SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended August 3, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 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 the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Common Stock, $0.05 par value, 283,511,071 shares as of September 13, 1996
PART 1 THE GAP, INC. AND SUBSIDIARIES
ITEM 1 CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
($000) August 3, February 3, July 29,
1996 1996 1995
(Unaudited) (See Note 1)(Unaudited)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and equivalents 514,213 579,566 249,217
Short-term investments 74,061 89,506 143,416
Merchandise inventory 573,080 482,575 508,641
Prepaid expenses and other 142,549 128,398 111,748
Total Current Assets 1,303,903 1,280,045 1,013,022
Property and equipment (net) 1,018,729 957,752 882,949
Long-term investments 53,963 30,370 7,059
Lease rights and other assets 82,705 74,901 97,436
Total Assets 2,459,300 2,343,068 2,000,466
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable 67,196 21,815 -
Accounts payable 313,866 262,505 293,396
Accrued expenses 218,655 194,426 145,227
Income taxes payable 32,877 66,094 9,325
Deferred lease credits and other 8,902 6,904 6,173
current liabilities
Total Current Liabilities 641,496 551,744 454,121
Long-term Liabilities:
Deferred lease credits and other liabilities 166,395 150,851 135,985
166,395 150,851 135,985
Stockholders' Equity:
Common stock $.05 par value (a)
Authorized 500,000,000 shares
Issued 317,312,752, 315,971,306
and 315,433,286 shares
Outstanding 283,396,874, 287,747,984
and 288,480,630 shares 15,866 15,799 15,772
Additional paid-in capital (a) 415,135 335,193 322,840
Retained earnings 1,674,266 1,569,347 1,331,348
Foreign currency translation adjustment (7,468) (9,071) (6,491)
Restricted stock plan deferred compensation (46,903) (48,735) (60,386)
Treasury stock, at cost (399,487) (222,060) (192,723)
1,651,409 1,640,473 1,410,360
Total Liabilities and Stockholders' Equity 2,459,300 2,343,068 2,000,466
See accompanying notes to consolidated financial statements.
(a) Reflects the two-for-one split of common stock in the form of a stock
dividend to stockholders of record on March 18, 1996.
</TABLE>
<TABLE>
THE GAP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
Unaudited August 3, July 29, August 3, July 29,
($000 except per share amounts) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 1,120,335 $ 868,514 $ 2,233,489 $ 1,717,202
Costs and expenses
Cost of goods sold and 720,165 609,321 1,419,479 1,177,452
occupancy expenses
Operating expenses 295,381 210,043 578,008 412,618
Net interest income (3,956) (4,430) (7,574) (9,279)
Earnings before income taxes 108,745 53,580 243,576 136,411
Income taxes 42,955 21,166 96,213 53,884
Net earnings $ 65,790 $ 32,414 $ 147,363 $ 82,527
Weighted average number
of shares (a) 286,179,138 288,233,222 287,092,901 287,988,160
Earnings per share (a) $ 0.23 $ 0.11 $ 0.51 $ 0.28
Cash dividends per share (a) $ 0.075 $ 0.06 $ 0.15 $ 0.12
See accompanying notes to consolidated financial statements.
(a) Reflects the two-for-one split of common stock in the form of a stock
dividend to stockholders of record on March 18, 1996.
</TABLE>
THE GAP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited ($000) Twenty-six Weeks Ended
August 3, 1996 July
29, 1995
Cash Flows from Operating Activities:
Net earnings $147,363 $ 82,527
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization (a) 105,986 95,514
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 43,526 8,710
Change in operating assets and liabilities:
Merchandise inventory (90,068) (137,186)
Prepaid expenses and other (14,973) (16,090)
Accounts payable 50,131 29,890
Accrued expenses 24,035 (40,281)
Income taxes payable (33,385) (32,006)
Deferred lease credits and other
long-term liabilities 17,392 5,518
Net cash provided by (used for) operating activities 250,007 (3,404)
Cash Flows from Investing Activities:
Net maturity of short-term investments 23,463 55,165
Purchase of long-term investments (31,611) -
Purchases of property and equipment (151,033) (134,662)
Acquisition of lease rights and other assets (8,428) (10,183)
Net cash used for investing activities (167,609) (89,680)
Cash Flows from Financing Activities:
Net increase (decrease) in notes payable 44,639 (3,590)
Issuance of common stock 26,565 6,127
Purchase of treasury stock (177,427) (41,977)
Cash dividends paid (42,444) (33,481)
Net cash used for financing activities (148,667) (72,921)
Effect of exchange rate changes on cash 916 735
Net decrease in cash and equivalents (65,353) (165,270)
Cash and equivalents at beginning of year 579,566 414,487
Cash and equivalents at end of quarter $514,213 $249,217
See accompanying notes to consolidated financial statements.
(a) Includes amortization of restricted stock.
THE GAP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated balance sheets as of August 3, 1996 and July 29,1995, and
the interim consolidated statements of earnings and the interim consolidated
statements of cash flows for the thirteen and twenty-six weeks ended August
3, 1996 and July 29, 1995 have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) considered necessary to present fairly the financial
position, results of operations and cash flows of the Company at August 3,
1996 and July 29, 1995, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted
accounting principles have been omitted from these interim financial
statements. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's annual report on Form 10-K for
the year ended February 3, 1996.
The results of operations for the twenty-six weeks ended August 3, 1996 are
not necessarily indicative of the operating results that may be expected for
the year ending February 1, 1997.
2. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Year-to-date 1996 and 1995 gross interest payments were $1.9 million and
$1.0 million respectively; income tax payments were $85.7 million and $76.3
million respectively.
