<PAGE>
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 July 29, 2000 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) 427-2000
_______________________
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 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, 849,451,709 shares as of August 26, 2000
-----------------------------------------------------------------------
<PAGE>
GAP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except par value) July 29, January 29, July 31,
2000 2000 1999
-------------- --------------- --------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 327,860 $ 450,352 $ 420,954
Merchandise inventory 2,080,856 1,462,045 1,502,255
Other current assets 375,013 285,393 298,219
-------------- -------------- --------------
Total Current Assets 2,783,729 2,197,790 2,221,428
Property and equipment, net 3,244,940 2,715,315 2,229,729
Lease rights and other assets 345,767 275,651 227,426
-------------- -------------- --------------
Total Assets $ 6,374,436 $ 5,188,756 $ 4,678,583
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 859,448 $ 168,961 $ 413,495
Accounts payable 922,866 805,945 742,370
Accrued expenses and other current liabilities 617,785 777,973 687,085
-------------- -------------- --------------
Total Current Liabilities 2,400,099 1,752,879 1,842,950
Long-Term Liabilities:
Long-term debt 1,022,871 784,925 542,279
Deferred lease credits and other liabilities 452,325 417,907 365,874
-------------- -------------- --------------
Total Long-Term Liabilities 1,475,196 1,202,832 908,153
Shareholders' Equity:
Common stock $.05 par value
Authorized 2,300,000 shares
Issued 933,098; 1,007,357
and 1,003,911 shares,
Outstanding 849,574; 850,499
and 858,936 shares 46,654 50,368 50,196
Additional paid-in capital 189,589 669,490 578,550
Retained earnings 4,573,338 4,172,796 3,500,643
Accumulated other comprehensive gain (loss) 10,003 (6,759) (20,887)
Deferred compensation (18,112) (23,150) (28,948)
Treasury stock, at cost (2,302,331) (2,629,700) (2,152,074)
-------------- -------------- --------------
Total Shareholders' Equity 2,499,141 2,233,045 1,927,480
-------------- -------------- --------------
Total Liabilities and Shareholders' Equity $ 6,374,436 $ 5,188,756 $ 4,678,583
============== ============== ==============
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
<PAGE>
GAP INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
-------------------------------------------------------------------------------
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
-------------------------------- -----------------------------------
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------------------- -----------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 2,947,714 $ 2,453,339 $ 5,679,704 $ 4,731,073
Costs and expenses
Cost of goods sold and occupancy expenses 1,837,064 1,443,545 3,438,969 2,777,700
Operating expenses 809,294 693,297 1,559,597 1,308,446
Net interest expense 11,719 3,171 20,672 7,809
------------ ------------ ------------ ------------
Earnings before income taxes 289,637 313,326 660,466 637,118
Income taxes 105,717 117,497 241,070 238,919
------------ ------------ ------------ ------------
Net earnings $ 183,920 $ 195,829 $ 419,396 $ 398,199
============ ============ ============ ============
---------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares - basic 849,641,253 857,352,256 849,983,457 855,909,900
Weighted average number of shares - diluted 880,119,755 898,991,202 884,183,119 899,521,052
Earnings per share - basic $ 0.22 $ 0.23 $ 0.49 $ 0.47
Earnings per share - diluted $ 0.21 $ 0.22 $ 0.47 $ 0.44
Cash dividends per share $ 0.02 $ 0.02 $ 0.04/(a)/ $ 0.04/(b)/
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
/(a)/ Includes a dividend of $0.02 per share declared in January 2000 but paid
in first quarter of fiscal 2000.
/(b)/ Includes a dividend of $0.02 per share declared in January 1999 but paid
in first quarter of fiscal 1999.
