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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended January 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
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(State of Incorporation) (I.R.S. Employer
Identification No.)
One Harrison Street
San Francisco, California 94105
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (415) 427-2000
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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
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common equity held by non-affiliates of
the registrant as of March 10, 2000 was approximately $24,479,000,000 based upon
the last price reported for such date in the NYSE-Composite transactions.
The number of shares of the registrant's Common Stock outstanding as of
March 10, 2000 was 851,577,689.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 5, 2000 (hereinafter referred to as the "2000
Proxy Statement") are incorporated into Parts I and III.
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended January 29, 2000 (hereinafter referred to as the "1999 Annual Report
to Shareholders") are incorporated into Parts II and IV.
The Exhibit Index is located on Page 12 hereof.
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This Annual Report on Form 10-K and the information incorporated herein
by reference contain certain forward-looking statements which reflect the
Company's current view with respect to future events and financial performance.
Whenever 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 future results of operations could differ
materially from historical results or current expectations. Some of these risks
are discussed in Item 1 of this report below, and 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,
disruption to operations from Year 2000 issues and/or other factors that may be
described in the Company's filings with the Securities and Exchange Commission.
Future economic and industry trends that could potentially impact revenue and
profitability are difficult to predict.
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.
PART I
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Item 1 - Business
General
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The Gap, Inc. (together with its subsidiaries, the "Company") is a
global specialty retailer which operates stores selling casual apparel, personal
care and other accessories for men, women and children under the Gap, Banana
Republic and Old Navy brands. As of February 26, 2000, the Company operated
3,058 stores in the United States, Canada, the United Kingdom, France, Germany
and Japan.
The Company designs virtually all of its products, which in turn are
manufactured by independent sources, and sells them under its brands in the
following store formats:
Gap. Founded in 1969, Gap stores offer extensive selections of
classically-styled, high quality, casual apparel at moderate price
points. Products range from wardrobe basics, such as denim, khakis and
T-shirts, to accessories and personal care products for men and women
aged teen through adult. The Company entered the children's apparel
market with the introduction of GapKids in 1986 and babyGap in 1989.
These stores offer casual basics, outerwear, shoes and other
accessories in the tradition of Gap style and quality for children aged
newborn through teen. As of February 26, 2000, the Company operated a
total of 1,781 Gap brand stores in the United States, including 115
Outlet stores. Gap brand stores outside the United States total 400.
Banana Republic. Acquired in 1983 with two stores, Banana Republic
now offers sophisticated, fashionable collections of dress-casual and
tailored clothing and accessories for men and women at higher price
points. Banana Republic products range from clothing, including
intimate apparel, to personal care products and home products. As of
February 26, 2000, the Company operated 347 Banana Republic stores,
including 10 in Canada and 18 outlet stores.
Old Navy. The Company launched Old Navy in 1994 to address the
market for value-priced family apparel. Old Navy offers broad
selections of apparel, shoes and accessories for adults, children and
infants, as well as other items including personal care products, in an
innovative, exciting shopping environment. As of February 26, 2000, the
Company operated 530 Old Navy stores.
The Company established Gap Online in 1997, a web-based store located
at www.gap.com. GapKids and babyGap web-based stores, located at www.gapkids.com
and www.babygap.com, were established in 1998. Products
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from Gap, GapKids and babyGap stores can be purchased online. Banana Republic
introduced a catalog format in 1998 and Banana Republic Online, a web-based
store located at www.bananarepublic.com, in 1999. Both of the new Banana
Republic formats offer clothing and accessories comparable to those carried in
the store collections. Also, in 1999 the Company established Old Navy Online, a
promotional website located at www.oldnavy.com. The Company plans to begin
operating Old Navy Online as a web-based store during 2000. The online and
catalog business is offered as an extension of our store experience and is
intended to strengthen our relationship with our customers.
The Company was incorporated in the State of California in July 1969
and was reincorporated under the laws of the State of Delaware in May 1988.
