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 28, 1995 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 27, 1995 was approximately
$3,521,877,118, 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 27, 1995 was 143,900,233.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 23, 1995 (hereinafter
referred to as the "1995 Proxy Statement") are incorporated into
Parts I and III.
Portions of the Registrant's Annual Report to Stockholders for
the fiscal year ended January 28, 1995 (hereinafter referred to as
the "1994 Annual Report to Stockholders") are incorporated into
Parts II and IV.
PART I
Item 1 - BUSINESS
General
The Gap, Inc. (hereinafter referred to as the "Company") is an
international specialty retailer which operates stores selling
casual apparel, shoes and other accessories for men, women and
children under a number of trade names, including: Gap, GapKids,
babyGap, 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 27, 1995, the Company operated 1,525 stores, including 810
Gap, 330 GapKids, 192 Banana Republic, and 65 Old Navy Clothing Co.
stores (49 of the Gap and GapKids stores are located in the United
Kingdom, 73 are located in Canada and 3 are located in France; 3 of
the Banana Republic stores are located in Canada).
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 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.
Recent Developments
1994, the Company's twenty-fifth anniversary year, was one of
record sales and earnings. However, performance in 1994 was stronger
in the first half than in the second half, when compared to the prior
year, and the Company ended fiscal 1994 with comparable store sales
growth of only 1%. The Company is continuing to experience difficult
competitive conditions in 1995; for the first two months of fiscal 1995,
the Company's comparable store sales declined 5%. In addition, over the
past two years the Company has operated at near record levels of
merchandise margin when compared to the same periods of previous years,
making current and future comparisons more challenging. This is especially
true in the first half of fiscal 1995.
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, particularly when it emphasizes fashion
items versus basics, as it did to some extent in fiscal year 1994.
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, lack of consumer acceptance of fashion
items, 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 or personal checks or on
credit cards issued by others.
The Company opened 172 new stores and expanded 82 stores
during the 1994 fiscal year; the Company anticipates that it will
open approximately 175 to 200 new stores and expand approximately
50 to 70 stores during the 1995 fiscal year. Over the past five
years, the Company has increased the average size of its new stores
and expanded the size of existing stores. For fiscal year 1994,
the average size of new stores was about 7,200 square feet for Gap,
4,700 square feet for GapKids, 6,200 square feet for Banana
Republic, and 15,400 square feet for Old Navy Clothing Co.
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 to increase sales at existing store locations, to open new
stores and to operate stores on a profitable basis. There can be
no assurance that the Company's growth 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 new product lines (such as personal care items), 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. Currently, the Company is
planning to open 3-6 Gap and GapKids stores in Japan during fiscal
1995.
Suppliers
The Company purchases merchandise from over 1,000 suppliers
located domestically and overseas. No supplier accounted for more
than 5% of the Company's fiscal 1994 purchases. Suppliers are
required to manufacture the Company's private-label merchandise
according to the Company's specifications. During fiscal 1994,
approximately 30% of the Company's merchandise was produced
domestically while the remaining 70% was imported from overseas
vendors. Approximately 18% of foreign dollar purchases were from Hong
Kong, or about 14% of the Company's total merchandise, with the remainder
coming from 46 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, recently the United States
government considered imposing various restrictions on the
importation of goods from China. 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 1994, these periods
accounted for approximately 30% of the Company's annual sales.
<PAGE>
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 in which the Company
operates 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 major news weeklies, with smaller amounts of print
advertising in lifestyle and fashion magazines. 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.
Employees
On January 28, 1995, the Company had a work force of
approximately 55,000 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,
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 1995 Proxy Statement and is
incorporated by reference herein. The following are also executive
officers of the Company:
Name Age Position
Patricia DeRosa 42 President, GapKids Division
William S. Fisher 38 President, International Division
Magdalene Gross 46 Executive Vice President - Advertising
Anne B. Gust 37 Senior Vice President - General Counsel
Warren R. Hashagen 44 Senior Vice President - Finance
Richard M. Lyons 38 Executive Vice President, The Gap, Inc.
and 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.
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.
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.
Ms. Gust joined the Company in 1991 and has served as Senior
Vice President - General Counsel since April 1994. From April 1993
to April 1994 she was Vice President - General Counsel; from June
1992 until April 1993, she was Associate General Counsel and
Managing Attorney and from August 1991 until May 1992 she was
Associate General Counsel. From 1986 until August 1991, she was
associated with the law firm of Brobeck, Phleger & Harrison.
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.
Mr. Lyons was promoted to Executive Vice President, The Gap,
Inc. in March 1995, in charge of Gap and GapKids Divisions. He
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.
Item 2 - PROPERTIES
During fiscal year 1994, the Company opened 172 stores and
closed 34. The newly-opened stores include 54 Gap stores
(including 5 stores in the United Kingdom, 8 stores in Canada and
1 store in France), 60 GapKids stores (including 6 stores in the
United Kingdom, 5 stores in Canada and 1 store in France), 12
Banana Republic stores, and 46 Old Navy Clothing Co. stores. In
addition, during fiscal year 1994, the Company expanded 82 stores.
The expanded stores include 48 Gap stores (including 2 stores in
the United Kingdom and 2 stores in Canada), 22 GapKids stores
(including 1 in the United Kingdom and 1 in Canada), 11 Banana
Republic stores and 1 Old Navy Clothing Co. store. The 1,508
stores operating on January 28, 1995 aggregated approximately 9.2
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 1995, the Company plans to increase store
space by approximately 20%, after taking into account store
closings. This increase is expected to include the opening of
approximately 175 to 200 new stores worldwide and the expansion of
approximately 50 to 70 of the Company's existing stores.
