 876,000 square feet or 18 percent in 1991. Expenditures in
1992 included costs for administrative facilities and equipment.
For fiscal year 1994, the Company expects capital expenditures to total
approximately $275 million, net of construction allowances, representing
the addition of approximately 185 to 200 new stores, the expansion of
approximately 90 stores, and the remodeling of certain stores. Planned
expenditures also include amounts for administrative facilities and
equipment. The Company expects to fund such capital expenditures with cash
flow from operations. Square footage growth is expected to be approximately
15 to 20 percent net of store closings. New stores are generally expected
to be leased.
The Company continues to explore alternatives for expanding its
headquarters facilities in San Francisco and San Bruno, California. The
amounts above do not include any expenditures related to headquarters
facilities.
In February 1991, the Company issued $75 million of 8.87 percent
Senior Notes which are due in February 1995. Interest is payable quarterly.
The Senior Notes are redeemable, in whole or in part, at any time at the
option of the Company at a premium approximately equal to the difference
between the stated interest rate and current market rates.
On February 4, 1994, the Company amended its credit agreement to provide
for a $250 million revolving credit facility until March 1997. In addition,
the credit agreement provides for the issuance of letters of credit up to
$350 million at any one time. The Company had outstanding letters of credit
of approximately $248 million at January 29, 1994.
PER SHARE DATA
Market Prices Cash Dividends
Fiscal 1993 1992 1993 1992
High Low High Low
1st Quarter $37 1/2 $28 1/2 $54 7/8 $39 1/2 $.080 $.080
2nd Quarter 37 1/4 27 1/2 43 3/8 31 3/8 .100 .080
3rd Quarter 35 3/4 25 1/2 36 1/8 28 5/8 .100 .080
4th Quarter 42 7/8 33 3/4 38 1/8 30 1/4 .100 .080
Year $.380 $.320
The principal markets on which the Company's stock is traded are the New
York and Pacific Stock Exchanges. The number of holders of record of the
Company's stock as of March 28, 1994 was 6,376.
MANAGEMENT'S REPORT ON FINANCIAL INFORMATION
Management is responsible for the integrity and consistency of all
financial information presented in the Annual Report. The financial
statements have been prepared in accordance with generally accepted
accounting principles and necessarily include certain amounts based on
Management's best estimates and judgments.
In fulfilling its responsibility for the reliability of financial
information, Management has established and maintains accounting systems
and procedures appropriately supported by internal accounting controls.
Such controls include the selection and training of qualified personnel, an
organizational structure providing for division of responsibility,
communication of requirements for compliance with approved accounting,
control and business practices and a program of internal audit. The extent
of the Company's system of internal accounting control recognizes that the
cost should not exceed the benefits derived and that the evaluation of
those factors requires estimates and judgments by Management. Although no
system can ensure that all errors or irregularities have been eliminated,
Management believes that the internal accounting controls in use provide
reasonable assurance, at reasonable cost, that assets are safeguarded
against loss from unauthorized use or disposition, that transactions are
executed in accordance with Management's authorization, and that the
financial records are reliable for preparing financial statements and
maintaining accountability for assets. The financial statements of the
Company have been audited by Deloitte & Touche, independent auditors. Their
report, which appears in the Annual Report, is based upon their audits
conducted in accordance with generally accepted auditing standards.
The Audit and Finance Committee of the Board of Directors is comprised
solely of directors who are not officers or employees of the Company. The
Committee is responsible for recommending to the Board of Directors the
selection of independent auditors. It meets periodically with Management,
the independent auditors and the internal auditors to assure that they are
carrying out their responsibilities. The Committee also reviews and
monitors the financial, accounting and auditing procedures of the Company
in addition to reviewing the Company's financial reports. Deloitte & Touche
and the internal auditors have full and free access to the Audit and
Finance Committee, with and without Management's presence.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of The Gap, Inc.
We have audited the accompanying consolidated balance sheets of The
Gap, Inc. and subsidiaries as of January 29, 1994 and January 30, 1993, and
the related consolidated statements of earnings, stockholders equity and
cash flows for each of the three fiscal years in the period ended January
29, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards.Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company and its
subsidiaries as of January 29, 1994 and January 30, 1993, and the results
of their operations and their cash flows for each of the three fiscal years
in the period ended January 29,1994 in conformity with generally accepted
accounting principles.