Customer Preferences; Impact of Economic Conditions
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The retail apparel business fluctuates according to changes in customer
preferences dictated in part by fashion and season. In addition, certain
economic conditions affect the level of consumer spending on merchandise offered
by the Company, including, among others, business conditions, interest rates,
taxation and consumer confidence in future economic conditions. Customer
preferences and economic conditions may differ or change from time to time in
each market in which the Company operates.
Merchandise Inventory, Replenishment and Distribution
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Fluctuations in the retail apparel business especially affect the
inventory owned by apparel retailers, since merchandise usually must be ordered
well in advance of the season and sometimes before fashion trends are evidenced
by customer purchases. In addition, the cyclical nature of the retail business
requires the Company to carry a significant amount of inventory, especially
prior to peak selling seasons when the Company and other retailers generally
build up their inventory levels. The Company must enter into contracts for the
purchase and manufacture of apparel well in advance of the applicable selling
season. As a result, the Company is vulnerable to demand and pricing shifts and
to suboptimal selection and timing of merchandise purchases.
The Company reviews its inventory levels in order to identify slow-
moving merchandise and broken assortments (items no longer in stock in a
sufficient range of sizes) and uses markdowns to clear merchandise. Markdowns
may be used if inventory exceeds customer demand for reasons of style, seasonal
adaptation, changes in customer preference or lack of consumer acceptance of
fashion items, or if it is determined that the inventory in stock will not sell
at its currently marked price. Such markdowns may have an adverse impact on
earnings, depending on the extent of the markdowns and amount of inventory
affected.
Because the Company does not carry much replenishment inventory in its
stores, much of the inventory is maintained in the Company's distribution
centers in California, Kentucky, Maryland, Ohio, Tennessee, Canada, England and
The Netherlands, and in distribution centers operated by third parties in
California, Kentucky, Japan and England, and then shipped to the stores.
Store Operations and Expansion
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The Company's stores offer a shopper-friendly environment with an
assortment of casual clothing and accessories which emphasize style, quality and
good value. The range of apparel displayed in each store varies significantly
depending on the selling season and the size and location of the store.
The Company's stores generally are open seven days per week (where
permitted by law), three to six nights per week and most holidays. All sales are
tendered for cash, personal checks or credit cards issued by others, including a
Banana Republic private label credit card.
The Company's continued success depends, in part, upon its ability to
increase sales at existing store locations, to open new stores and to operate
stores on a profitable basis. There can be no assurance that the Company's
growth will result in enhanced profitability or that it will continue at the
same rate in future years.
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International Expansion
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The Company continued to expand internationally in fiscal 1999. It is
faced with competition in European and Japanese markets from established
regional and national chains. If international expansion is not successful, the
Company's results of operations could be adversely affected. The Company's
ability to grow successfully in the continental European market will depend in
part on determining a sustainable profit formula to build brand loyalty and gain
market share in the especially challenging retail environments of France and
Germany.
Certain financial information about international operations is set
forth in Note A to Notes to Consolidated Financial Statements, incorporated by
reference in Item 8 - Financial Statements and Supplementary Data.
Suppliers
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The Company purchases merchandise from approximately 1,200 suppliers
located domestically and overseas. No supplier accounted for more than 5% of the
Company's fiscal 1999 purchases. Of the Company's merchandise sold during fiscal
1999, approximately 22% of all units (representing approximately 16% of total
cost) were produced domestically while the remaining 78% of all units (84% of
cost) were made outside the United States. Approximately 12% of the Company's
total merchandise units (representing 16% of cost) was from China, including
Hong Kong, with the remainder coming from 55 other countries. Any event causing
a sudden disruption of imports from China or other foreign countries, including
the imposition of additional import restrictions, could have a material adverse
effect on the Company's operations. Substantially all of the Company's foreign
purchases of merchandise are negotiated and paid for in U.S. dollars.