The Company leases its headquarters and regional office
buildings, as well as its Eastern Distribution Center (EDC). The
EDC in Erlanger, Kentucky consists of approximately 1,220,000
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 owns its Canadian Distribution Center located in
Brampton, Ontario. It consists of approximately 150,000 square
feet and distributes Gap and GapKids merchandise. The Company also
owns its Western Distribution Center (WDC) located in Ventura,
California. This facility, which is approximately 344,000 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 has entered into negotiations to acquire land in
Gallatin, Tennessee for the purpose of constructing a distribution
center at an estimated total cost of approximately $45-55 million.
If the negotiations are successful, the Company expects the
facility to be in operation by the holiday season of 1996.
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 21 of the 1994 Annual Report to Stockholders
filed as 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 18 and 19 of the 1994 Annual Report to
Stockholders filed as 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 20 and 21 of the 1994 Annual Report to
Stockholders filed as Exhibit 13 to this Annual Report on Form 10-K.
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
($000) January 28, 1995 January 29, 1994
Accrued Payroll $32,624 $27,238
The remaining information required by this item is
incorporated herein by reference to pages 22-32 of the 1994 Annual
Report to Stockholders filed as 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 1995 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 1995 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 1995 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" in the 1995 Proxy Statement.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K
A. The following consolidated financial statements,
schedules and exhibits are filed as part of this report or are
incorporated herein as indicated.
(1) Financial Statements
(i) Independent Auditors' Report. Incorporated by
reference to Page 22 of the 1994 Annual Report
to Stockholders filed as Exhibit 13 to this
Annual Report on Form 10-K.
(ii) The consolidated balance sheets as of January
28, 1995 and January 29, 1994 and the related
consolidated statements of earnings, cash
flows, and stockholders' equity for each of
the three fiscal years in the period ended
January 28, 1995 are incorporated by reference
to pages 23-32 of the 1994 Annual Report to
Stockholders filed as Exhibit 13 to this
Annual Report on Form 10-K.
(2) Financial Statement Schedules
Schedules 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.
(3) Exhibits
Incorporated herein by reference is a list of the
Exhibits contained in the Exhibit Index which begins on
sequentially numbered page 10 of this Report.
(4) 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.
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 14, 1995 By /s/ Donald G. Fisher
Donald G. Fisher,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: April 14, 1995 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 14, 1995 By /s/ Adrian D. P. Bellamy
Adrian D. P. Bellamy, Director
Date: April 14, 1995 By /s/ John G. Bowes
John G. Bowes, Director
Date: April 14, 1995 By /s/ Millard S. Drexler
Millard S. Drexler, Director
Date: April 14, 1995 By /s/ Donald G. Fisher
Donald G. Fisher, Director
Date: April 14, 1995 By /s/ Doris F. Fisher
Doris F. Fisher, Director
Date: April 14, 1995 By /s/ Robert J. Fisher
Robert J. Fisher, Director
Date: April 14, 1995 By /s/ Lucie J. Fjeldstad
Lucie J. Fjeldstad, Director
Date: April 14, 1995 By /s/ William A. Hasler
William A. Hasler, Director
Date: April 14, 1995 By /s/ John M. Lillie
John M. Lillie, Director
Date: April 14, 1995 By /s/ Charles R. Schwab
Charles R. Schwab, Director
Date: April 14, 1995 By /s/ Brooks Walker, Jr.
Brooks Walker, Jr., Director
THE GAP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JANUARY 28, 1995
EXHIBIT INDEX
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.
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.
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.
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.
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.
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.
10.5 Fourth Amendment to Credit Agreement, dated as of February 4,
1994, filed as Exhibit 10 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1994, Commission
File No. 1-7562.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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,
10.24 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.
10.25 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
10.26 1981 Stock Option Plan, filed as Exhibit 4.1 to
Registrant's Registration Statement on Form S-8,
Commission File No. 33-54690.
10.27 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.
10.28 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.
10.29 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.
10.30 GapShare, filed as Exhibit 4.1 to Registrant's
Registration Statement on Form S-8, Commission File No.
33-40505.
10.31 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.
10.32 Description of Management Incentive Cash Award Plan filed
as Exhibit 10.34 to Registrant's Annual Report on Form
10-K for the year ended January 29, 1994, Commission File
No. 1-7562.
10.33 Employee Stock Purchase Plan, filed as Exhibit 4.1 to
Registrant's Registration Statement on Form S-8,
Commission File No. 33-56021.
10.34 Amended and Restated Executive Management Incentive Cash
Award Plan, filed as Exhibit B to the Registrant's
definitive proxy statement for its annual meeting of
stockholders held on May 23, 1995, Commission File No.
1-7562.
10.35 Deferred Compensation Plan filed as Exhibit 10.36 to
Registrant's Annual Report on Form 10-K for the year
ended January 29, 1994, Commission File No. 1-7562.
10.36 Executive Capital Accumulation Plan.
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.
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.
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.
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.
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.
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.
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.
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.
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 28, 1995.
21 Subsidiaries of Registrant.
23 Consent of Deloitte & Touche.
27 Financial Data Schedule
THE GAP, INC.
EXECUTIVE CAPITAL ACCUMULATION PLAN
THE GAP, INC. (the "Company") hereby establishes The Gap, Inc.
Executive Capital Accumulation Plan, effective April 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 "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.