3. TWO-FOR-ONE STOCK SPLIT
On February 27, 1996, the Company's Board of Directors authorized a two-for-
one split of its common stock effective April 10, 1996, in the form of a
stock dividend for stockholders of record on March 18, 1996. Per share
amounts in the accompanying consolidated financial statements give effect to
the stock split.
Deloitte &
Touche LLP
2101 Webster Street Telephone: (510)287-2700
Oakland, California 94612-3027 Facsimile: (510)835-4888
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
The Gap, Inc.:
We have reviewed the accompanying consolidated balance sheets of The Gap, Inc.
and subsidiaries as of August 3, 1996 and July 29, 1995 and the related
consolidated statements of earnings for the thirteen week and twenty-six week
periods ended August 3, 1996 and July 29, 1995 and consolidated statements of
cash flows for the twenty-six week periods ended August 3, 1996 and July 29,
1995. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Gap, Inc. and subsidiaries as
of February 3, 1996, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 29, 1996 (except for the effects of
the stock split, as to which the date is April 10, 1996), we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of February 3, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it was derived.
/s/ Deloitte & Touche LLP
August 14, 1996
Deloitte Touche
Tohmatsu
International
THE GAP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Net Sales
Thirteen Weeks Ended Twenty-six Weeks Ended
August 3, 1996 July 29, 1995 August 3, 1996 July 29, 1995
<S> <C> <C> <C> <C> <C>
Net sales ($000) 1,120,335 868,514 2,233,489 1,717,202
Total net sales growth percentage 29 12 30 13
Comparable store sales growth
percentage (Based on comparable 13
and 26 week periods respectively) 9 <4> 9 <3>
Net sales dollars per average
square foot 96 88 194 178
Average square footage of gross
store space (000) 11,707 9,903 11,520 9,647
Fifty-three Fifty-two
weeks ended weeks ended
August 3, 1996 July 29, 1995
Number of
New stores 219 195
Expanded stores 47 62
Closed stores 47 39
</TABLE>
The increases in second quarter and year-to-date 1996 net sales over the same
periods last year were attributable to the opening of new stores (net of stores
closed), an increase in comparable stores sales, and the expansion of existing
stores.
The increases in second quarter and year-to-date net sales per average square
foot from the same periods last year were primarily attributable to increases
in comparable store sales partially offset by the growing impact of the Old
Navy division where lower priced merchandise and significantly larger stores
resulted in lower net sales per average square foot when compared to other
divisions.
Since the end of the second quarter, the rate of growth of total net sales has
decelerated. For the four week period ended August 31, 1996, net sales
increased 19 percent over the same period last year. Comparable store sales
for August 1996 were flat.
Cost of Goods Sold and Occupancy Expenses
Cost of goods sold and occupancy expenses as a percentage of net sales
decreased to 64.3 percent for the second quarter of 1996 from 70.1 percent
for the same period in 1995. The resulting 5.8 percentage point increase in
gross margin net of occupancy expenses was attributable to a 3.8 percentage
point increase in merchandise margins as a percentage of net sales and a 2.0
percentage point decrease in occupancy expenses as a percentage of net sales.
For the first half of 1996, cost of goods sold and occupancy expenses as a
percentage of net sales decreased to 63.5 percent from 68.6 percent for the
same period in 1995. The resulting 5.1 percentage point increase in gross
margin net of occupancy expenses was attributable to a 3.1 percentage point
increase in merchandise margins as a percentage of net sales and a 2.0
percentage point decrease in occupancy expenses as a percentage of net sales.
For the second quarter and first half of fiscal 1996, increases in merchandise
margins as a percentage of net sales resulted from higher initial merchandise
margins and a larger percentage of merchandise sold at regular prices when
compared to the same periods last year. Margins achieved on marked down goods
were also higher than last year.
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 markdowns
and amount of inventory affected.
For the second quarter and first half of fiscal 1996, occupancy expenses
decreased as a percentage of net sales when compared to the same periods last
year. The decreases in occupancy expenses as a percentage of net sales were
primarily attributable to leverage achieved through increases in comparable
store sales. The growth of the Old Navy division with lower occupancy
expenses as a percentage of net sales when compared to other divisions also
contributed to the decrease.
Operating Expenses
Operating expenses as a percentage of net sales increased to 26.4 percent for
the second quarter of 1996 from 24.2 percent for the same period in 1995.
The 2.2 percentage point increase was primarily attributable to a 1.1
percentage point increase in incentive bonus expense, a .7 percentage point
increase in advertising costs to support the Company's brands, and a .4
percentage point increase in charitable contributions expense.
For the first half of 1996, operating expenses as a percentage of net sales
increased to 25.9 percent from 24.0 percent for the same period in 1995. The
1.9 percentage point increase was primarily attributable to a 1.1 percentage
point increase in incentive bonus expense, a .3 percentage point increase in
advertising costs and a .2 percentage point increase in charitable
contributions expense.
Incentive bonus expense is accrued quarterly based on year-to-date performance
measured against established targets. No incentive bonus was recognized in the
first half of 1995.
Net Interest Income/Expense
Net interest income was approximately $4.0 million for the second quarter and
$7.6 million for the first half of 1996 compared to net interest income of
$4.4 million and $9.3 million for the same periods in 1995.
Income Taxes
The Company does not anticipate any change in the effective tax rate of 39.5
percent for the remainder of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth certain measures of the Company's liquidity:
Twenty-six weeks ended
August 3, 1996 July 29, 1995
Cash provided by (used for)
operating activities ($000) $250,007 $(3,404)
Working capital ($000) $662,407 $558,901
Current ratio 2.0:1 2.2:1
For the twenty-six weeks ended August 3, 1996, the increase in cash flows
provided by operating activities was primarily attributable to an increase
in net earnings exclusive of depreciation expense, an increase in accrued
bonus expense, and improved inventory management.