The Company cannot predict whether any of the countries in which its
products currently are manufactured or may be manufactured in the future will be
subject to trade restrictions imposed by the U.S. government, including the
likelihood, type or effect of any such restrictions. Trade restrictions,
including increased tariffs or quotas, or both, against apparel items could
increase the cost or reduce the supply of apparel available to the Company and
adversely affect the Company's business, financial condition and results of
operations. The Company pursues a diversified global sourcing strategy that
includes relationships with vendors in over 50 countries. These sourcing
operations may be adversely affected by political and financial instability
resulting in the disruption of trade from exporting countries, significant
fluctuation in the value of the U.S. dollar against foreign currencies,
restrictions on the transfer of funds and/or other trade disruptions.
Seasonal Business
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The Company's business follows a seasonal pattern, peaking over a total
of about 10-13 weeks during the Back-to-School (mid-August through early
September) and Holiday (November through December) periods. During fiscal year
1999, these periods accounted for approximately 36% of the Company's annual
sales.
Competition
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The Company's business is highly competitive. The Company competes with
national and local department stores, specialty and discount store chains,
independent retail stores and internet and catalog businesses which handle
similar lines of merchandise. Some competitors have more resources than the
Company. The Company's online business has limited operating history and is
faced with competition from other online apparel retailers. In addition, certain
other online retailers, some of whom have greater resources than the Company,
may enter the online apparel market, further increasing competition. There is no
guarantee that consumers will embrace shopping for apparel online or that the
Company's online business will be profitable. Given the large number of
companies in the retail industry, the Company cannot estimate the number of its
competitors.
Depth of selection in sizes, colors and styles of merchandise,
merchandise procurement and pricing, ability to anticipate fashion trends and
customer preferences, inventory control, reputation, quality of merchandise,
store design and location, advertising and customer service are all important
factors in competing successfully in the retail industry.
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The performance of the Company in recent years has increased the amount
of imitation by other retailers. Such imitation has made and will continue to
make the retail environment in which the Company operates more competitive. In
addition, the success of the Company's operations depends upon a number of
factors relating to consumer spending, including future economic conditions
affecting disposable consumer income such as employment, business conditions,
interest rates and taxation. A decline in consumer spending on apparel could
have a material adverse effect on the Company's net sales and profitability.
Brand Building
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The ability of the Company to continually change and evolve its brands
is a key source of competitive advantage and the Company believes its three
distinct brands are among its most important assets. All aspects of brand
development -from product design and distribution, to marketing, merchandising
and shopping environments - are controlled by the Company. The Company continues
to invest in the development of its brands through advertising spending, the
establishment of an online presence and the opening of flagship stores. The
Company has also made investments to enhance the customer experience through the
opening of new stores, the expansion and remodeling of existing stores, and a
focus on customer service.
Advertising
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The Company places print ads in major metropolitan newspapers and their
Sunday magazines, major news weeklies and lifestyle and fashion magazines. The
Company's ads also appeared in various outdoor venues, such as mass transit
posters, exterior bus panels, bus shelters and gigantic billboards spanning
entire buildings. The Company continues to run TV ads for all of its brands and
radio ads for Old Navy. The Company plans to continue its investments in
advertising and marketing in 2000. There can be no assurances that these
investments will result in increased sales or profitability.
Employees
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On January 29, 2000, the Company had a work force of approximately
140,000 employees. The Company also hires temporary employees during the peak
Back-to-School and Holiday seasons. The Company considers its employee relations
to be good.
Trademarks and Service Marks
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The Gap, GapKids, babyGap, Banana Republic and Old Navy trademarks and
service marks, and certain other trademarks, either have been registered, or are
the subject of pending trademark applications, with the United States Patent and
Trademark Office and with the registries of many foreign countries.
Year 2000 Issue
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The Year 2000 issue is primarily the result of computer programs using
a two-digit format, as opposed to four digits, to indicate the year.