1.4 "Committee" shall mean the Retirement Committee appointed
pursuant to GapShare, the qualified profit sharing plan maintained
by the Company.
1.5 "Company" shall mean The Gap, Inc.
1.6 "Deferral Contributions" shall mean the amounts credited
to Participants' Accounts under the Plan pursuant to their deferral
elections made in accordance with Section 2.2.
1.7 "Eligible Employee" shall mean an Employee of an Employer
who is employed at the level of "executive vice president" or
higher and who has a Salary greater than 300% 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
the first Plan Year shall be determined as of February 1, 1994. An
Employee's eligibility for any following 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 (other than the first
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.
1.8 "Employee" shall mean an individual who is employed by one
of the Employers as a common-law employee.
1.9 "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.
1.10 "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.
1.11 "Participant" shall mean an Eligible Employee who has
become a Participant in the Plan pursuant to Section 2.2 and has
not ceased to be a Participant pursuant to Section 2.3.
1.12 "Participant's Account" or "Account" means as to any
Participant the separate account maintained on the books of the
Company in order to reflect the Deferral Contributions made by the
Participant, and the earnings relating thereto. To the extent
necessary to reflect a Participant's distribution elections, a
separate Account may be maintained with respect to the amounts
credited to the Participant's Account for any Plan Year.
1.13 "Plan" shall mean The Gap, Inc. Executive Capital
Accumulation Plan, as set forth in this instrument and as hereafter
amended from time to time.
1.14 "Salary" shall mean a Participant's basic yearly salary,
excluding bonuses and taxable and nontaxable fringe benefits and
excluding deferral contributions under The Gap, Inc. Executive
Deferred Compensation Plan; provided, however, that Salary shall
include 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.
1.15 "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 Deferral Elections. For the first Plan Year beginning
April 1, 1994, an Eligible Employee may elect to make Deferral
Contributions no later than March 31, 1994 with respect to Salary
paid on and after April 1 of that Plan Year. For following Plan
Years, an election to make 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 2.2.2. An
Eligible Employee may elect to make 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 Deferral Contributions with respect to Salary paid on and
after July 1 of that Plan Year.
2.2.2 Election to Suspend Contributions. A Participant may
elect, during a Plan Year for which he or she has elected 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 Deferral
Contributions during that Plan Year.
2.2.3 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 50% of his or her Salary 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 Deferral Contributions shall be effective only with respect
to payments of Salary after such date. For the first Plan Year
beginning April 1, 1994, Deferral Contributions shall be effective
only with respect to payments of Salary on or after April 1, 1994.
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 Committee shall specify a "Deemed Earnings Rate,"
which shall, at a minimum, be equal to the rate of return during
that Plan Year on a mutual fund indexed to the S&P 500, and
specified by the Committee before the beginning of each Plan Year.
In no event shall the Deemed Earning Rate be less than 0%. 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 Deferral Account to which shall be credited all
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 Deferral
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 Deferral Account. Distribution of a Participant's
Deferral Account shall be made only after his or her Termination
Date. Except as provided in Section 5.2, 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 Deferral Account shall be determined as of the
last day of the month following the Termination Date.
5.2 Installment Distributions. A Participant may elect to
receive payments from his or her Account that are made after his or
her Termination Date in annual installments for 5, 10 or 15 years.
5.2.1 Installment Elections. A Participant's election of
installment distributions must be made at the time of his or her
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 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.
5.2.2 Installment Payments. The first installment payment
shall be made as soon as practicable following the Participant's
Termination 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.
5.3 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.
5.4 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.
5.5 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.
5.6 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.
5.7 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;
(k) 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.
THE GAP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Fifty-two weeks ended
January 28, January 29, January 30,
1995 1994 1993
Net earnings ($000) $320,240 $258,424 $210,701
Weighted average shares of
common stock outstanding
during the period 145,570,538 144,841,137 143,672,924
Add incremental shares from
assumed exercise of stock
options (primary) 574,059 687,009 1,054,393
146,144,597 145,528,146 144,727,317
Primary earnings per share $ 2.19 $ 1.78 $ 1.46
Weighted average shares of
common stock outstanding
during the period 145,570,538 144,841,137 143,672,924
Add incremental shares from
assumed exercise of stock
options (fully-diluted) 589,416 973,372 1,083,742
146,159,954 145,814,509 144,756,666
Fully-diluted earnings
per share $ 2.19 $ 1.77 $ 1.46
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 share basis is less than 3%.
<TABLE>
<CAPTION>
Five-Year Selected Financial Data
Fiscal Years 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Operating Results ($000)
Net sales $3,722,940 $3,295,679 $2,960,409 $2,518,893 $1,933,780
Cost of goods sold and occupancy
expenses, excluding depreciation
and amortization 2,202,133 1,996,929 1,856,102 1,496,156 1,187,644
Percentage of net sales 59.2% 60.6% 62.7% 59.4% 61.4%
Depreciation and amortization<F1> 148,863 124,860 99,451 72,765 53,599
Operating expenses 853,524 748,193 661,252 575,686 454,180
Net interest (income) expense (10,902) 809 3,763 3,523 1,435
Earnings before income taxes 529,322 424,888 339,841 370,763 236,922
Percentage of net sales 14.2% 12.9% 11.5% 14.7% 12.3%
Income taxes 209,082 166,464 129,140 140,890 92,400
Net earnings 320,240 258,424 210,701 229,873 144,522
Percentage of net sales 8.6% 7.8% 7.1% 9.1% 7.5%
Cash dividends 64,775 53,041 44,106 41,126 29,625
Capital expenditures<F2> 236,616 215,856 213,659 244,323 199,617
Per Share Data<F3>
Net earnings<F4> $2.20 $1.78 $1.47 $1.62 $1.02
Cash dividends .46 .38 .32 .30 .22
Stockholders' equity (book value)<F5> 9.50 7.76 6.16 4.76 3.30
<F1> Excludes amortization of restricted stock.