/S/ Deloitte & Touche
March 3, 1994
<PAGE>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
($000 except per share amounts) Fiscal 1993 Fiscal 1992 Fiscal 1991
<S> <C> <C> <C> <C> <C> <C>
Net sales $3,295,679 100.0% $2,960,409 100.0% $2,518,893 100.0%
Costs and expenses
Cost of goods sold and
occupancy expenses 2,121,789 64.4% 1,955,553 66.1% 1,568,921 62.3%
Operating expenses 748,193 22.7% 661,252 22.3% 575,686 22.9%
Interest expense (net) 809 - 3,763 .1% 3,523 .1%
Earnings before income taxes 424,888 12.9% 339,841 11.5% 370,763 14.7%
Income taxes 166,464 5.1% 129,140 4.4% 140,890 5.6%
Net earnings $ 258,424 7.8% $ 210,701 7.1% $ 229,873 9.1%
Weighted average
number of shares 144,841,137 143,672,924 142,139,577
Earnings per share $ 1.78 $ 1.47 $ 1.62
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($000) January 29, 1994 January 30, 1993
ASSETS
<C> <C> <C>
Current Assets
Cash and equivalents $ 460,332 $ 243,302
Short-term investments 83,497 -
Accounts receivable 15,225 9,886
Merchandise inventory 331,155 365,692
Prepaid expenses and other 66,229 71,897
Total Current Assets 956,438 690,777
Property and Equipment
Leasehold improvements 556,858 490,791
Furniture and equipment 504,952 388,219
Construction-in-progress 28,670 16,623
subtotal 1,090,480 895,633
Accumulated depreciation and amortization (350,058) (245,265)
subtotal 740,422 650,368
Lease rights and other assets 66,257 38,103
Total Assets $1,763,117 $1,379,248
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Notes payable $ 7,603 $ -
Accounts payable 216,664 193,375
Accrued expenses 163,350 128,301
Income taxes payable 70,431 10,624
Current deferred lease credits 4,196 2,828
Total Current Liabilities 462,244 335,128
Long-Term Liabilities
Long-term debt 75,000 75,000
Other liabilities 11,353 17,496
Deferred lease credits 88,045 63,785
subtotal 174,398 156,281
Stockholders Equity
Common stock $.05 par value
Authorized 500,000,000 shares; issued 155,733,256 and 154,669,766
shares; outstanding 145,248,728 and 144,185,238 shares 7,787 7,733
Additional paid-in capital 240,655 210,076
Retained earnings 1,026,836 821,453
Foreign currency translation adjustment (8,314) (7,410)
Restricted stock plan deferred compensation (48,035) (51,559)
Treasury stock, at cost (92,454) (92,454)
subtotal 1,126,475 887,839
Total Liabilities and Stockholders Equity $1,763,117 $1,379,248
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Fiscal Fiscal Fiscal
($000) 1993 1992 1991
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings $258,424 $210,701 $229,873
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 141,758 114,011 82,133
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 6,491 28,160 13,766
Deferred income taxes (22,360) (10,525) (7,045)
Change in operating assets and liabilities
Accounts receivable (5,355) (1,963) 1,643
Merchandise inventory 33,910 (51,793) (66,559)
Prepaid expenses and other (1,960) (9,007) (5,557)
Accounts payable 23,877 35,670 43,220
Accrued expenses 35,143 (6,460) 33,417
Income taxes payable 56,164 (21,775) (14,340)
Other long-term liabilities (583) (250) 420
Deferred lease credits 25,789 20,209 22,725
Net cash provided by operating activities 551,298 306,978 333,696
Cash Flows from Investing Activities
Purchase of short-term investments (83,497) - -
Purchases of property and equipment (212,340) (205,507) (236,521)
Acquisition of lease rights (3,511) (8,152) (7,802)
Other assets (176) (1,812) (1,382)
Net cash used for investing activities (299,524) (215,471) (245,705)
Cash Flows from Financing Activities
Net increase in notes payable 7,632 - -
Issuance of long-term debt - - 75,000
Payments on long-term debt - (5,000) (12,500)
Issuance of common stock, net of cancellations 10,768 8,721 20,036
Purchase of treasury stock - - (1,004)
Cash dividends paid (53,041) (44,106) (41,126)
Net cash provided by (used for) financing activities (34,641) (40,385) 40,406
Effect of exchange rate changes on cash (103) (405) (2,528)
Net increase in cash and equivalents 217,030 50,717 125,869