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 to twelve weeks during the late summer and holiday periods.
For the twenty-six weeks ended August 3, 1996, capital expenditures totaled
approximately $145 million, net of disposals. These expenditures included the
addition of 88 new stores, the expansion of 21 stores and the remodeling of
certain stores resulting in a net increase in store space of approximately
705,000 square feet or 6 percent since February 3, 1996.
For fiscal 1996, the Company expects capital expenditures to total
approximately $300 to $350 million before dispositions, representing the
addition of approximately 175 to 200 new stores, the expansion of
approximately 40 to 50 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 15 percent before store closings. New stores
are generally expected to be leased.
During fiscal 1995, the Company commenced construction of a distribution center
in Gallatin, Tennessee for an estimated cost at completion of $45 to $55
million. The facility became fully operational in September 1996.
Additionally in May 1996, the Company purchased land and a building in the
Netherlands for approximately $10 million to relocate its European
distribution center. The distribution center which began operating in June
1996 provides a central shipping location to the European continent.
In February 1996, the Company exercised an option to purchase land for $9
million in San Bruno, California to expand its headquarters facilities.
Construction commenced in April 1996 for an estimated cost at completion of
$55 to $60 million. The facility is expected to be in operation in late
fiscal 1997.
On February 27, 1996, the Company's Board of Directors authorized a two-for-one
split of its common stock effective April 10, 1996, in the form of a 100
percent stock dividend to stockholders of record at the close of business on
March 18, 1996. Per share amounts in the accompanying consolidated financial
statements give effect to the stock split.
The Company has a credit agreement which provides for a $250 million revolving
credit facility through June 30, 1998. In addition, the credit agreement
provides, on a committed basis, for the issuance of letters of credit up to
$450 million at any one time. Outstanding letters of credit, including
committed and uncommitted lines of credit, totaled approximately $517 million
at August 3, 1996.
Under a program announced in October 1994 to repurchase up to 18 million shares
of the Company's outstanding common stock, the Company acquired 5,879,600
shares during the first half of 1996 for approximately $178 million. To date
under this program, 13,019,400 shares have been repurchased for approximately
$299 million.
PART II
OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders
a) On May 21, 1996, the Annual Meeting of Stockholders of the Company was
held in San Francisco, California. There were 288,377,346 shares of common
stock outstanding on the record date and entitled to vote at the Annual
Meeting.
b) The following directors were elected:
Votes in favor Against
Adrian D.P. Bellamy 256,065,121 1,338,431
John G. Bowes 256,055,453 1,348,099
Millard S. Drexler 256,001,073 1,402,479
Donald G. Fisher 256,994,083 1,409,469
Doris F. Fisher 256,999,857 1,403,695
Robert J. Fisher 256,001,021 1,402,531
Lucie J. Fjeldstad 256,061,069 1,342,483
William A. Hasler 253,808,457 3,595,095
John M. Lillie 256,000,215 1,403,337
Charles R. Schwab 256,002,073 1,401,479
Brooks Walker, Jr. 256,059,251 1,344,301
There were no abstentions and no broker non-votes.
c) The adoption of the 1996 Stock Option and Award Plan was ratified with
156,655,514 votes in favor and 85,552,653 against.
There were 15,195,385 abstentions.
d) The adoption of the Executive Long-Term Cash Award Performance Plan was
ratified with 252,004,591 votes in favor and 3,392,617 against.
There were 2,006,344 abstentions.
e) the selection of Deloitte & Touche, LLP as independent auditors for
the fiscal year ending February 1, 1997 was ratified with 256,992,328 votes
in favor and 207,548 against.
There were 203,676 abstentions.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(10) Amendment to the Credit Agreement, dated as of June 3, 1996, among
Registrant and Citicorp USA Inc.; Bank of America National Trust &
Savings Association; National Westminster Bank PLC; Nationsbank of
Texas, N.A.; The Royal Bank of Canada; Bank of Montreal; Societe
Generale; The Fuji Bank, Limited; U.S. National Bank of Oregon;
Morgan Guaranty Trust Company of New York; The Sumitomo Bank Limited;
and Citibank, N.A.
(11) Computation of Earnings per Share
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
b) The Company did not file any reports on Form 8-K during the three
months ended August 3, 1996.
SIGNATURES
Pursuant to the requirements 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: September 13, 1996 By /s/ Warren R. Hashagen
Warren R. Hashagen
Chief Financial Officer
(Principal financial officer of the registrant)
Date: September 13, 1996 By /s/ Millard S. Drexler
Millard S. Drexler
President and Chief Executive Officer
EXHIBIT INDEX
(10) Amendment to the Credit Agreement, dated as of June 3, 1996, among
Registrant and Citicorp USA Inc.; Bank of America National Trust &
Savings Association; National Westminster Bank PLC; Nationsbank of
Texas, N.A.; The Royal Bank of Canada; Bank of Montreal; Societe
Generale; The Fuji Bank, Limited; U.S. National Bank of Oregon;
Morgan Guaranty Trust Company of New York; The Sumitomo Bank Limited;
and Citibank, N.A.