<PAGE>
GAP INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) Twenty-six Weeks Ended
---------------------------------------
July 29, 2000 July 31, 1999
------------------- ------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 419,396 $ 398,199
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 270,436 195,873
Tax benefit from exercise of stock options
and vesting of restricted stock 87,278 165,353
Changes in operating assets and liabilities:
Merchandise inventory (625,943) (447,785)
Other current assets (104,486) (33,935)
Accounts payable 122,871 58,989
Accrued expenses (114,034) (74,695)
Deferred lease credits and other liabilities 13,255 32,543
------------- ------------
Net cash provided by operating activities 68,773 294,542
------------- ------------
Cash Flows from Investing Activities:
Net purchase of short-term investments - (14,989)
Net purchase of property and equipment (793,827) (549,985)
Acquisition of lease rights and other assets (52,791) (19,521)
------------- ------------
Net cash used for investing activities (846,618) (584,495)
------------- ------------
Cash Flows from Financing Activities:
Net increase in notes payable 700,053 328,516
Issuance of long-term debt 250,000 49,710
Issuance of common stock 56,970 48,408
Net purchase of treasury stock (304,713) (241,562)
Cash dividends paid (37,735) (37,963)
------------- ------------
Net cash provided by financing activities 664,575 147,109
------------- ------------
Effect of exchange rate fluctuations on cash (9,222) (1,455)
------------- ------------
Net decrease in cash and equivalents (122,492) (144,299)
Cash and equivalents at beginning of year 450,352 565,253
------------- ------------
Cash and equivalents at end of quarter $ 327,860 $ 420,954
============= ============
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
<PAGE>
GAP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
The condensed consolidated balance sheets as of July 29, 2000 and July 31, 1999
and the interim condensed consolidated statements of earnings for the thirteen
and twenty-six weeks ended July 29, 2000 and July 31, 1999 and cash flows for
the twenty-six week periods ended July 29, 2000 and July 31, 1999 have been
prepared by the Company, without audit. In the opinion of management, such
statements include 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 July 29, 2000 and July
31, 1999, and for all periods presented.
Certain information and disclosures normally included in the notes to 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 January
29, 2000.
The condensed consolidated balance sheet as of January 29, 2000 was derived from
the Company's January 29, 2000 balance sheet included in the Company's 1999
Annual Report on Form 10-K.
The results of operations for the twenty-six weeks ended July 29, 2000 are not
necessarily indicative of the operating results that may be expected for the
year ending February 3, 2001.
Certain reclassifications have been made to the 1999 financial statements to
conform with the 2000 presentation.
2. COMPREHENSIVE EARNINGS
----------------------
Comprehensive earnings include net earnings and other comprehensive earnings
(losses). Other comprehensive earnings (losses) include foreign currency
translation adjustments and fluctuations in the fair market value of certain
financial instruments. Comprehensive earnings for the thirteen and twenty-six
weeks ended July 29, 2000 and July 31, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------------------- --------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net earnings $183,920 $195,829 $419,396 $398,199
Other comprehensive earnings (losses) 3,990 (408) 16,762 (8,369)
--------------------------------- -------------------------------
Comprehensive earnings $187,910 $195,421 $436,158 $389,830
================================== ===============================
</TABLE>
<PAGE>
3. EARNINGS PER SHARE
------------------
Basic earnings per share is computed using the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share
includes the dilutive effect of the Company's potentially dilutive securities,
which include certain stock options, unvested shares of restricted stock, and
certain put options. The following summarizes the incremental shares from these
potentially dilutive securities, calculated using the treasury stock method.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------- -------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Weighted-average number of shares - basic 849,641,253 857,352,256 849,983,457 855,909,900
Incremental shares resulting from:
Stock options 29,906,782 40,685,597 33,580,804 41,540,285
Restricted stock 540,793 941,906 618,858 2,052,413
Put options 30,927 11,443 - 18,454
------------------------------ --------------------------------
Weighted-average number of shares - diluted 880,119,755 898,991,202 884,183,119 899,521,052
============================== ================================
</TABLE>
Excluded from the above computations of weighted-average shares for diluted
earnings per share were options to purchase 21,531,753 and 16,682,889 shares of
common stock during the thirteen and twenty-six weeks ended July 29, 2000,
respectively, and 112,694 and 254,712 shares during the thirteen and twenty-six
weeks ended July 31, 1999, respectively. Additionally, put options to repurchase
375,000 shares during the twenty-six weeks ended July 29, 2000 were excluded
from the above computations. Issuance or repurchase of these securities would
have resulted in an antidilutive effect on earnings per share.