<F2> Includes property and equipment, as well as lease rights.
<F3> Reflects the 2-for-1 splits of common stock to stockholders of record
on June 17, 1991 and September 17, 1990.
<F4> Based on weighted average number of shares outstanding at year-end.
<F5> Based on actual number of shares outstanding at year-end.
</TABLE>
<TABLE>
Five-Year Selected Financial Data
<S> <C> <C> <C> <C> <C>
Fiscal Years 1994 1993 1992 1991 1990
Financial Position ($000)
Property and equipment (net) $ 828,777 $ 740,422 $ 650,368 $ 547,740 $ 383,548
Merchandise inventory 370,638 331,155 365,692 313,899 247,462
Total assets 2,004,244 1,763,117 1,379,248 1,147,414 776,900
Working capital 555,827 494,194 355,649 235,537 101,518
Current ratio 2.11:1 2.07:1 2.06:1 1.71:1 1.39:1
Total debt, less current
installments - 75,000 75,000 80,000 17,500
Ratio of total debt
to stockholders' equity N/A .07:1 .08:1 .12:1 .04:1
Stockholders' equity 1,375,232 1,126,475 887,839 677,788 465,733
Return on average stockholders' equity 25.6% 25.7% 26.9% 40.2% 36.0%
Statistics
Number of stores opened 172 108 117 139 152
Number of stores expanded 82 130 94 79 56
Number of stores closed 34 45 26 15 20
Number of stores open at year-end 1,508 1,370 1,307 1,216 1,092
Net increase in number of stores 10.1% 4.8% 7.5% 11.4% 13.8%
Comparable store sales growth
(52-week basis) 1.0% 1.0% 5.0% 13.0% 14.0%
Sales per square foot<F6>
(52-week basis) $444 $463 $489 $481 $438
Square footage of gross store
space at year end 9,165,900 7,546,300 6,509,200 5,638,400 4,762,300
Percentage increase in square feet 21.5% 15.9% 15.4% 18.4% 17.4%
Number of employees at year end 55,000 44,000 39,000 32,000 26,000
Weighted average number of shares
outstanding<F3> 145,570,538 144,841,137 143,672,924 142,139,577 141,500,888
Number of shares outstanding
at year end, net of treasury
stock<F3> 144,764,749 145,248,728 144,185,238 142,523,334 141,264,030
<F6> Based on weighted average monthly gross square footage.
</TABLE>
Management's Discussion and Analysis of Results
of Operations and Financial Condition
RESULTS OF OPERATIONS
Net Sales
Fiscal Year Ended
Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993
(Fiscal 1994) (Fiscal 1993) (Fiscal 1992)
Net sales ($000) $3,722,940 $3,295,679 $2,960,409
Total net sales
growth percentage 13 11 18
Comparable store sales
growth percentage 1 1 5
Net sales per average
square foot 444 463 489
Number of
New stores 172 108 117
Expanded stores 82 130 94
Closed stores 34 45 26
The total net sales growth reflected above for fiscal 1994 and 1993
is primarily attributable to the opening of new stores (net of stores
closed), and the expansion of existing stores.
Net sales per average square foot were $444 in 1994, $463 in 1993, and
$489 in 1992. Over the past five years the Company has increased the
average size of its new stores and expanded existing stores as a
long-term investment resulting in a total store square footage increase
of 21 percent in 1994, 16 percent in 1993, and 15 percent in 1992. The
expansion program negatively impacted net sales per average square foot
in 1994 and 1993. Along with the expansion program, the continued store
growth in the Old Navy division with lower priced merchandise and
significantly larger stores will put pressure on net sales per average
square foot in 1995.
Cost of Goods Sold and Occupancy Expenses
Cost of goods sold and occupancy expenses as a percentage of net sales
were 63.2 percent in 1994, 64.4 percent in 1993, and 66.1 percent in
1992.
The resulting 1.2 percentage point increase in gross margin net of
occupancy expenses in 1994 from 1993 was attributable to a 1.6
percentage point increase in merchandise margins as a percentage of net
sales offset by a .4 percentage point in-crease in occupancy expenses as
a percentage of net sales. The increase in merchandise margins in 1994
from 1993 was primarily attributable to higher initial merchandise
margins partially offset by a larger percentage of merchandise sold at
markdown prices. Entering 1995, inventory on hand is at a lower initial
merchandise margin than inventory on hand last year.
The 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.
Over the past two years the Company has operated at near record levels
of merchandise margin when compared to the same periods of previous
years, making future comparisons more challenging. This is especially
true in the first half of 1995.
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 1994 and 1993, as well as between 1993 and 1992, was primarily
attributable to the addition of larger new stores and the expansion of
existing stores.
Operating Expenses
Operating expenses as a percentage of net sales were 22.9 percent,
22.7 percent, and 22.3 percent for fiscal years 1994, 1993, and 1992.
The .2 percentage point increase in 1994 from 1993 as a percentage of
net sales was primarily attributable to investments in payroll and
advertising expenses to support the growth of the Old Navy and
International divisions and an increased focus on customer service for
all divisions. These increases were partially offset by a beneficial
comparison to last year when $10 million of expense was recognized to
support a store refixturing program.