(11) Computation of Earnings per Share
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
AMENDMENT TO CREDIT AGREEMENT
Amendment to Credit Agreement, dated as of June 3, 1996 (this
"Amendment"), among The Gap, Inc., a Delaware corporation (the "Borrower"),
the LC Subsidiaries (as defined in the Credit Agreement referred to below)
listed on the signature pages hereof, the lenders (the "Lenders") listed on
the signature pages hereof and Citibank, N.A., ("Citibank"), as issuing bank
(the "Issuing Bank"), and Citicorp USA Inc. ("CUSA"), as agent (the "Agent")
for the Issuing Bank and the Lenders.
PRELIMINARY STATEMENTS:
1. The Borrower, the LC Subsidiaries, the Lenders, the Issuing
Bank and the Agent have entered into a Credit Agreement, dated as of August 1,
1995 (such credit agreement, as it may be amended and in effect from time to
time, being referred to herein as the "Credit Agreement"; terms defined therein
and not otherwise defined herein being used herein as therein defined).
2. The Borrower, the LC Subsidiaries, the Lenders, the Issuing Bank and the
Agent wish to amend the Credit Agreement, among other things, to (i)
change the Revolver Termination Date to June 30, 2001, (ii) decrease the
aggregate amount of the LC Commitments from $500,000,000 to $450,000,000, (iii)
change in certain respects the terms of the Credit Agreement providing for fees
and interest and (iv) otherwise amend the Credit Agreement, in each case on the
terms and subject to the conditions hereof.
3. Pursuant to Section 3.11 of the Credit Agreement, by notice dated May 20,
1996, the Borrower requested that the LC Lenders and Issuing Bank agree to
extend the LC Termination Date by 364 days from the currently scheduled
LC Termination Date, and the Issuing Bank and LC Lenders are willing to grant
such extension, on the terms and subject to the conditions hereof.
NOW, THEREFORE, in consideration of the premises set forth above and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendments to Credit Agreement. (a) The second sentence
of the Preliminary Statement of the Credit Agreement is hereby amended
by deleting the dollar amount "$500,000,000" appearing therein and inserting
in its place the dollar amount "$450,000,000".
(b) Section 1.01 of the Credit Agreement is hereby amended by the
addition of the following defined terms, in the appropriate alphabetical
location:
"First Amendment" means the Amendment to Credit Agreement dated as of
June 3, 1996 among the Borrower, the LC Subsidiaries, the Lenders, the
Issuing Bank and the Agent.
"First Amendment Effective Date" has the meaning set forth in the
First Amendment.
(c)(i) The definition of "A Commitment" appearing in Section 1.01
of the Credit agreement is hereby amended in its entirety so as to read in
full as follows:
"'A Commitment' means, as to each A Lender, the amount set
forth opposite such A Lender's name on the signature pages hereof
under the caption 'A Commitment' or, if such A Lender has entered
into one or more Assignment and Acceptances, the amount set forth for
such A Lender with respect thereto in the Register maintained by the
Agent pursuant to Section 10.07 hereof, in each case as such amount
may be reduced pursuant to Section 2.05."
(ii) The definition of "Adjusted CD Rate Margin" appearing in
Section 1.01 of the Credit Agreement is hereby amended in its entirety so
as to read in full as follows:
"'Adjusted CD Rate Margin' means at any date of determination:
(i) 0.375% per annum at all times until the First Amendment
Effective Date; and
(ii) 0.285% per annum at all times from and after the First
Amendment Effective Date until the Revolver Termination Date."
(iii) The definition of "Eurodollar Rate Margin" appearing in Section
1.01 of the Credit Agreement is hereby amended in its entirety so as to
read in full as follows:
"'Eurodollar Rate Margin' means at any date of determination:
(i) 0.25% per annum at all times until the First Amendment
Effective Date; and
(ii) 0.16% per annum at all times from and after the First
Amendment Effective Date until the Revolver Termination Date."
(iv) The definition of "LC Commitment" appearing in Section 1.01 of
the Credit Agreement is hereby amended in full to read as follows:
"'LC Commitment" means, as to any LC Lender, the amount set
forth opposite such LC Lender's name on the signature pages of the
First Amendment under the caption 'LC Commitment', or, if such LC
Lender has entered into one or more Assignment and Acceptances, the
amount set forth for such LC Lender with respect thereto in the
Register maintained by the Agent pursuant to Section 10.07 hereof, in
each case as such amount may be reduced or increased from time to
time pursuant to Section 3.09."
(v) The definition of "LC Termination Date" appearing in Section
1.01 of the Credit Agreement is hereby amended by deleting the reference
therein to "July 2, 1996" and replacing it with "July 1, 1997".
(vi) The definition of "Revolver Termination Date" appearing in
Section 1.01 of the Credit Agreement is hereby amended by deleting the
reference therein to "June 30, 1998" and replacing it with "June 30, 2001".
(d) Section 2.04 of the Credit Agreement is hereby amended in its
entirety so as to read in full as follows:
"SECTION 2.04 Fees; Consolidated Fixed Charge Coverage Ratio
Payments. (a) Facility Fee. The Borrower agrees to pay to the Agent
for the account of each A Lender a facility fee, accruing (i) at the rate
of 0.10% per annum until the First Amendment Effective Date and (ii) at the
rate of 0.09% from and after the First Amendment Effective Date, on the
amount of such A Lender's A Commitment (computed without giving effect to
any B Reduction or any other usage of the A Commitment of such Lender),
payable quarterly in arrears on the last day of each January, April, July
and October and on the Revolver Termination Date.
(b) Utilization Fee. The Borrower agrees to pay to the Agent
for the account of each A Lender a utilization fee, accruing, during all
periods from and after the First Amendment Effective Date when the
aggregate amount of outstanding A Advances made by such Lender exceeds 50%
of such Lender's A Commitment (without regard to any usage thereof), at the
rate of 0.05% per annum on the aggregate amount of such A Advances
outstanding from time to time during such periods, payable quarterly in
arrears on the last day of each January, April, July and October and on the
Revolver Termination Date.