Cash and equivalents at beginning of year 243,302 192,585 66,716
Cash and equivalents at end of year $460,332 $243,302 $192,585
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
<CAPTION>
Additional
Common Stock Paid-in Retained
($000 except per share amounts) Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Balance at February 2, 1991 151,708,098 $7,585 $ 91,185 $ 466,111
Issuance of common stock pursuant to stock option plans 899,192 45 6,625
Net issuance of common stock pursuant to
management incentive restricted stock plans 400,572 20 13,107
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 13,766
Foreign currency translation adjustment
Amortization of restricted stock
Purchase of treasury stock
Net earnings 229,873
Cash dividends ($.30 per share) (41,126)
Balance at February 1, 1992 153,007,862 $7,650 $124,683 $ 654,858
Issuance of common stock pursuant to stock option plans 609,852 30 5,749
Net issuance of common stock pursuant to
management incentive restricted stock plans 1,052,052 53 51,484
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 28,160
Foreign currency translation adjustment
Amortization of restricted stock
Net earnings 210,701
Cash dividends ($.32 per share) (44,106)
Balance at January 30, 1993 154,669,766 $7,733 $210,076 $ 821,453
Issuance of common stock pursuant to stock option plans 655,745 33 9,076
Net issuance of common stock pursuant to
management incentive restricted stock plans 407,745 21 15,012
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 6,491
Foreign currency translation adjustment
Amortization of restricted stock
Net earnings 258,424
Cash dividends ($.38 per share) (53,041)
Balance at January 29, 1994 155,733,256 $7,787 $240,655 $1,026,836
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (continued)
<CAPTION>
Foreign Restricted
Currency Stock Plan
Translation Deferred Treasury Stock
($000 except per share amounts) Adjustment Compensation Shares Amount Total
<S> <C> <C> <C> <C> <C>
Balance at February 2, 1991 $5,667 ($13,365) (10,444,068) ($91,450) $ 465,733
Issuance of common stock pursuant to stock option plans 6,670
Net issuance of common stock pursuant to
management incentive restricted stock plans (13,527) (400)
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 13,766
Foreign currency translation adjustment (5,092) (5,092)
Amortization of restricted stock 9,368 9,368
Purchase of treasury stock (40,460) (1,004) (1,004)
Net earnings 229,873
Cash dividends ($.30 per share) (41,126)
Balance at February 1, 1992 $ 575 ($17,524) (10,484,528) ($92,454) $ 677,788
Issuance of common stock pursuant to stock option plans 5,779
Net issuance of common stock pursuant to
management incentive restricted stock plans (48,595) 2,942
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 28,160
Foreign currency translation adjustment (7,985) (7,985)
Amortization of restricted stock 14,560 14,560
Net earnings 210,701
Cash dividends ($.32 per share) (44,106)
Balance at January 30, 1993 ($7,410) ($51,559) (10,484,528) ($92,454) $ 887,839
Issuance of common stock pursuant to stock option plans 9,109
Net issuance of common stock pursuant to
management incentive restricted stock plans (13,374) 1,659
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 6,491
Foreign currency translation adjustment (904) (904)
Amortization of restricted stock 16,898 16,898
Net earnings 258,424
Cash dividends ($.38 per share) (53,041)
Balance at January 29, 1994 ($8,314) ($48,035) (10,484,528) ($92,454) $1,126,475
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fifty-Two Weeks ended January 29, 1994 (Fiscal 1993), January
30, 1993 (Fiscal 1992), February 1, 1992 (Fiscal 1991).
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is a specialty retailer which operates stores selling
casual apparel for men, women and children under a variety of brand names
including: Gap, GapKids, babyGap, Banana Republic and Old Navy Clothing Co.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany accounts and transactions have been
eliminated.