The Company has noticed no material impact to its operations as a
result of transition to the Year 2000. Problems relating to the Year 2000 issue
could still arise. However, the Company does not believe that the Year 2000
issue will have a material adverse effect on its financial condition or results
of operations. The Company operates a large number of geographically dispersed
stores and has a large supplier base and believes that these factors will
mitigate any adverse impact.
The Company's beliefs and expectations, however, are based on certain
assumptions and expectations that ultimately may prove to be inaccurate,
including the Year 2000 viability of sourcing countries, and compliance of
third-party vendors and suppliers. The Company has identified that a significant
disruption in the product supply chain represents the most reasonably likely
worst case Year 2000 scenario. A substantial, extended disruption in the
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product supply chain could have a material adverse effect on the Company's
financial condition and results of operations.
To date, the Company has incurred $40 million to address the Year 2000
issue. The Company does not expect to incur significant additional costs in
connection with this issue.
Executive Officers of the Registrant
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The Chairman of the Company is Donald G. Fisher. Millard S. Drexler is
the President and Chief Executive Officer of the Company. Both Donald G. Fisher
and Millard S. Drexler are directors of the Company and the required information
for each of them is set forth in the table located in the section entitled
"Nominees for Election as Directors" of the 2000 Proxy Statement and is
incorporated by reference herein. The following are also executive officers of
the Company:
Name, Age, Position and Principal Occupation During Past Five Years:
Charles K. Crovitz, 46, Executive Vice President, Supply Chain and
Technology since September 1998; Senior Vice President of Strategy,
Logistics and Information Systems from March 1998 to September 1998;
Senior Vice President of Strategic Planning and Business Development
from 1993 to March 1998. Joined the Company in 1993.
Anne B. Gust, 42, Executive Vice President, Human Resources, Legal,
Global Compliance and Corporate Administration since May 1999;
Executive Vice President, Human Resources, Legal and Corporate
Administration from September 1998 to May 1999; Senior Vice President
and General Counsel from April 1994 to September 1998; Vice President
and General Counsel from 1993 to 1994. Joined the Company in 1991.
Heidi Kunz, 45, Executive Vice President and Chief Financial Officer
since August 1999. Executive Vice President and Chief Financial Officer
of ITT Industries from 1995 to 1999. Vice President and Treasurer of
General Motors from 1994 to 1995.
John B. Wilson, 40, Executive Vice President and Chief Operating
Officer since March 1998; Executive Vice President and Chief
Administrative Officer from October 1996 to March 1998. Executive Vice
President, Finance and Strategy and Chief Financial Officer of Staples,
Inc. from 1992 to 1996.
Item 2 - Properties
During fiscal year 1999, the Company opened 570 stores and closed 18.
The newly-opened stores include 281 domestic Gap stores, 18 domestic Gap Outlet
stores, 98 international Gap stores, 41 Banana Republic stores and 15 Banana
Republic Factory stores in the United States and 117 Old Navy stores in the
United States. In addition, during fiscal 1999, the Company expanded 68 domestic
Gap stores, 4 Gap Outlet stores, 28 international Gap stores, 21 Banana Republic
stores and 8 Old Navy stores. The 3,018 stores operating as of January 29, 2000
aggregated approximately 24 million square feet. The Company leases virtually
all of its store premises. Terms generally range from five to 15 years with one
or two five-year renewal options. Most leases provide for additional rent based
on a percentage of store sales above a certain level in addition to or in lieu
of minimum rentals, as well as for the payment of certain other expenses. Some
leases contain cancellation clauses in favor of the Company if specified sales
levels are not achieved. In the United States, the Company's stores are located
in the 50 largest metropolitan areas.