(c) Commitment Fee. If, at the end of any Fiscal Quarter of
the Borrower ending on or before the First Amendment Effective Date, the
Borrower's Consolidated Fixed Charge Coverage Ratio (determined as provided
in Section 7.03(d)) is less than 1.6 to 1.0, the Borrower agrees to pay to
the Agent for the account of each A Lender a commitment fee on the average
daily unused portion of such Lender's A Commitment during such Fiscal
Quarter at the rate of 1/8% per annum. The commitment fee payable
hereunder in respect of any Fiscal Quarter shall be payable concurrently
with the Borrower's delivery in respect of such Fiscal Quarter of the
certificate provided for in Section 7.04(i) hereof if such certificate
indicates a Consolidated Fixed Charge Coverage Ratio (determined as
provided in Section 7.03(d)) of less than 1.6 to 1.0 and concurrently with
the Borrower's delivery in respect of such Fiscal Quarter of the financial
statements provided for in Section 7.04(ii) or (iii)(as applicable) hereof
if such financial statements and the statement accompanying the same
indicate a Fixed Charge Coverage Ratio (as determined pursuant to
Section 7.03(d)) of less than 1.6 to 1.0 and the certificate delivered
pursuant to Section 7.04(i) did not indicate a Consolidated Fixed Charge
Coverage Ratio of less than 1.6 to 1.0 as at the end of such Fiscal
Quarter. No commitment fee shall be payable hereunder after the Revolver
Termination Date.
(d) Consolidated Fixed Charge Coverage Ratio Payments. (i)
If the Borrower's Consolidated Fixed Charge Coverage Ratio (determined as
provided in Section 7.03(d)) is less than 1.6 to 1.0 as at the end of any
Fiscal Quarter in which any A Advances were outstanding at any time, then
the Borrower shall pay additional interest (each an "Additional Interest
Payment") on all A Advances that were outstanding during such Fiscal
Quarter as follows:
(A) a dollar amount (1) equal to 0.25% per annum
on the principal amount of all Eurodollar Rate Advances
outstanding during such Fiscal Quarter for the period, if any,
outstanding during such Fiscal Quarter prior to the First
Amendment Effective Date and (2) equal to 0.09% per annum on
the principal amount of all Eurodollar Advances outstanding
during such Fiscal Quarter for the period outstanding during
such Fiscal Quarter from and after the First Amendment
Effective Date; and
(B) a dollar amount (1) equal to 0.25% per annum
on the principal amount of all Adjusted CD Rate Advances
outstanding during such Fiscal Quarter for the period, if any,
outstanding during such Fiscal Quarter prior to the First
Amendment Effective Date and (2) equal to 0.09% per annum on
the principal amount of all Adjusted CD Rate Advances
outstanding during such Fiscal Quarter for the period
outstanding during such Fiscal Quarter from and after the First
Amendment Effective Date.
The Additional Interest Payments in respect of any Fiscal Quarter
shall be made by the Borrower (i) concurrently with its delivery in
respect of such Fiscal Quarter of the certificate provided for in
Section 7.04(i) if such certificate indicates a Consolidated Fixed
Charge Coverage Ratio as at the end of such Fiscal Quarter
(determined as provided in Section 7.03(d)) of less than 1.6 to 1.0
or (ii) concurrently with its delivery in respect of such Fiscal
Quarter of the financial statements provided for in Section 7.04(ii)
or (iii)(as applicable) if such financial statements and the
statement accompanying the same indicate a Consolidated Fixed Charge
Coverage Ratio as at the end of such Fiscal Quarter(determined as
provided pursuant to Section 7.03(d)) of less than 1.6 to 1.0 and the
certificate delivered pursuant to Section 7.04(i) did not indicate a
Consolidated Fixed Charge Coverage Ratio of less than 1.6 to 1.0 as
at the end of such Fiscal Quarter.
(ii) If the Borrower's Consolidated Fixed Charge
Coverage Ratio (determined as provided in Section 7.03(d)) is less
than 1.6 to 1.0 as at the end of any Fiscal Quarter ending on or
after the First Amendment Effective Date during which any Lender had
any A Commitment in effect at any time, then the Borrower shall pay
to the Agent for the account of each Lender additional facility fees
(each an "Additional Facility Fee Payment") on the amount of such
A Lender's A Commitment (computed without giving effect to any
B Reduction or any other usage of the A Commitment of such Lender) in
a dollar amount equal to 0.11% per annum on amount of such Lender's A
Commitment during such Fiscal Quarter for the period of such Fiscal
Quarter. Each Additional Facility Fee Payment in respect of any
Fiscal Quarter shall be made by the Borrower (i) concurrently with
its delivery in respect of such Fiscal Quarter of the certificate
provided for in Section 7.04(i) if such certificate indicates a
Consolidated Fixed Charge Coverage Ratio as at the end of such Fiscal
Quarter (determined as provided in Section 7.03(d)) of less than 1.6
to 1.0 or (ii) concurrently with its delivery in respect of such
Fiscal Quarter of the financial statements provided for in
Section 7.04(ii) or (iii)(as applicable) if such financial statements
and the statement accompanying the same indicate a Consolidated Fixed
Charge Coverage Ratio as at the end of such Fiscal Quarter(determined
as provided pursuant to Section 7.03(d)) of less than 1.6 to 1.0 and
the certificate delivered pursuant to Section 7.04(i) did not
indicate a Consolidated Fixed Charge Coverage Ratio of less than 1.6
to 1.0 as at the end of such Fiscal Quarter.