4. PUT OPTIONS
-----------
During the second quarter of fiscal 2000, the Company repurchased 375,000 shares
under put options contracts for approximately $14 million.
At the end of the second quarter of fiscal 2000, the Company was obligated under
a put option contract to repurchase 375,000 shares of the Company's stock. The
contract has an exercise price of $37.22 per share, with an expiration date of
October 23, 2000.
5. TREASURY SHARES RETIREMENT
--------------------------
During the first quarter of fiscal 2000, the Company retired approximately 81
million treasury shares with a cost basis of approximately $642 million. This
retirement did not affect results of operations.
6. LONG-TERM DEBT
--------------
During the second quarter of fiscal 2000, the Company issued $250 million of
debt securities at a rate per annum, reset quarterly, equal to the three-month
LIBOR plus 0.125%, due November 15, 2001.
<PAGE>
7. SUBSEQUENT EVENTS
-----------------
In August 2000, the Company entered into two put option contracts. Each contract
was to repurchase 400,000 shares of the Company's stock. The exercise prices for
the contracts are $26.75 and $25.53 per share, with expiration dates of November
2000 and February 2001, respectively.
<PAGE>
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105-2230
Tel: (415) 783 4000
Fax: (415) 783 4329
www.us.deloitte.com
Deloitte
& Touche
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
The Gap, Inc.:
We have reviewed the accompanying condensed consolidated balance sheets of The
Gap, Inc. and subsidiaries as of July 29, 2000 and July 31, 1999 and the related
condensed consolidated statements of earnings for the thirteen and twenty-six
week periods ended July 29, 2000 and July 31, 1999 and condensed consolidated
statements of cash flows for the twenty-six week periods ended July 29, 2000 and
July 31, 1999. 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 accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of The
Gap, Inc. and subsidiaries as of January 29, 2000, 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 23, 2000, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of January 29, 2000 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
was derived.
/s/ Deloitte & Touche LLP
San Francisco, California
August 9, 2000
Deloitte
Touche
Tohmatsu
<PAGE>
GAP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
--------------------------------------------------------------------------------
The information below contains certain forward-looking statements which reflect
the current view of Gap Inc. (the "Company") with respect to future events and
financial performance. Wherever used, the words "expect," "plan," "anticipate,"
"believe," and similar expressions identify forward-looking statements.
Any such forward-looking statements are subject to risks and uncertainties and
the Company's actual results of operations could differ materially from
historical results or current expectations. Some of these risks include,
without limitation, ongoing competitive pressures in the apparel industry, risks
associated with challenging international retail environments, changes in the
level of consumer spending or preferences in apparel, trade restrictions and
political or financial instability in countries where the Company's goods are
manufactured, and/or other factors that may be described in the Company's Annual
Report on Form 10-K and/or other filings with the Securities and Exchange
Commission. Future economic and industry trends that could potentially impact
revenues and profitability are difficult to predict.
It is suggested that this document be read in conjunction with the Management's
Discussion and Analysis included in the Company's Annual Report on Form 10-K for
the year ended January 29, 2000.
The Company assumes no obligation to publicly update or revise its forward-
looking statements even if experience or future changes make it clear that any
projected results expressed or implied therein will not be realized.
RESULTS OF OPERATIONS
Net Sales
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------------------------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ($000) $2,947,714 $2,453,339 $5,679,704 $4,731,073
Total net sales growth percentage 20 29 20 31
Comparable store sales (decrease) increase percentage (2) 8 (2) 10
Net sales per average square foot $ 111 $ 123 $ 221 $ 242
Square footage of gross store space - at end of period 26,932 20,391
(000)
Number of Stores:
Beginning of Year 3,018 2,466
New stores 296 200
Expanded stores/(1)/ 72 36
Closed stores 30 5
End of Period 3,284 2,661
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expanded stores do not change store count.