The .4 percentage point increase in 1993 from 1992 was attributable
to increases in bonus expense of .5 percentage points and a provision
for a write-off of certain store fixtures of .3 percentage points as a
percentage of net sales. These increases were partially offset by a .4
percentage point decrease in advertising costs as a percentage of net
sales.
Net Interest Income/Expense
Net interest income was $10.9 million for fiscal year 1994 compared
to net interest expense of $809,000 and $3.8 million for fiscal years
1993 and 1992. The change in 1994 from 1993 is attributable to an
increase in gross average investments including long-term investments
and higher average interest rates. The decrease in interest expense in
1993 from 1992 was attributable to an increase in gross average
investments partially offset by lower average interest rates.
Income Taxes
The effective tax rate was 39.5 percent in 1994 compared to 39.2
percent in 1993 and 38.0 percent in 1992. The increase in the effective
tax rate for 1994 and 1993 reflects changes in federal income tax law at
the end of the second quarter in fiscal year 1993.
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth certain material measures of the Company's
liquidity:
Fiscal Year
1994 1993 1992
Cash provided by operating
activities ($000) $504,450 $551,298 $306,978
Working capital ($000) 555,827 494,194 355,649
Current ratio 2.11:1 2.07:1 2.06:1
For the fiscal year ended January 28, 1995, the decrease in cash
provided by operating activities was primarily attributable to increased
income tax payments and increases in inventory purchases resulting from
the Company's expansion into the Old Navy and International divisions,
which more than offset an increase in net earnings exclusive of
depreciation expense. For 1993, the Company's improved cash flow and
working capital was due to 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. (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 1994 and 1993, these periods
accounted for approximately 30% of the Company's annual sales.
Capital expenditures, net of construction allowances and
dispositions, totaled approximately $220 million in 1994. These
expenditures resulted in a net increase in store space of
approximately 1.6 million square feet or 21 percent due to the
addition of 172 new stores, the expansion of 82 stores, and the
remodeling of certain stores. Capital expenditures for 1993 and 1992
were $200 million and $203 million respectively, resulting in a net
increase in store space of approximately 1 million square feet or 16
percent in 1993 and approximately 871,000 square feet or 15 percent in
1992. Expenditures in 1994 and 1993 included costs for administrative
facilities and equipment.
For fiscal year 1995, the Company expects capital expenditures to
total approximately $275 to $300 million, net of construction
allowances, representing the addition of approximately 175 to 200 new
stores, the expansion of approximately 50 to 70 stores, and the
remodeling of certain stores. Planned expenditures also include
amounts for administrative facilities, distribution centers, and
equipment. The Company expects to fund such capital expenditures with
cash flow from operations. Square footage growth is expected to be
approximately 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 Company has a credit agreement which provides 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 $260 million at January 28, 1995.
In June 1994, the Company repaid $75 million of long-term debt
which had been outstanding since February 1991, with an original
maturity date of February 1995.
During the first quarter of fiscal 1994, the Company repurchased
250,000 shares of its common stock for $10,032,000 from a senior
executive of the Company.
On October 25, 1994, the Board of Directors approved a program
under which the Company may repurchase up to 9 million shares of its
outstanding common stock in the open market over a two year period.
Under this program 1,473,500 shares were repurchased for $48,260,000
in the fourth quarter of fiscal 1994.
Per Share Data
Market Prices Cash Dividends
Fiscal 1994 1993 1994 1993
High Low High Low
1st Quarter $49 3/8 $39 7/8 $37 1/2 $28 $.100 $.080
2nd Quarter 48 7/8 38 37 1/4 27 .120 .100
3rd Quarter 44 3/4 30 1/8 35 3/4 25 1/2 .120 .100
4th Quarter 38 5/8 28 7/8 42 7/8 33 3/4 .120 .100
Year $.460 $.380
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 27, 1995 was 6,646.
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 judgements.
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 requirement 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 judgements 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 LLP, 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 LLP and the internal auditors have
full and free access to the Audit and Finance Committee, with and
without Management's presence.
Independent Auditor's 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 28, 1995 and January 29, 1994,
and the related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the three fiscal years in the period
ended January 28, 1995. 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 audits
to obtain reasonable assurance about whether the consolidated 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 28, 1995 and January 29, 1994, and the
results of their operations and their cash flows for each of the three
fiscal years in the period ended January 28, 1995 in conformity with
generally accepted accounting principles.
March 2, 1995
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
<S> <C> <C> <C> <C> <C> <C>
($000 except per share amounts)Fiscal 1994 Fiscal 1993 Fiscal 1992
Net sales $3,722,940 100.0% $3,295,679 100.0% $2,960,409 100.0%
Costs and expenses
Cost of goods sold and
occupancy expenses 2,350,996 63.2% 2,121,789 64.4% 1,955,553 66.1%
Operating expenses 853,524 22.9% 748,193 22.7% 661,252 22.3%
Net interest (income) expense (10,902) (0.3%) 809 - 3,763 .1%
Earnings before income taxes 529,322 14.2% 424,888 12.9% 339,841 11.5%
Income taxes 209,082 5.6% 166,464 5.1% 129,140 4.4%
Net earnings $ 320,240 8.6% $ 258,424 7.8% $ 210,701 7.1%
Weighted average
number of shares 145,570,538 144,841,137 143,672,924
Earnings per share $ 2.20 $ 1.78 $ 1.47
See notes to consolidated financial statements.