Cash and equivalents represent cash and short-term, highly liquid
investments with maturities of three months or less.
Short-term investments include investments with an original maturity
of greater than three months and a remaining maturity of less than one
year. Short-term investments are stated at cost which approximates market
value. Merchandise inventory is stated at the lower of FIFO (first-in,
first-out) cost or market.
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets or lease terms, whichever is less.
Lease rights are recorded at cost and are amortized over 12 years or
the lives of the respective leases, whichever is less.
Costs associated with the opening or remodeling of stores are charged
to expense as incurred. The net book value of fixtures and leasehold
improvements for stores scheduled to be closed or expanded within the next
fiscal year is charged against current earnings.
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Tax credits reduce the current provision for income taxes in
the year they are realized. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, as of
January 31, 1993. The adoption of SFAS No. 109 had no material effect on
the Company's consolidated financial statements for the year ended January
29, 1994.
Foreign currency translation adjustments result from translating
foreign subsidiaries assets and liabilities to U.S. dollars using the
exchange rates in effect at the balance sheet date. Resulting translation
adjustments are included in stockholders equity. Results of foreign
operations are translated using the average exchange rates during the
period.
Restricted stock awards represent deferred compensation and are
shown as a reduction of stockholders equity.
Earnings per share are based upon the weighted average number of
shares of common stock outstanding during the period.
The Company is required to adopt Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Debt and Equity Securities
during fiscal 1994. As of January 29, 1994 SFAS No. 115 would not have a
material impact to the Company's consolidated financial statements.
Certain reclassifications have been made to the 1992 and 1991
financial statements to conform with the classifications used in the 1993
financial statements.
NOTE B: LONG-TERM DEBT AND
OTHER CREDIT ARRANGEMENTS
Long-term debt at January 29, 1994 and January 30, 1993 consists of $75
million of 8.87 percent unsecured Senior Notes, due February 1995. Interest
on the Senior Notes is payable quarterly. At January 29, 1994 and January
30, 1993 the fair values of the Senior Notes was approximately $78 million
and $80 million respectively, based on current rates at which the Company
could borrow funds with similar remaining maturities. The excess of fair
value over the principal is due entirely to significantly lower interest
rates since the inception of the notes to January 29, 1994. The decrease in
rates used to calculate the fair value is due, in part, to a change in the
original term of four years to one year and two years respectively. The
Company has the option to redeem the Senior Notes, in whole or in part, at
any time after February 22, 1993, at an additional cost, which at January
29, 1994 was approximately $3 million.
Other Credit Arrangements
The Company has a credit agreement with a syndicated bank group which
provides for a $250 million revolving credit facility until March 2, 1996.
The revolving credit facility contains both auction and fixed spread
borrowing options and serves as a back up for the issuance of commercial
paper. In addition, the credit agreement provides for the issuance of
letters of credit until March 2, 1995 of up to $300 million at any one
time.
At January 29, 1994, the Company had outstanding letters of credit
totaling $247,581,627.
Borrowings under the Company's loan and credit agreements are subject
to the Company maintaining certain levels of tangible net worth and
financial ratios. Under the most restrictive covenant of these agreements,
$747,980,000 of retained earnings were available for the payment of cash
dividends at January 29, 1994.
Gross interest payments were $7,654,000, $7,598,000 and $7,593,000 in
fiscal 1993, 1992 and 1991.
NOTE C: INCOME TAXES
Income taxes consisted of the following:
($000) Fiscal 1993 Fiscal 1992 Fiscal 1991
Currently Payable
Federal income taxes $157,598 $118,443 $125,181
Less tax credits (11,484) (9,080) (6,879)
subtotal 146,114 109,363 118,302
State income taxes 31,911 21,330 24,354
Foreign income taxes 10,799 8,972 6,733
subtotal 188,824 139,665 149,389
Deferred
Federal (16,084) (10,120) (9,920)
State (6,276) (405) 1,421
subtotal (22,360) (10,525) (8,499)
Total provision $166,464 $129,140 $140,890
The foreign component of earnings before income taxes in fiscal 1993,
1992 and 1991 was $47,589,000, $44,417,000 and $31,174,000. Deferred
federal and applicable state income taxes, net of applicable foreign tax
credits, have not provided for the undistributed earnings of foreign
subsidiaries (approximately $57,060,000 at January 29,1994) because the
Company intends to permanently reinvest such undistributed earnings abroad.