<PAGE>
Store count and square footage at quarter end for fiscal 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
July 29, 2000 July 31, 1999
------------------------------------------------------------------------------------------------------------
Number of Sq. Ft. Number of Sq. Ft.
Stores (millions) Stores (millions)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gap Domestic 1,885 11.0 1,581 9.4
Gap International 454 2.4 331 1.7
Banana Republic 365 2.8 307 2.2
Old Navy 580 10.7 442 7.1
------------------------------------------------------------------------------------------------------------
Total 3,284 26.9 2,661 20.4
============================================================================================================
Increase 23% 32% 15% 21%
</TABLE>
The increases in net sales for the second quarter and first half of fiscal 2000
over the same periods last year were primarily attributable to the increase in
retail selling space, both through the opening of new stores (net of stores
closed) and the expansion of existing stores.
The company's second quarter comparable store sales by division were as follows:
Gap Domestic had a positive mid-single digit versus a negative low-single digit
last year, Gap International had a positive low-single digit versus positive
low-double digits last year, Banana Republic had a flat comp versus positive
low-teens last year, Old Navy had negative low-double digits versus positive
low-twenties last year.
Old Navy's second quarter comparable store sales were negatively impacted by
logistics issues which resulted in lower in-store inventory levels than
originally planned and traffic weakness.
The company's year-to-date comparable store sales by division were as follows:
Gap Domestic had a flat comp versus a positive low-single digit last year, Gap
International had a positive low-single digit versus positive high-teens last
year, Banana Republic had a positive low-single digit versus positive low-teens
last year, Old Navy had a negative mid-single digit versus positive low-twenties
last year.
The decreases in net sales per average square foot for the second quarter and
first half of fiscal 2000 were primarily attributable to the decreases in
comparable store sales and the growing impact of the Old Navy division. Old
Navy division's lower-priced merchandise and significantly larger stores result
in lower net sales per average square foot when compared to other divisions.
Cost of Goods Sold and Occupancy Expenses
Cost of goods sold and occupancy expenses as a percentage of net sales increased
3.5 and 1.8 percentage points in the second quarter and first half of fiscal
2000, respectively, from the same periods in 1999. The increases were driven by
decreased merchandise margin and increased occupancy expenses as a percentage of
net sales.
For both the second quarter and first half of fiscal 2000, the decreases in
merchandise margin as a percentage of net sales were primarily attributable to a
greater percentage of merchandise sold at markdown and lower margins from
marked-down goods, slightly offset by higher margins from regular-priced goods
when compared to the same periods last year. The increases in occupancy
expenses as a percentage of net sales for the second quarter and first half of
fiscal 2000 were primarily attributable to the decreases in net sales per
average square foot.
Operating Expenses
Operating expenses as a percentage of net sales decreased 0.8 and 0.2 percentage
points in the second quarter and first half of fiscal 2000, respectively, from
the same periods in 1999. The improvements were primarily attributable to lower
advertising costs and administrative expenses as a percentage of net sales
partially offset by higher store payroll as a percentage of net sales.
<PAGE>
Net Interest Expense
The increases in net interest expense in the second quarter and first half of
fiscal 2000 as compared to the same periods in 1999 were primarily due to
increased interest costs from an increase in short-term borrowings and the
issuance of long-term debt during the third quarter of fiscal 1999 and the
second quarter of fiscal 2000, partially offset by additional interest
capitalized during the second quarter and first half of fiscal 2000.
Income Taxes
The effective tax rate was 36.5 percent for the second quarter and first half of
fiscal 2000, and 37.5 percent for the second quarter and first half of fiscal
1999. The decrease in the tax rate resulted from the Company's implementation
of global tax planning initiatives based on long-term business needs.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth certain measures of the Company's liquidity:
--------------------------------------------------------------------------------
Twenty-six Weeks Ended
-----------------------------------
July 29, 2000 July 31, 1999
--------------------------------------------------------------------------------
Cash provided by operating activities ($000) $ 68,773 $294,542
Working capital ($000) $383,630 $378,478
Current ratio 1.16:1 1.21:1
--------------------------------------------------------------------------------
For the twenty-six weeks ended July 29, 2000, the decrease in cash flows
provided by operating activities, compared to the same period in the prior year,
was primarily attributable to an increase in merchandise inventory, a decrease
in tax benefit from the exercise of stock options and vesting of restricted
stock and a decrease in the relative growth in accounts payable and accrued
expenses compared to the same period in the prior year partially offset by an
increase in net earnings exclusive of depreciation and amortization.