The Company currently leases its regional offices and much of its
headquarters office space, including approximately 495,000 square feet in
buildings in San Francisco, California, 270,000 square feet in buildings in San
Bruno, California (near the San Francisco Airport), and 300,000 square feet in
buildings in New York City. The Company also leases its Eastern Distribution
Center/Kentucky Distribution Center complex (EDC/KDC) and certain other
distribution facilities. The EDC/KDC facilities in Erlanger, Kentucky (near
Cincinnati) consist of
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approximately 725,000 square feet. Nearby Northern Kentucky facilities include
an approximately 325,000 square foot warehouse for consolidation/deconsolidation
purposes, an approximately 520,000 square foot warehouse for distribution
purposes, and an approximately 175,000 square foot warehouse for supply
purposes. The Company leases a temporary distribution facility of approximately
350,000 square feet in Baltimore, Maryland. The Company also leases a
warehouse/call center of approximately 270,000 square feet in Grove City, Ohio
(near Columbus), which services Gap Online and Banana Republic catalog and
Online; this facility is expected to be expanded to service other aspects of the
Company's direct-to-consumer business. The Company leases its Japan Distribution
Center (JDC), approximately 127,000 square feet, in Funabashi City, Chiba,
Japan. The JDC is operated by a third party. The Company also leases an
approximately 134,000 square foot warehouse in Essex, England and an
approximately 17,000 square foot facility also in Essex, England for supply and
distribution purposes.
The Company purchased an approximately 160,000 square feet building in
San Francisco in 1999, owns an office facility in San Bruno of approximately
190,000 square feet and nearby land at that site which potentially could
accommodate up to an additional 290,000 square feet, and also owns an
office/computer facility of approximately 40,000 square feet in Rocklin,
California (near Sacramento). The Company currently is in the process of
developing an office building of approximately 540,000 square feet near its
existing facilities in San Francisco, and an office building of approximately
260,000 square feet near its existing leased and owned facilities in San Bruno.
The Company owns distribution facilities in the following locations:
<TABLE>
<CAPTION>
Location Square Footage (Approximate)
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<S> <C>
Ventura, California 230,000 square feet
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Edgewood, Maryland 600,000 square feet
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Gallatin, Tennessee 1,030,000 square feet
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Gallatin, Tennessee 550,000 square feet
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Gallatin, Tennessee 710,000 square feet (Under Construction)
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Fresno, California 540,000 square feet
490,000 square feet (Expansion Under Construction)
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Fishkill, New York 1,400,000 square feet (Under Construction)
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Brampton, Ontario 370,000 square feet
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Brampton, Ontario 740,000 square feet (Under Construction)
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Roosendaal, The Netherlands 130,000 square feet
</TABLE>
The sites in Ventura, California and Edgewood, Maryland have additional land
available for expansion or for additional facilities.
Item 3 - 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 also 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
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United States District Court, State of Hawaii. 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. That motion currently is
set for hearing on May 22, 2000. Trial in the Federal case has been set for
February 27, 2001.
The Company also is a party to routine litigation incident to its
business. Some of the lawsuits to which the Company is a party are covered by
insurance and are being defended by the Company's insurance carriers.
The Company has established reserves which management believes are
adequate to cover any litigation losses which may occur.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
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Item 5 - Market For Registrant's Common Equity and Related Stockholder Matters
The information required by this item is incorporated herein by
reference to page 26 of the 1999 Annual Report to Shareholders (Results book)
included as Exhibit 13 to this Annual Report on Form 10-K.
Item 6 - Selected Financial Data
The information required by this item is incorporated herein by
reference to pages 4 and 5 of the 1999 Annual Report to Shareholders (Results
book) included as Exhibit 13 to this Annual Report on Form 10-K.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated herein by
reference to pages 6-10 of the 1999 Annual Report to Shareholders (Results book)
included as Exhibit 13 to this Annual Report on Form 10-K.
Item 7A - Quantitative and Qualitative Disclosures about Market Risk
The information required by this item is incorporated herein by
reference to page 11 of the 1999 Annual Report to Shareholders (Results book)
included as Exhibit 13 to this Annual Report on Form 10-K.