</TABLE>
Consolidated Balance Sheets
($000) January 28, 1995 January 29, 1994
Assets
Current Assets
Cash and equivalents $ 414,487 $ 460,332
Short-term investments 173,543 83,497
Merchandise inventory 370,638 331,155
Prepaid expenses and other 97,019 81,454
Total Current Assets 1,055,687 956,438
Property and Equipment
Leasehold improvements 639,801 556,858
Furniture and equipment 620,104 504,952
Construction-in-progress 34,989 28,670
1,294,894 1,090,480
Accumulated depreciation and amortization (466,117) (350,058)
828,777 740,422
Long-term investments 32,097 -
Lease rights and other assets 87,683 66,257
Total Assets $2,004,244 $1,763,117
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 2,478 $ 7,603
Accounts payable 263,724 216,664
Accrued expenses 185,375 163,350
Income taxes payable 41,156 70,431
Deferred lease credits and other current liabilities 7,127 4,196
Total Current Liabilities 499,860 462,244
Long-Term Liabilities
Long-term debt - 75,000
Deferred lease credits and other liabilities 129,152 99,398
129,152 174,398
Stockholders' Equity
Common stock $.05 par value
Authorized 500,000,000 shares; issued 156,972,777
and 155,733,256 shares; outstanding 144,764,749
and 145,248,728 shares 7,849 7,787
Additional paid-in capital 298,413 240,655
Retained earnings 1,282,301 1,026,836
Foreign currency translation adjustment (8,320) (8,314)
Restricted stock plan deferred compensation (54,265) (48,035)
Treasury stock, at cost (150,746) (92,454)
1,375,232 1,126,475
Total Liabilities and Stockholders' Equity $2,004,244 $ 1,763,117
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
<S> <C> <C> <C>
($000) Fiscal 1994 Fiscal 1993 Fiscal 1992
Cash Flows from Operating Activities
Net earnings $320,240 $258,424 $210,701
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 168,220 141,758 114,011
Tax benefit from exercise of stock options
by employees and from vesting of
restricted stock 19,384 6,491 28,160
Deferred income taxes (24,431) (22,360) (10,525)
Change in operating assets and liabilities
Merchandise inventory (39,860) 33,910 (51,793)
Prepaid expenses and other (10,989) (7,315) (10,970)
Accounts payable 46,031 23,877 35,670
Accrued expenses 21,953 35,143 (6,460)
Income taxes payable (29,241) 56,164 (21,775)
Deferred lease credits and other
long-term liabilities 33,143 25,206 19,959
Net cash provided by operating activities 504,450 551,298 306,978
Cash Flows from Investing Activities
Purchase of short-term investments - net (90,046) (83,497) -
Purchase of long-term investments (32,097) - -
Purchases of property and equipment (232,776) (212,340) (205,507)
Acquisition of lease rights and other assets (4,938) (3,687) (9,964)
Net cash used for investing activities (359,857) (299,524) (215,471)
Cash Flows from Financing Activities
Net (decrease) increase in notes payable (4,583) 7,632 -
Payments on long-term debt (75,000) - (5,000)
Issuance of common stock 12,849 10,768 8,721
Purchase of treasury stock (58,292) - -
Cash dividends paid (64,775) (53,041) (44,106)
Net cash used for financing activities (189,801) (34,641) (40,385)
Effect of exchange rate changes on cash (637) (103) (405)
Net (decrease) increase in cash and equivalents (45,845) 217,030 50,717
Cash and equivalents at beginning of year 460,332 243,302 192,585
Cash and equivalents at end of year $414,487 $460,332 $243,302
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Additional
Common Stock Paid-in Retained
($000 except per share amounts) Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
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
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 $1,026,836
Issuance of common stock pursuant to stock option plans 624,806 31 10,874
Net issuance of common stock pursuant to management
incentive restricted stock plans 614,715 31 27,500
Tax benefit from exercise of stock options by employees and
from vesting of restricted stock
Foreign currency translation adjustment
Amortization of restricted stock
Purchase of treasury stock
Net earnings 320,240
Cash dividends ($.46 per share) (64,775)
Balance at January 28, 1995 156,972,777 $7,849 $298,413 $1,282,301
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
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 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
Issuance of common stock pursuant to stock option plans 10,905
Net issuance of common stock pursuant to management
incentive restricted stock plans (25,587) 1,944
Tax benefit from exercise of stock options by employees and
from vesting of restricted stock 19,384
Foreign currency translation adjustment (6) (6)
Amortization of restricted stock 19,357 19,357
Purchase of treasury stock (1,723,500) (58,292) (58,292)
Net earnings 320,240
Cash dividends ($.46 per share) (64,775)
Balance at January 28, 1995 ($8,320) ($54,265) (12,208,028) ($150,746) $ 1,375,232
See notes to consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements
For the Fifty-Two Weeks ended January 28, 1995 (Fiscal 1994), January
29, 1994 (Fiscal 1993), January 30, 1993 (Fiscal 1992).
Note A: Summary of Significant Accounting Policies
The Company is an international 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 original maturities of three months or less.
Short-term investments include investments with an original maturity
of greater than three months or a remaining maturity of less than one
year. Long-term investments include investments with an original and
remaining maturity of greater than one year and less than five years.
The Company's short and long-term investments consist primarily of debt
securities which have been classified as held to maturity and are
carried at amortized cost which approximates fair market value. The
Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities,
as of January 30, 1994. The adoption of SFAS No. 115 had no material
effect on the Company's consolidated financial statements for the year
ended January 28, 1995.