The Company funds inventory expenditures during normal and peak periods through
a combination of cash flows provided by operations and short-term financing
arrangements. The Company's business follows a seasonal pattern, peaking over a
total of about 13 weeks during the Back-to-School and Holiday periods.
The Company has committed credit facilities totaling $1.35 billion, consisting
of an $1.20 billion, 364-day revolving credit facility, and a $150 million, 5-
year revolving credit facility through June 27, 2005. These credit facilities
provide for the issuance of up to $600 million in letters of credit and provide
backup for the Company's $750 million commercial paper program. The Company has
additional uncommitted credit facilities of $650 million for the issuance of
letters of credit. At July 29, 2000, the Company had outstanding letters of
credit totaling approximately $1.14 billion. The Company had $717 million of
commercial paper and $119 million in Extendable Commercial Notes outstanding at
July 29, 2000.
During the second quarter of fiscal 2000, the Company issued $250 million of
debt securities at a rate per annum, reset quarterly, equal to the three-month
LIBOR plus 0.125%, due November 15, 2001.
For the twenty-six weeks ended July 29, 2000, capital expenditures, net of
construction allowances and dispositions, totaled approximately $791 million.
The majority of these expenditures were used for expansion of the store base,
headquarter and distribution facilities. During the first half of fiscal 2000,
the Company experienced a net increase in store space of approximately 2,954,000
square feet, or 12 percent, due to the addition of 296 new stores, the expansion
of 72 stores and the remodeling of certain stores.
For fiscal 2000, the Company expects capital expenditures to be approximately
$1.8 billion, net of construction allowances. This represents the addition of
640 to 700 new stores, the expansion of approximately 200 stores, the remodeling
of certain stores, as well as amounts for headquarters facilities, distribution
centers and equipment. The Company expects to fund such capital expenditures
with cash flow from operations and other sources of financing. Square footage
growth is expected to be close to 30 percent. By division, the 640 to 700 new
stores are expected to be: Gap Domestic 320 to 340 stores, Banana Republic 40 to
60 stores, Old Navy 150 to 160 stores and Gap International 130 to 140 stores.
New stores are generally expected to be leased.
During 1998, the Company purchased land on which to construct additional
headquarter facilities in San Francisco and San Bruno, California. The
estimated total project costs are approximately $240 million and $100 million,
respectively. Construction commenced on the San Francisco facility during the
third quarter of 1998 and is estimated to continue through early 2001.
Construction commenced during the first quarter of 1999 on the San Bruno
facility and is estimated to continue through late 2000.
<PAGE>
The Company commenced construction on several distribution facilities in 1999.
The estimated total cost for the remaining facilities is approximately $223
million. The majority of the expenditures will be incurred during fiscal 2000.
The facilities are expected to be open in the third quarter of fiscal 2000.
The Company commenced construction on several distribution facilities in the
second quarter of 2000. The estimated total cost for these facilities is
approximately $224 million. The majority of the expenditures will be incurred
during fiscal 2000. The facilities are expected to be open in the third quarter
of fiscal 2001.
The Company took possession of a distribution site and building in Ontario,
Canada during the first quarter of fiscal 2000 to support the initial
international expansion plans for the Old Navy business. The Company will spend
the next year remodeling the facility prior to its anticipated opening date in
mid-2001. The estimated total project cost is approximately $89 million.
In the first half of fiscal 2000, under the 67.5 million share repurchase
program approved in October 1998, the Company acquired approximately 8.4 million
shares for approximately $324 million, including 0.4 million shares acquired
under put option contracts for approximately $14 million.
In August 2000, the Company entered into two put option contracts. Each
contract was to repurchase 400,000 shares of the Company's stock. The exercise
prices for the contracts are $26.75 and $25.53 per share, with expiration dates
of November 2000 and February 2001, respectively.