Item 8 - Financial Statements and Supplementary Data
The information required by this item is incorporated herein by
reference to pages 12-26 of the 1999 Annual Report to Shareholders (Results
book) included as Exhibit 13 to this Annual Report on Form 10-K.
Item 9 - Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
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Item 10 - Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by
reference to the section entitled "Nominees for Election as Directors" in the
2000 Proxy Statement. See also Item 1 above in the section entitled "Executive
Officers of the Registrant."
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Item 11 - Executive Compensation
The information required by this item is incorporated herein by
reference to the sections entitled "Compensation of Directors," "Summary of
Executive Compensation," "Stock Options," "Employment Contracts," and
"Compensation Committee Interlocks and Insider Participation" in the 2000 Proxy
Statement.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to the section entitled "Beneficial Ownership of Shares" in the 2000
Proxy Statement.
Item 13 - Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the section entitled "Other Reportable Transactions" in the 2000
Proxy Statement.
PART IV
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Item 14 - Exhibits, Financial Statements, Schedules, and Reports On Form 8-K
(a) The following consolidated financial statements, schedules and
exhibits are filed as part of this report or are incorporated herein as
indicated.
(1) Financial Statements
--------------------
(i) Independent Auditors' Report. Incorporated by
reference to page 12 of the 1999 Annual Report to
Shareholders (Results book) included as Exhibit 13 to
this Annual Report on Form 10-K.
(ii) The consolidated balance sheets as of January 29,
2000 and January 30, 1999 and the related
consolidated statements of earnings, shareholders'
equity, cash flows, and notes thereto for each of the
three fiscal years in the period ended January 29,
2000 are incorporated by reference to pages 13-26 of
the 1999 Annual Report to Shareholders (Results book)
included as Exhibit 13 to this Annual Report on Form
10-K.
(2) Financial Statement Schedules
-----------------------------
Schedules have been omitted because they are not required
or are not applicable or because the information required to be
set forth therein either is not material or is included in the
financial statements or notes thereto.
(3) Exhibits
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Incorporated herein by reference is a list of the Exhibits
contained in the Exhibit Index which begins on sequentially
numbered page 12 of this Annual Report on Form 10-K.
(b) No reports on Form 8-K were filed or required to be filed for
the last quarter of the fiscal year.
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SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE GAP, INC.
Date: March 28, 2000 By /s/ MILLARD S. DREXLER
----------------------
Millard S. Drexler,
Chief Executive Officer
(Principal Executive Officer)
Date: March 28, 2000 By /s/ HEIDI KUNZ
--------------
Heidi Kunz,
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 2000 By /s/ ADRIAN D.P. BELLAMY
-----------------------
Adrian D. P. Bellamy, Director
Date: March 28, 2000 By /s/ EVAN S. DOBELLE
-------------------
Evan S. Dobelle, Director
Date: March 28, 2000 By /s/ MILLARD S. DREXLER
----------------------
Millard S. Drexler, Director
Date: March 28, 2000 By /s/ DONALD G. FISHER
--------------------
Donald G. Fisher, Director
Date: March 28, 2000 By /s/ DORIS F. FISHER
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Doris F. Fisher, Director
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SIGNATURES (con't.)
-------------------
Date: March 28, 2000 By /s/ ROBERT J. FISHER
--------------------
Robert J. Fisher, Director
Date: March 28, 2000 By /s/ GLENDA A. HATCHETT
----------------------
Glenda A. Hatchett, Director
Date: March 28, 2000 By /s/ STEVEN P. JOBS
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Steven P. Jobs, Director
Date: March 28, 2000 By /s/ JOHN M. LILLIE
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John M. Lillie, Director
Date: March 28, 2000 By /s/ CHARLES R. SCHWAB
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Charles R. Schwab, Director
Date: March 28, 2000 By /s/ BROOKS WALKER, JR.