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, such as
pre-opening rent and payroll, 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. The Company accounts for income taxes under
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes.
Translation adjustments result from the process of translating foreign
subsidiaries financial statements into U.S.dollars. Balance sheet
accounts are translated at exchange rates in effect at the balance sheet
date. Resulting translation adjustments are included in stockholders'
equity. Income statement accounts are translated at average exchange
rates during the year.
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 adopted Statement of Financial Accounting Standards (SFAS)
No. 119, Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments, as of January 30, 1994. The adoption of
SFAS No. 119 had no material effect on the Company's consolidated
financial statements for the year ended January 28, 1995.
Certain reclassifications have been made to the 1993 and 1992
financial statements to conform with the 1994 financial statements.
Note B: Long-Term Debt and Other Credit Arrangements
Long-term debt at January 29, 1994 consisted of $75 million of 8.87
percent unsecured Senior Notes, due February 1995. Interest on the
Senior Notes was payable quarterly. At January 29, 1994 the fair value
of the Senior Notes was approximately $78 million, based on current
market rates at which the Company could borrow funds with similar
remaining maturities. The excess of fair value over the principal
(unrealized loss) was due entirely to significantly lower market rates
since the inception of the notes to January 29, 1994. The decrease in
rates used to calculate the fair value was due, in part to a decline in
the original term of four years to one year. In June 1994, the Company
repaid in full the unsecured Senior Notes using cash provided by
operating activities.
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,
1997. 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, 1997 of up to $350 million
at any one time.
At January 28, 1995, the Company had outstanding letters of credit
totaling $259,945,000.
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, $957,069,000 of retained earnings were available for the
payment of cash dividends at January 28, 1995.
Gross interest payments were $7,032,000, $7,654,000, and $7,598,000
in fiscal 1994, 1993, and 1992.
Note C: Income Taxes
Income taxes consisted of the following:
($000) Fiscal 1994 Fiscal 1993 Fiscal 1992
Currently Payable
Federal income taxes $182,811 $150,517 $114,137
Less tax credits (12,692) (11,484) (9,080)
170,119 139,033 105,057
State income taxes 45,807 38,992 25,636
Foreign income taxes 17,587 10,799 8,972
233,513 188,824 139,665
Deferred
Federal (19,911) (16,084) (10,120)
State (4,520) (6,276) (405)
(24,431) (22,360) (10,525)
Total provision $209,082 $166,464 $129,140
The foreign component of U.S. taxable income in fiscal 1994, 1993, and
1992 was $46,224,000, $43,320,000, and $40,884,000. Deferred federal and
applicable state income taxes, net of applicable foreign tax credits,
have not been provided for the undistributed earnings of foreign
subsidiaries (approximately $75,912,000 at January 28, 1995) 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 1994 Fiscal 1993 Fiscal 1992
Federal tax rate 35.0% 35.0% 34.0%
State income taxes,
less federal benefit 5.1 5.0 4.9
Other (.6) (.8) (.9)
Effective tax rate 39.5% 39.2% 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 28, 1995, and January 29, 1994:
($000) January 28, 1995 January 29, 1994
Compensation and
benefits accruals $29,360 $26,587
Scheduled rent 29,856 22,642
Inventory capitalization 11,035 7,933
Nondeductible accruals 20,890 17,027
Other 14,176 12,399
Gross deferred tax assets 105,317 86,588
Depreciation (18,507) (24,848)
Other (5,359) (4,720)
Gross deferred tax liabilities (23,866) (29,568)
Net deferred tax assets $81,451 $57,020
Income tax payments were $232,869,000, $128,347,000, and $135,099,000
in fiscal 1994, 1993, and 1992.
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 28, 1995 are as follows:
Fiscal Year ($000)
1995 $ 258,672
1996 258,622
1997 251,473
1998 245,903
1999 245,854
Thereafter 1,372,776
Total minimum lease commitment $2,633,300
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 28, 1995 and January 29, 1994 this liability
amounted to $70,448,000 and $52,280,000.
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 28,
1995 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 1994 Fiscal 1993 Fiscal 1992
Minimum rentals $244,515 $207,249 $172,256
Contingent rentals 20,955 26,574 30,990
$265,470 $233,823 $203,246
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 for foreign operations. The market value gains and losses
on these contracts are deferred and recognized in the income statement
when the related merchandise commitments are settled. At January 28,
1995, the Company had contracts maturing at various dates through
1995, to purchase the equivalent of $54,134,000 in foreign currencies
(52,241,000 Canadian dollars through September 1995, 10,560,000
British pounds through May 1995, and 2,600,000 French francs through
March 1995) at the contracted rates. The deferred gains and losses on
the Company's foreign exchange contracts at January 28, 1995 are
immaterial.
Note F: Stockholders' Equity and Stock Options
Common and Preferred Stock
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.
In October 1994, the Board of Directors approved a program under
which the Company may repurchase up to 9,000,000 shares of its
outstanding common stock in the open market over a two year period.
Stock Options
Under the Company's Stock Option Plan, 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 28, 1995 have expiration dates ranging
from February 4, 1995 to December 5, 2002 and represent grants to 1,387
key employees. At January 28, 1995, the Company reserved 8,412,699 shares
of its common stock for the exercise of stock options. There were 4,539,427
and 5,461,962 shares available for granting of options at January 28,
1995 and January 29, 1994. Options for 1,481,162 and 1,286,925 shares
were exercisable as of January 28, 1995 and January 29, 1994.