(iii) In order to facilitate implementation of this
Section 2.04(d) the Borrower agrees that it will comply with the
reporting requirements of Section 7.04(i) and 7.04(ii) or (iii) (as
applicable) in respect of each Fiscal Quarter of the Borrower in
which any A Advance shall be outstanding at any time or any A
Commitment in effect at any time, regardless of whether the Revolver
Termination Date shall have occurred at or before the end of such
Fiscal Quarter."
(e) Section 3.01 of the Credit Agreement is hereby amended by
deleting the dollar amount "$500,000,000" appearing therein and inserting
in its place the dollar amount "$450,000,000".
(f) Section 3.05(a) of the Credit Agreement is hereby amended in
its entirety so as to read in full as follows:
"(a) Facility Fee. The Borrower hereby agrees to pay to each
LC Lender (in accordance with its LC Commitment Percentage) a letter of
credit facility fee, accruing (i) at a rate of 0.08% per annum until the
First Amendment Effective Date and (ii) at a rate of 0.07% per annum from
and after the First Amendment Effective Date, on the total amount of
LC Commitments from time to time during such periods (regardless of the
actual or deemed usage thereof) payable quarterly in arrears on the last
day of each January, April, July and October and on the LC Termination
Date."
(g) Section 3.09 of the Credit Agreement is hereby amended in its
entirety so as to read in full as follows:
"SECTION 3.09 Reductions and Increases in LC Commitments.
(a) The Borrower shall have the right, upon at least three Business Days'
notice to the Issuing Bank and the Agent, to irrevocably terminate in whole
or reduce in part the Issuing Bank's commitment to issue Letters of Credit
as specified in Section 3.01 (which reduction shall without further act
reduce in whole or ratably in part the respective LC Commitments of the
LC Lenders), provided, that, each partial reduction shall be in the
aggregate amount of $25,000,000 or an integral multiple of $1,000,000 in
excess thereof and no such reduction shall reduce the LC Commitments below
the then outstanding amount of Letter of Credit Liability.
(b) Not more frequently than once in any period of twelve
consecutive calendar months occurring after the First Amendment Effective
Date, the Borrower shall have the right prior to the LC Termination Date to
increase the amount of the Issuing Bank's commitment to issue Letters of
Credit and the amount of the LC Commitments of one or more LC Lenders (each
such increase being an "LC Commitment Increase"), provided that the Issuing
Bank and such LC Lenders shall have consented to such LC Commitment
Increase (which consent may be granted or withheld by the Issuing Bank and
any LC Lender in its sole and absolute discretion), on and subject to the
following terms:
(i) The aggregate amount of all LC Commitment Increases
shall not exceed $100,000,000 over the period after the First
Amendment Effective Date;
(ii) The aggregate amount of each LC Commitment Increase
shall be in a minimum amount of $10,000,000 or an integral multiple
of $1,000,000 in excess thereof;
(iii) Each LC Commitment Increase shall increase the
amount of the Issuing Bank's commitment to issue Letters of Credit
and the aggregate amount of the LC Commitments by the same amount;
(iv) No proposed LC Commitment Increase shall occur
unless each of the following requirements in respect thereof shall
have been satisfied:
(A) The Agent shall have received from the
Borrower an irrevocable written notice (an "Increase Notice"),
dated not earlier than 60 days before the proposed Increase
Effective Date (as defined below) therefor and not later than
30 days before such proposed Increase Effective Date, that (1)
specifies (x) the aggregate amount of the proposed LC
Commitment Increase, (y) the LC Lenders whose LC Commitments
are to be increased by the proposed LC Commitment Increase and
the amount by which each such LC Lender's LC Commitment is to
be so increased and (z) the date (the "Increase Effective
Date") on which the proposed LC Commitment Increase shall
become effective, and (2) has been signed by the Issuing Bank
and each LC Lender whose LC Commitment is to be increased,
evidencing the consent of the Issuing Bank and such LC Lender
to the proposed LC Commitment Increase;
(B) On and as of the Increase Effective Date of
the proposed LC Commitment Increase (1) the following
statements shall be true (and the giving of the applicable
Increase Notice shall constitute a representation and warranty
by the Borrower that on such Increase Effective Date such
statements are true):
(x) The representations and warranties
contained in Section 6.01 are correct on and as of
such Increase Effective Date before and after
giving effect to the proposed LC Commitment
Increase, as though made on and as of such date,
and
(y) No event has occurred and is
continuing, or would result from such LC Commitment
Increase, which constitutes an Event of Default or
Default; and
and (2) the Agent shall have received such other approvals,
opinions or documents as the Agent may reasonably request.
(v) Promptly following its receipt of a Increase Notice
in proper form, the Agent shall deliver copies thereof to the Issuing
Bank and each Lender. If, and only if, all of the terms, conditions
and requirements specified in paragraphs (i) through (iv) are
satisfied in respect of any proposed LC Commitment on and as of the
proposed Increase Effective Date thereof, then, as of such Increase
Effective Date and from and after such date, (1) the amount of the
Issuing Bank's commitment to issue Letters of Credit shall be
increased by the amount of the proposed LC Commitment Increase and
the LC Commitments of the LC Lenders consenting to such LC Commitment
Increase shall be increased by the respective amounts specified in
the Increase Notice pertaining thereto and (2) references herein to
the amount of the Issuing Bank's commitment to issue Letters of
Credit and to the amounts of the LC Lenders' respective LC
Commitments shall refer to respective amounts giving effect to such
LC Commitment Increase.