The Company operates in foreign countries which exposes it to market risk
associated with foreign currency exchange rate fluctuations. The Company's risk
management policy is to hedge substantially all merchandise purchases for
foreign operations through the use of foreign exchange forward contracts to
minimize this risk.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
The market risk of the Company's financial instruments as of July 29, 2000 has
not significantly changed since January 29, 2000.
The market risk profile of the Company on January 29, 2000 is disclosed in the
Company's 1999 Annual Report on Form 10-K.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
The Company has been named as a defendant in two lawsuits relating to sourcing
of products from Saipan (Commonwealth of the Northern Mariana Islands). A
complaint was filed on January 13, 1999 in California Superior Court in San
Francisco by the Union of Needletrades Industrial and Textile Employees, AFL-
CIO; Global Exchange; Sweatshop Watch; and Asian Law Caucus against the Company
and 17 other parties. The plaintiffs allege violations of California's
unlawful, fraudulent and unfair business practices and untrue and misleading
advertising statutes in connection with labeling of product and labor practices
regarding workers of factories that make product for the Company in Saipan. The
plaintiffs seek injunctive relief, restitution, disgorgement of profits and
other damages. Trial has not been set in the state case.
A second complaint was filed on January 13, 1999 in Federal District Court,
Central District of California, by various unidentified worker plaintiffs
against the Company and 25 other parties. Those unidentified worker plaintiffs
seek class-action status and allege, among other things, that the Company (and
other defendants) violated the Racketeer Influenced and Corrupt Organizations
Act in connection with the labor practices and treatment of workers of factories
in Saipan that make product for the Company. The plaintiffs seek injunctive
relief as well as actual and punitive damages. On September 29, 1999 the action
was transferred to the United States District Court, State of Hawaii. On April
28, 2000, plaintiffs filed a First Amended Complaint adding 22 new defendants.
On June 23, 2000, the United States District Court, State of Hawaii, ordered the
case transferred to the United States District Court, District of the Mariana
Islands. On April 22, 1999 the Company, along with several other defendants,
filed a motion in Federal District Court, Central District of California, to
dismiss the case. In light of the transfer order, that motion will be reset for
hearing in the District of the Mariana Islands.
Item 4. Submissions of Matters to a Vote of Security Holders
-------------------------------------------------------------
a) On May 5, 2000 the Annual Meeting of Stockholders of the Company was held
in Gallatin, Tennessee. There were 851,577,689 shares of common stock
outstanding on the record date and entitled to vote at the Annual Meeting.
b) The following directors were elected:
Vote For Vote Withheld
Adrian D. P. Bellamy 767,896,668 3,547,584
Evan S. Dobelle 767,565,811 3,878,441
Millard S. Drexler 767,742,734 3,701,518
Donald G. Fisher 760,885,369 10,558,883
Doris F. Fisher 767,783,351 3,660,901
Robert J. Fisher 767,266,107 4,178,145
Glenda A. Hatchett 767,873,723 3,570,529
<PAGE>
Steven P. Jobs 767,659,971 3,784,681
John M. Lillie 767,782,440 3,661,812
Charles R. Schwab 767,880,119 3,564,133
Brooks Walker, Jr. 767,790,398 3,653,854
Sergio Zyman 767,887,573 3,556,679
There were no abstentions and no broker non-votes.
c) The Executive Management Incentive Cash Award Plan was approved with
753,347,974 votes in favor and 14,624,387 against.
There were 3,471,891 abstentions.
d) The selection of Deloitte & Touche, LLP as independent auditors for the
fiscal year ending February 3, 2001 was ratified with 768,877,954 votes in favor
and 457,423 against.