----------------------
Brooks Walker, Jr., Director
Date: March 28, 2000 By /s/ SERGIO S. ZYMAN
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Sergio S. Zyman, Director
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Exhibit Index
3.1 Registrant's Amended and Restated Certificate of Incorporation, filed as
Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended
January 30, 1993, Commission File No. 1-7562.
3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation.
3.3 Registrant's By-Laws, filed as Exhibit C to Registrant's definitive proxy
statement for its annual meeting of stockholders held on May 24, 1988,
Commission File No. 1-7562
3.4 Amended Article IV of Registrant's By-Laws, filed as Exhibit 4.4 to
Registrant's Registration Statement on Form S-8, Commission File No.
333-00417
4 Indenture, dated September 1, 1997, between the Registrant and Harris Trust
Company of California filed as Exhibit 4 to Registrant's Form 10-Q for the
quarter ended November 1, 1997, Commission File No. 1-7562
10.1 Amended and Restated Credit Agreement dated as of June 29, 1999 between the
Registrant; Citicorp USA Inc.; Salomon Smith Barney Inc.; Bank of America
National Trust & Savings Association; HSBC Bank USA; Morgan Guaranty Trust
Company of New York; Bank of Montreal; ABN Amro Bank N.V.; Deutsche Bank AG
New York Branch and/or Cayman Islands Branch; Societe Generale; The
Sumitomo Bank Limited; The First National Bank of Chicago; Fleet Bank;
Wells Fargo Bank, National Association; The Bank of New York; The Fuji
Bank, Limited; Royal Bank of Canada U.S. Bank National Association and
Citibank, N.A. filed as Exhibit 10.1 to Registrant's Form 10-Q for the
quarter ended July 31, 1999, Commission File No. 1-7562
10.2 Credit Agreement dated as of July 1, 1997 between the Registrant; Citicorp
USA Inc.; Bank of America National; Trust & Savings Association; The
Hongkong and Shanghai Banking Corporation Limited; Nationsbank of Texas,
N.A.; The Royal Bank of Canada; Bank of Montreal; Societe Generale; The
Fuji Bank, Limited; Morgan Guaranty Trust Company of New York; The Sumitomo
Bank Limited; Deutsche Bank AG New York Branch and/or Cayman Islands
Branch; Union Bank of Switzerland, New York Branch; U.S. National Bank of
Oregon; and Citibank, N.A. filed as Exhibit 10.4 to Registrant's Form 10-Q
for the quarter ended August 2, 1997, Commission File No. 1-7562
10.3 First Letter Agreement dated June 30, 1998 to the Credit Agreement dated
July 1, 1997 filed as Exhibit 10.4 to Registrant's Form 10-K for the year
ended January 30, 1999, Commission File No. 1-7562
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
<PAGE>
10.5 1981 Stock Option Plan, filed as Exhibit 4.1 to Registrant's Registration
Statement on Form S-8, Commission File No. 33-54690
10.6 Management Incentive Restricted Stock Plan II, filed as exhibit 4.1 to
Registrant's Registration Statement on Form S-8, Commission File No.