(vi) It is understood that neither the Issuing Bank nor
any LC Lender shall have any obligation whatsoever to agree to any
request made by the Borrower for an LC Commitment Increase."
(h) The last sentence of Section 3.12(c) of the Credit Agreement is
hereby amended in its entirety so as to read in full as follows:
"Amounts on deposit with the Issuing Bank as cash collateral shall be
invested in Cash Equivalents as directed by the Borrower and shall be
released at the earlier of the date on which the aggregate of all Letter of
Credit Liability does not exceed 99% of the aggregate amount of the LC
Commitments then in effect (without regard to any usage thereof) or on the
LC Termination Date."
SECTION 2. Conditions of Effectiveness. Section 1 of this Amendment
shall become effective as of July 2, 1996 (the "First Amendment Effective
Date") if and only if by such date the Agent shall have received all of the
following, in each case in form and substance satisfactory to the Agent and
in sufficient copies for each Lender:
(a) counterparts of this Amendment duly executed by the Borrower,
each LC Subsidiary, each Lender, the Issuing Bank and the Agent;
(b) Certified copies of all documents evidencing necessary
corporate action and governmental approvals, if any, with respect to this
Amendment.
(c) A certificate, dated the First Amendment Effective Date, of the
Vice President-Treasurer of the Borrower certifying the names and true
signatures of the officers of the Borrower and each LC Subsidiary
authorized to sign this Amendment and the other documents to be delivered
hereunder or under the Credit Agreement as amended hereby (including,
without limitation, Letter of Credit applications and agreements).
(d) A favorable opinion of the Borrower's and the LC Subsidiaries'
General Counsel or Associate General Counsel, dated the First Amendment
Effective Date and substantially in the form of Exhibit A hereto, and as to
such other matters as any Lender through the Agent may reasonably request.
(e) A favorable opinion of Shearman & Sterling, counsel for the
Agent, dated the First Amendment Effective Date and substantially in the
form of Exhibit B hereto.
SECTION 3. Representations and Warranties. The Borrower hereby
represents and warrants, as of the date hereof and as of the First Amendment
Effective Date, as follows:
(a) The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of Delaware; each LC Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation. The Borrower and each of its
Subsidiaries possess all corporate powers and all other authorizations and
licenses necessary to engage in their respective businesses, except where
the failure to so possess would not have a Material Adverse Effect.
(b) The execution, delivery and performance by the Borrower and
each LC Subsidiary of this Amendment and of the Credit Agreement as amended
hereby are within the Borrower's and such LC Subsidiary's respective
corporate powers, have been duly authorized by all necessary corporate
action, and do not contravene (i) the Borrower's or any LC Subsidiary's
charter or by-laws or (ii) law or any contractual restriction binding on or
affecting the Borrower or any LC Subsidiary or their respective properties.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Borrower or
each LC Subsidiary of this Amendment and the Credit Agreement as amended
hereby.
(d) This Amendment and the Credit Agreement as amended hereby
constitute the legal, valid and binding obligations of the Borrower and
each LC Subsidiary enforceable against the Borrower and each LC Subsidiary
in accordance with their terms.
(e) The Consolidated balance sheets of the Borrower and its
Subsidiaries as at February 3, 1996, and the related Consolidated
statements of income and retained earnings of the Borrower and its
Subsidiaries for the Fiscal Year then ended, certified by Deloitte &
Touche, copies of which have been furnished to each Lender, fairly present
the Consolidated financial condition of the Borrower and its Subsidiaries
as at such date and the results of the operations of the Borrower and its
Subsidiaries for the periods ended on such date, all in accordance with
generally accepted accounting principles consistently applied and since
February 3, 1996, there has been no change in such condition or operations
which, considering the surrounding circumstances, will, or is reasonably
likely to, cause a breach of any of the financial covenants contained in
Section 7.03 of the Credit Agreement.
(f) There is no pending or, to the best of Borrower's knowledge,
threatened action or proceeding affecting the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which has
a reasonable probability (taking into account the exhaustion of all appeals
and the assertion of all defenses) of having a Material Adverse Effect or
which purports to affect the legality, validity or enforceability of this
Agreement.
(g) The Borrower and its Subsidiaries are not engaged in the
business of extending credit for the purpose of purchasing or carrying
Margin Stock, and no proceeds of any Advance will be used by the Borrower
or any of its Subsidiaries to extend credit to others for the purpose of
purchasing or carrying any Margin Stock.
(h) Neither the Borrower nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.
(i) Except as has been disclosed in writing to the Lenders, neither
the Borrower nor any of its Subsidiaries has any Plans. Neither the
Borrower nor any ERISA Affiliate is a party or subject to, or has any
obligation to make payments, to, any Multiemployer Plan.
SECTION 4. Reference to and Effect on the Credit Agreement. (a) On
and after the First Amendment Effective Date, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof " or words of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement is
and shall continue to be in full force and effect and is hereby ratified and
confirmed in all respects.
(c) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of any Lender, the
Issuing Bank or the Agent under the Credit Agreement, nor constitute a waiver
of any provision of the Credit Agreement.
SECTION 5. Fees, Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses of the Agent and the Issuing Bank incurred in
connection with the preparation, execution, delivery and administration of
this Amendment and the other documents to be delivered hereunder, including,
without limitation, the fees and out-of-pocket expenses of the Agent's legal
counsel. The Borrower further agrees to pay on demand all costs and expenses
of the Agent, the Issuing Bank and the Lenders (including, without limitation,
reasonable fees and expenses of the Agent's legal counsel) in connection
with the enforcement (whether through negotiations, legal proceedings or
otherwise) of this Amendment.