The difference between the effective income tax rate and the United
States federal income tax rate is summarized as follows:
Fiscal Fiscal Fiscal
1993 1992 1991
Federal tax rate 35.0% 34.0% 34.0%
State income taxes,
less federal benefit 5.0% 4.9% 4.8%
Other (.8) (.9) (.8)
Effective tax rate 39.2% 38.0% 38.0%
Deferred taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Deferred tax assets (liabilities) consisted of the following at
January 29, 1994, and January 31, 1993:
($000) January 29, 1994 January 31, 1993
Depreciation ($24,848) ($24,234)
Other (4,720) (2,295)
Gross deferred tax liabilities (29,568) (26,529)
Compensation and benefit accruals 26,587 19,462
Scheduled rent 22,642 16,577
Inventory capitalization 7,933 8,751
Nondeductible accruals 17,027 10,986
Other 12,399 5,413
Gross deferred tax assets 86,588 61,189
Net deferred tax assets $57,020 $34,660
Income tax payments were $128,347,000, $135,099,000 and $135,370,000 in
fiscal 1993, 1992 and 1991.
NOTE D: LEASES
The Company leases virtually all of its store premises, office
facilities, and some of its distribution centers.
Leases relating to store premises, distribution and office facilities
expire at various dates through 2030. The aggregate minimum annual lease
payments under leases in effect on January 29, 1994 are as follows:
Fiscal Year($000)
1994 $2,232,521
1995 235,251
1996 233,742
1997 226,558
1998 217,670
Thereafter 1,085,654
Total minimum lease commitment $2,231,396
For leases which contain predetermined fixed escalations of the
minimum rentals, the Company recognizes the related rental expense on a
straight-line basis and records the difference between the expense charged
to income and amounts payable under the leases as deferred lease credits.
At January 29, 1994 and January 30, 1993 this liability amounted to
$52,280,000 and $38,873,000.
Cash or rent abatements received upon entering into certain store
leases are recognized on a straight-line basis as a reduction to rent
expense over the lease term. The unamortized portion is included in
deferred lease credits.
Some of the leases relating to stores in operation at January 29, 1994
contain renewal options for periods ranging up to 20 years. Most leases
also provide for payment of operating expenses, real estate taxes, and for
additional rent based on a percentage of sales. No lease directly imposes
any restrictions relating to leasing in other locations (other than radius
clauses).
Rental expense for all operating leases was as follows:
($000) Fiscal 1993 Fiscal 1992 Fiscal 1991
Minimum rentals $207,249 $172,256 $137,721
Contingent rentals 26,574 30,990 30,473
$233,823 $203,246 $168,194
NOTE E: FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange contracts to reduce exposure
to foreign currency exchange risk. These contracts are designated and
effective as hedges of commitments to purchase merchandise in foreign
currencies. The market value gains and losses on these contracts are
deferred and recognized when the related merchandise commitments are
settled. At January 29, 1994, the Company had contracts maturing at various
dates through June 1994 to purchase the equivalent of $38,530,000 in
foreign currencies (26,600,000 Canadian dollars and 12,400,000 British
pounds) at the spot rates on the dates the contracts mature.
NOTE F: STOCKHOLDERS EQUITY AND STOCK OPTIONS
Common and Preferred Stock
A two-for-one common stock split was effected in the form of a 100%
stock dividend to stockholders of record on June 17, 1991; outstanding
shares increased by 71,092,469. All applicable share data appearing in the
financial statements and notes thereto have given effect to this stock
split.
The Company is authorized to issue 60,000,000 shares of Class B common
stock which is convertible into shares of common stock on a share-for-share
basis; transfer of the shares is restricted. In addition, the holders of
the Class B common stock have six votes per share on most matters and are
entitled to a lower cash dividend. No Class B shares have been issued.