There were 2,108,874 abstentions.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
a) Exhibits
(10.1) Amended and Restated Credit Agreement, dated as of June 27, 2000
among The Gap, Inc., Citicorp USA, Inc., Bank of America, N.A.,
The Hong Kong and Shanghai Bank Corporation Limited, Morgan
Guaranty Trust Company of New York, The Sumitomo Bank Limited,
Deutsche Bank AG New York Branch and/or Cayman Islands Branch,
Societe Generale, The Fuji Bank, Limited, ABN AMRO Bank N.V., The
Bank of New York, Bank One, NA f/k/a The National Bank of
Chicago, U.S. Bank National Association, Fleet National Bank, and
Wells Fargo Bank, National Association
(10.2) Second Amended and Restated Credit Agreement, dated as of June
27, 2000 among The Gap, Inc., Banana Republic, Inc., Old Navy
Inc., Banana Republic (Canada), Inc., Old Navy (Canada) Inc., Gap
(Canada Inc., Gap International Sourcing Limited, Gap
International Sourcing Pte. Ltd., Gap (Japan) K.K., Gap
International Sourcing (Holdings) Limited, Gap (Netherlands)
B.V., Gap (International) B.V., GPS Consumer Direct, Inc.,
Citicorp USA Inc., Bank of America, N.A., HSBC Bank USA, Morgan
Guaranty Trust Company of New York, ABN AMRO Bank N.V., Deutsche
Bank AG New York Branch and/or Cayman Islands Branch, Societe
Generale, The Sumitomo Bank Limited, Bank One, NA f/k/a The First
National Bank of Chicago, Fleet National Bank, Wells Fargo Bank,
National Association, The Bank of New York, The Fuji Bank
Limited, U.S. Bank National Association, Citibank, N.A., and
Salomon Smith Barney Inc.
(10.3) Amendment No. 4 to the 1996 Stock Option and Award Plan
(10.4) Amendment No. 2 to Nonemployee Director Deferred Compensation
Plan
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
b) Reports on Form 8-K
The Company filed a report on Form 8-K on May 15, 2000, setting forth the
computation of Ratio of Earnings, related to the Company's Registration
Statement No. 333-70991.
<PAGE>
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 6, 2000 By /s/ Heidi Kunz
-----------------------------
Heidi Kunz
Chief Financial Officer
(Principal financial officer of the
registrant)
Date: September 6, 2000 By /s/ Millard S. Drexler
-----------------------------
Millard S. Drexler
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
(10.1) Amended and Restated Credit Agreement, dated as of June 27, 2000
among The Gap, Inc., Citicorp USA, Inc., Bank of America, N.A.,
The Hong Kong and Shanghai Bank Corporation Limited, Morgan
Guaranty Trust Company of New York, The Sumitomo Bank Limited,
Deutsche Bank AG New York Branch and/or Cayman Islands Branch,
Societe Generale, The Fuji Bank, Limited, ABN AMRO Bank N.V., The
Bank of New York, Bank One, NA f/k/a The National Bank of
Chicago, U.S. Bank National Association, Fleet National Bank, and
Wells Fargo Bank, National Association
(10.2) Second Amended and Restated Credit Agreement, dated as of June
27, 2000 among The Gap, Inc., Banana Republic, Inc., Old Navy
Inc., Banana Republic (Canada), Inc., Old Navy (Canada) Inc., Gap
(Canada Inc., Gap International Sourcing Limited, Gap
International Sourcing Pte. Ltd., Gap (Japan) K.K., Gap
International Sourcing (Holdings) Limited, Gap (Netherlands)
B.V., Gap (International) B.V., GPS Consumer Direct, Inc.,
Citicorp USA Inc., Bank of America, N.A., HSBC Bank USA, Morgan
Guaranty Trust Company of New York, ABN AMRO Bank N.V., Deutsche
Bank AG New York Branch and/or Cayman Islands Branch, Societe
Generale, The Sumitomo Bank Limited, Bank One, NA f/k/a The First
National Bank of Chicago, Fleet National Bank, Wells Fargo Bank,
National Association, The Bank of New York, The Fuji Bank
Limited, U.S. Bank National Association, Citibank, N.A., and
Salomon Smith Barney Inc.
(10.3) Amendment No. 4 to the 1996 Stock Option and Award Plan
(10.4) Amendment No. 2 to Nonemployee Director Deferred Compensation
Plan
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