SECTION 6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. LC Subsidiaries. Each LC Subsidiary hereby (i) consents
in all respects to the transactions contemplated hereby, (ii) acknowledges
and irrevocably agrees that none of its respective obligations under the
Credit Agreement or with respect to the Letters of Credit for which it is
the account party shall be affected hereby, (iii) acknowledges and
irrevocably agrees that all of its respective obligations under the Credit
Agreement, as amended hereby, and with respect to the Letters of Credit for
which it is the account party are in full force and effect, (iv) ratifies
and reaffirms in all respects the Credit Agreement, as amended hereby, and
the Letters of Credit for which it is the account party and all of its
respective obligations with respect thereto, (v) certifies that it has
received a copy hereof, has reviewed the same and is fully apprised of the
contents and substance hereof and (vi) confirms that it shall be bound by
the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE BORROWER:
THE GAP, INC.
By
Name:
Title:
THE LC SUBSIDIARIES:
BANANA REPUBLIC, INC.
By
Name:
Title:
GPS (GREAT BRITAIN) LIMITED
By
Name:
Title:
GAP (CANADA), INC.
By
Name:
Title:
GAP INTERNATIONAL
SOURCING LIMITED
By
Name:
Title:
GAP INTERNATIONAL
SOURCING PTE. LTD.
By
Name:
Title:
GAP (JAPAN) K.K.
By
Name:
Title:
THE AGENT:
CITICORP USA INC.
By
Name:
Title:
THE ISSUING BANK:
CITIBANK, N.A.
By
Name:
Title:
THE LENDERS:
CITICORP USA INC.
LC Commitment
$ 50,000,000
By
Name:
Title:
BANK OF AMERICA NATIONAL
TRUST & SAVINGS ASSOCIATION
LC Commitment
$ 85,000,000
By
Name:
Title:
NATIONAL WESTMINSTER
BANK PLC
LC Commitment Los Angeles Branch
$ 65,000,000
By
Name:
Title:
Nassau Branch
By
Name:
Title:
NATIONSBANK
OF TEXAS, N.A.
LC Commitment
$ 35,000,000
By
Name:
Title:
ROYAL BANK OF CANADA
LC Commitment
$ 30,000,000
By
Name:
Title:
BANK OF MONTREAL
LC Commitment
$ 35,000,000
By
Name:
Title:
SOCIETE GENERALE
LC Commitment
$ 30,000,000
By
Name:
Title:
THE FUJI BANK, LIMITED
LC Commitment
$ 30,000,000
By
Name:
Title:
U.S. NATIONAL BANK OF OREGON
LC Commitment
$ 30,000,000
By
Name:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
LC Commitment
$ 30,000,000
By
Name:
Title:
THE SUMITOMO BANK LIMITED
LC Commitment
$ 30,000,000
By
Name:
Title:
_______________
$450,000,000 Total of the LC Commitments
<TABLE>
THE GAP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
August 3, 1996 July 29, 1995 August 3, 1996 July 29, 1995
<S> <C> <C> <C> <C>
Net earnings ($000) $ 65,790 $32,414 $ 147,363 $82,527
Weighted average shares of
common stock outstanding
during the period 286,179,138 288,233,222 287,092,901 287,988,160
Add incremental shares
from assumed exercise of stock
options (primary) 3,979,454 603,182 3,689,245 468,704
290,158,592 288,836,404 290,782,146 288,456,864
Primary earnings per share $ 0.23 $ 0.11 $ 0.51 $ 0.28
Weighted average shares of
common stock outstanding
during the period 286,179,138 288,233,222 287,092,901 287,988,160
Add incremental shares from
assumed exercise of stock
options (fully-diluted) 4,034,292 812,982 4,137,765 573,570
290,213,430 289,046,204 291,230,666 288,561,730
Fully-diluted earnings
per share $ 0.23 $ 0.11 $ 0.51 $ 0.28
NOTE:
(1 The information provided above 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.
The information in this exhibit 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%.
(2 All share and per share data have been restated to reflect the 2-for-1
split of common stock in the form of a stock dividend effective April 10,
1996.
</TABLE>
Deloitte &
Touche LLP
2101 Webster Street Telephone: (510)287-2700
Oakland, California 94612-3027 Facsimile: (510)835-4888
To the Board of Directors and Stockholders of
The Gap, Inc.:
We have made reviews, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim
consolidated financial statements of The Gap, Inc. and subsidiaries for the
thirteen and twenty-six week periods ended August 3, 1996 and July 29, 1995,
as indicated in our report dated August 14, 1996; because we did not perform
an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended August 3, 1996, is
incorporated 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, Registration Statement No. 33-56021, and Registration
Statement No. 333-00417.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
/s/ Deloitte & Touche LLP
September 13, 1996
Deloitte Touche
Tohmatsu
International
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 514,213
<SECURITIES> 74,061
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 573,080
<CURRENT-ASSETS> 1,303,903
<PP&E> 1,705,498
<DEPRECIATION> 686,769
<TOTAL-ASSETS> 2,459,300
<CURRENT-LIABILITIES> 641,496
<BONDS> 0
0
0
<COMMON> 15,866
<OTHER-SE> 1,635,543
<TOTAL-LIABILITY-AND-EQUITY> 2,459,300
<SALES> 1,120,335
<TOTAL-REVENUES> 1,120,335
<CGS> 720,165
<TOTAL-COSTS> 295,381
<OTHER-EXPENSES> (3,956)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 108,745
<INCOME-TAX> 42,955
<INCOME-CONTINUING> 65,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,790
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