The Board of Directors is authorized to issue 30,000,000 shares of one
or more series of preferred stock and to establish at the time of issuance
the issue price, dividend rate, redemption price, liquidation value,
conversion features, and such other terms and conditions of each series
(including voting rights) as the Board of Directors deems appropriate,
without further action on the part of the stockholders. No preferred shares
have been issued.
Stock Options
Under the Company's Stock Option Plan, incentive and non-qualified
options to purchase common stock are granted to officers and key employees
at prices not less than the fair market value at the date of grant.
Outstanding options at January 29, 1994 have expiration dates ranging from
March 2, 1994 to January 25, 2002 and represent grants to 1,190 key
employees. At January 29, 1994, the Company reserved 9,037,505 shares of
its common stock for the exercise of stock options. There were 5,461,962
and 6,241,785 shares available for granting of options at January 29, 1994
and January 30, 1993. Options for 1,286,925 and 678,368 shares were
exercisable as of January 29, 1994 and January 30, 1993.
<TABLE>
Shares Average Price Per Share
<CAPTION>
Incentive Non-qualified Total Incentive Non-qualified Total
<S> <C> <C> <C> <C> <C> <C>
Balance at February 2, 1991 54,128 3,749,916 3,804,044 $7.04 $11.34 $11.28
Granted - 1,092,053 1,092,053 - 25.64 25.64
Exercised (54,128) (845,064) (899,192) 7.04 7.29 7.28
Cancelled - (363,558) (363,558) - 15.98 15.98
Balance at February 1, 1992 - 3,633,347 3,633,347 - $16.12 $16.12
Granted - 672,396 672,396 - 39.33 39.33
Exercised - (609,852) (609,852) - 9.48 9.48
Cancelled - (256,426) (256,426) - 23.66 23.66
Balance at January 30, 1993 - 3,439,465 3,439,465 - $21.27 $21.27
Granted - 1,001,370 1,001,370 - 28.76 28.76
Exercised - (655,745) (655,745) - 13.89 13.89
Cancelled - (209,547) (209,547) - 30.38 30.38
Balance at January 29, 1994 - 3,575,543 3,575,543 - $24.20 24.20
</TABLE>
NOTE G: EMPLOYEE BENEFIT AND INCENTIVE PROGRAMS
Retirement Plans
The Company has a qualified defined contribution retirement plan
available to employees who meet certain age and service requirements. This
plan permits employees to make contributions up to the maximum limits
allowable under the Internal Revenue Code. In addition, a non-qualified
Supplemental Executive Retirement Plan was established in 1988 which allows
eligible employees to defer additional compensation up to a maximum amount
defined in the plan. Under both plans, the Company matches all or a portion
of the employee's contributions under a predetermined formula; the
Company's contributions vest on behalf of the employee progressively over a
seven year period. The non-qualified Supplemental Executive Retirement Plan
was frozen on December 31, 1993 and no further employee or company
contributions have been made to the plan.
Company contributions to the retirement plan and the Supplemental
Executive Retirement Plan in fiscal 1993, 1992, and 1991 were $6,731,000,
$5,572,000 and $4,216,000.
A non-qualified Executive Deferred Compensation Plan was established
on January 1, 1994. This Plan allows eligible employees to defer additional
compensation up to a maximum amount defined in the Plan. There are no
company matching contributions.
Employee Benefits Plan
The Company has established an Employee Benefits Plan (the Plan) to
provide certain health and welfare benefits. Payments made to the Plan
relating to benefits payable in future periods are included in prepaid
expenses.
Incentive Compensation Plans
The Company has a Management Incentive Cash Award Plan (MICAP) for key
management employees. The MICAP empowers the Compensation and Stock Option
Committee to award compensation, in the form of cash bonuses, to employees
based on the achievement of Company and individual performance goals.
Incentive awards can also be made in the form of restricted shares of the
Company's stock under the Management Incentive Restricted Stock Plan II.
Restrictions on shares generally lapse in one to five years. Compensation
expense is recorded during the vesting period.