Average Price
Shares Per Share
Balance at February 1, 1992 3,633,347 $16.12
Granted 672,396 39.33
Exercised (609,852) 9.48
Cancelled (256,426) 23.66
Balance at January 30, 1993 3,439,465 $21.27
Granted 1,001,370 28.76
Exercised (655,745) 13.89
Cancelled (209,547) 30.38
Balance at January 29, 1994 3,575,543 $24.20
Granted 1,155,400 44.89
Exercised (624,806) 17.45
Cancelled (232,865) 39.94
Balance at January 28, 1995 3,873,272 $30.55
Note G: Employee Benefit and Incentive Programs
Retirement Plans
The Company has a qualified defined contribution retirement plan
called GapShare, which is 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 (SERP) 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 (SERP) 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 1994, 1993, and 1992
were $8,281,000, $6,731,000, and $5,572,000.
A non-qualified Executive Deferred Compensation Plan (EDCP) was
established on January 1, 1994 and a non-qualified Executive Capital
Accumulation Plan (ECAP) was established on April 1, 1994. Both plans
allow eligible employees to defer additional compensation up to a
maximum amount defined in each 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.
An Executive Management Incentive Cash Award Plan (Executive MICAP)
was established on March 22, 1994 for key executive officers. The
Executive MICAP empowers the Compensation and Stock Option Committees
to award compensation in the form of cash bonuses to executives based
on the achievements of Company wide or divisional earnings goals for
that fiscal year.
Employee Stock Purchase Plan
In October 1994, the Board of Directors approved an Employee Stock
Purchase Plan effective December 1, 1994 subject to shareholder
approval at the annual meeting of shareholders in May 1995. Under the
Plan all eligible employees may purchase common stock of the Company
at 85% of the lower of the closing price of the Company's common stock
on the grant date or the purchase date on the New York Stock Exchange
Composite Transactions Index. Employees pay for their stock purchases
through payroll deductions at a rate equal to any whole percentage
from 1 to 15 percent. There were no shares issued under the plan at
January 28, 1995. At January 28, 1995 there were 2,000,000 shares
reserved for future subscriptions.
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 1994, 1993,
and 1992, FDI acted as general contractor for 159, 104, and 111 new
stores' leasehold improvements and fixtures. In addition, FDI
supervised construction of 79, 128, and 93 expansions, as well as
remodels of existing stores, in fiscal 1994, 1993, and 1992. FDI
construction also included administrative offices. Total cost of this
construction was $142,791,000, $133,104,000, and $134,582,000,
including profit and overhead costs of $10,738,000, $10,095,000, and
$9,687,000. At January 28, 1995 and January 29, 1994, amounts due to
FDI were $12,298,000 and $11,857,000, respectively.
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 1994 Quarter Ended
($000 except per April 30, July 30, Oct. 29, Jan. 28, Fiscal
share amounts) 1994 1994 1994 1995 1994
Net sales $751,670 $773,131 $988,346 $1,209,793 $3,722,940
Gross profit 289,583 265,277 378,848 438,236 1,371,944
Net earnings 63,478 44,352 93,647 118,763 320,240
Net earnings per share .44 .30 .64 .82 2.20
Fiscal 1993 Quarter Ended
($000 except per May 1, July 31, Oct. 30, Jan. 29, Fiscal
share amounts) 1993 1993 1993 1994 1994
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
Subsidiary List
Banana Republic (H.K.) Limited, a Hong Kong corporation
Banana Republic Limited, an England and Wales corporation
Banana Republic Stores Pty. Ltd., an Australia corporation
Banana Republic, Inc., a California corporation
GPS (Bermuda) Limited, a Bermuda corporation
GPS (Delaware), Inc., a Delaware corporation
GPS (EDT), Inc., a Delaware corporation
GPS (European Ventures) Limited, a California corporation
GPS (Great Britain) Limited, an England and Wales corporation
GPS (Japan) Limited, a Delaware corporation
GPS (Maryland), Inc., a Maryland corporation
GPS (Puerto Rico) Limited, a California corporation
GPS (U.K.) Limited, a California corporation
GPS (U.S.A.) Limited, a California corporation
GPS Limited, a California corporation
Gap (Canada) Inc., a Canada corporation
Gap (France) SA, a France corporation
Gap (Germany) GmbH, a Germany corporation
Gap (Ireland) Limited, an Ireland corporation
Gap (Japan) K.K., a Japan corporation
Gap (Puerto Rico), Inc., a Puerto Rico corporation
Gap International Sourcing, Inc., a California corporation
Gap International Sourcing (Singapore) Pte. Ltd., a Singapore corporation
Gap International, Inc., a California corporation
Goldhawk B.V., a Netherlands 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
The Fisher Gap Stores, Inc., a California corporation
The Gap (Far East) Limited, a Hong Kong corporation
The Gap (H.K.) Limited, a Hong Kong corporation
The Gap Limited, an England and Wales corporation
The Pottery Barn West, Inc., a California corporation
Deloitte & Touche
50 Fremont Street Telephone:(415)247-4000
San Francisco, Califonria 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, Registration Statement No. 33-54690 and Registration Statement
No. 33-56021 of The Gap, Inc. on Form S-8 of our report dated March 2,
1995 incorporated by reference in the Annual Report on Form 10-K of The
Gap, Inc. for the fiscal year ended January 28, 1995.
/S/Deloitte & Touche
April 21, 1995
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