NOTE H: RELATED PARTY TRANSACTIONS
The Company has an agreement with Fisher Development, Inc. (FDI),
wholly owned by the brother of the Company's chairman, setting forth the
terms under which FDI may act as general contractor in connection with the
Company's construction activities. During fiscal 1993, 1992 and 1991, FDI
acted as general contractor for 104, 111, and 128 new stores' leasehold
improvements and fixtures. In addition, FDI supervised construction of 128,
93, and 79 expansions, as well as remodels of existing stores, in fiscal
1993, 1992 and 1991. FDI construction also included administrative offices.
Total cost of this construction was $133,104,000, $134,582,000 and
$126,057,000, including profit and overhead costs of $10,095,000,
$9,687,000 and $8,234,000.
The terms and conditions of the agreement with FDI are reviewed
annually by the Audit and Finance Committee of the Board of Directors.
NOTE I: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Fiscal 1993 Quarter Ended
<TABLE>
<CAPTION>
May 1, July 31, Oct. 30, Jan. 29, Fiscal
($000 except per share amounts) 1993 1993 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Net sales $643,580 $693,192 $898,677 $1,060,230 $3,295,679
Gross profit 219,624 200,542 339,841 413,883 1,173,890
Net earnings 41,505 28,659 78,915 109,345 258,424
Net earnings per share .29 .20 .54 .75 1.78
Fiscal 1992 Quarter Ended
May 2, Aug. 1, Oct. 31, Jan. 30, Fiscal
($000 except per share amounts) 1992 1992 1992 1993 1992
Net sales $588,864 $614,114 $827,222 $ 930,209 $2,960,409
Gross profit 208,593 201,931 291,861 302,471 1,004,856
Net earnings 45,251 37,705 62,012 65,733 210,701
Net earnings per share .32 .26 .43 .46 1.47
</TABLE>
SUBSIDIARIES OF THE REGISTRANT
The Registrant's subsidiaries include:
Banana Republic, Inc., a California corporation
Banana Republic (H.K.) Limited, a Hong Kong corporation
Banana Republic Limited, an England and Wales corporation
Banana Republic Stores Pty. Ltd., an Australian corporation
The Fisher Gap Stores, Inc., a California corporation
The Gap (Far East) Ltd., a Hong Kong corporation
The Gap (H.K.) Limited, a Hong Kong corporation
Gap International, Inc., a California corporation
The Gap Limited, an England and Wales corporation
Gap (Puerto Rico), Inc., a Puerto Rico corporation
The Gap (Singapore) Pte. Ltd., a Singapore corporation
GPS (Delaware), Inc., a Delaware corporation
GPS (EDT), Inc., a Delaware corporation
GPS (European Ventures) Limited, a California corporation
GPS (France) SNC, a French partnership
GPS (Great Britain) Limited, an England and Wales corporation
GPS (Japan) Limited, a Delaware corporation
GPS Limited, a California corporation
GPS (Maryland), Inc., a Maryland corporation
GPS Production, Inc., a California corporation
GPS (Puerto Rico) Limited, a California corporation
GPS (U.K.) Ltd., a California corporation
GPS (U.S.A.) Limited, a California corporation
The Pottery Barn, Inc. (CT), a Connecticut corporation
Pottery Barn West, a California corporation
Real Estate Ventures (Glastonbury), Inc., a Delaware corporation
Real Estate Ventures (Glen Eagle), Inc., a Delaware corporation
Real Estate Ventures (Wheaton), Inc., an Illinois corporation
Travel & Safari Clothing Co., a California corporation
Deloitte & Touche
50 Fremont Street Telephone:(415)247-4000
San Francisco, California 94105-2230 Facsimile:(415)247-4329
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post Effective Amendment
No. 1 to Registration Statement No. 2-72586, Registration Statement No.
2-60029, Registration Statement No. 33-39089, Registration Statement No.
33-40505, Registration Statement No. 33-54686, Registration Statement No.
33-54688 and Registration Statement No. 33-54690 of The Gap, Inc. on Form
S-8 of our reports dated March 3, 1994 appearing and incorporated by
reference in the Annual Report on Form 10-K of The Gap, Inc. for the fiscal
year ended January 29, 1994.
/S/ Deloitte & Touche
April 18, 1994