33-54686
10.7 Description of Management Incentive Cash Award Plan filed as Exhibit 10.34
to Registrant's Annual Report on Form 10-K for the year ended January 29,
1994, Commission File No. 1-7562
10.8 Executive Management Incentive Cash Award Plan (March 21, 1995 Amendment
and Restatement), filed as Exhibit B to the Registrant's definitive proxy
statement for its annual meeting of stockholders held on May 23, 1995,
Commission File No. 1-7562
10.9 Executive Management Incentive Cash Award Plan (January 25, 2000 Amendment
and Restatement), filed as Exhibit A to the Registrant's definitive proxy
statement for its annual meeting of stockholders held on May 5, 2000,
Commission File No. 1-7562
10.10 The Gap, Inc. Executive Deferred Compensation Plan, filed as Exhibit 10.3
to Registrant's Form 10-Q for the quarter ended October 31, 1998,
Commission File No.1-7562
10.11 1996 Stock Option and Award Plan, filed as Exhibit A to the Registrant's
definitive proxy statement for its annual meeting of stockholders held on
May 21, 1996, Commission File No. 1-7562
10.12 Amendment Number 1 to the Registrant's 1996 Stock Option and Award Plan
filed as Exhibit 10.1 to Registrant's Form 10-Q for the quarter ended
August 2, 1997, Commission File No. 1-7562
10.13 Amendment Number 2 to the Registrant's 1996 Stock Option and Award Plan
filed as Exhibit 10.15 to Registrant's Form 10-K for the year ended
January 31, 1998, Commission File No. 1-7562
10.14 Amendment Number 3 to the Registrant's 1996 Stock Option and Award Plan
filed as Exhibit 10.1 to Registrant's Form 10-Q for the quarter ended
October 31, 1998, Commission File No. 1-7562
10.15 Form of Nonqualified Stock Option Agreement for employees under
Registrant's 1996 Stock Option and Award Plan filed as Exhibit 10.5 to
Registrant's Form 10-Q for the quarter ended August 2, 1997, Commission
File No. 1-7562
10.16 Form of Nonqualified Stock Option Agreement for directors under
Registrant's 1996 Stock Option and Award Plan filed as Exhibit 10.6 to
Registrant's Form 10-Q for the quarter ended August 2, 1997, Commission
File No. 1-7562
<PAGE>
10.17 Form of Restricted Stock Agreement under Registrant's 1996 Stock Option
and Award Plan filed as Exhibit 10.7 to Registrant's Form 10-Q for the
quarter ended August 2, 1997, Commission File No. 1-7562
10.18 Form of Nonqualified Stock Option Agreement for consultants under
Registrant's 1996 Stock Option and Award Plan filed as Exhibit 10.4 to
Registrant's Form 10-Q for the quarter ended October 31, 1998, Commission
File No. 1-7562
10.19 Form of Nonqualified Stock Option Agreement for employees in France under
Registrant's 1996 Stock Option and Award Plan filed as Exhibit 10.5 to
Registrant's Form 10-Q for the quarter ended October 31, 1998, Commission
File No. 1-7562
10.20 Form of Nonqualified Stock Option Agreement for international employees
under Registrant's 1996 Stock Option and Award Plan filed as Exhibit 10.6
to Registrant's Form 10-Q for the quarter ended October 31, 1998,
Commission File No. 1-7562
10.21 Form of Nonqualified Stock Option Agreement for employees in Japan under
Registrant's 1996 Stock Option and Award Plan filed as Exhibit 10.7 to
Registrant's Form 10-Q for the quarter ended October 31, 1998, Commission
File No. 1-7562
10.22 Form of stock option agreement for employees under the UK Sub-plan to the
U.S. Stock Option and Award Plan filed as Exhibit 10.8 to Registrant's
Form 10-Q for the quarter ended October 31, 1998, Commission File
No. 1-7562
10.23 Executive Long-Term Cash Award Performance Plan, filed as Exhibit B to the
Registrant's definitive proxy statement for its annual meeting of
stockholders held on May 21, 1996, Commission File No. 1-7562
10.24 Executive Long-Term Cash Award Performance Plan (January 26, 1999
Restatement), filed as Exhibit B to the Registrant's definitive proxy
statement for its annual meeting of stockholders held on May 4, 1999,
Commission File No. 1-7562
10.25 Executive Long-Term Cash Award Performance Plan (January 26, 1999
Restatement, as amended March 28, 2000)
10.26 Relocation Loan Plan, filed as Exhibit A to Registrant's definitive proxy
statement for its annual meeting of stockholders held on October 25, 1977,
Commission File No. 1-7562
10.27 Certificate of Corporate Resolution amending the Relocation Loan Plan,
adopted by the Board of Directors on November 27, 1990, filed as Exhibit
10.34 to Registrant's Annual Report on Form 10-K for the year ended
February 2, 1991, Commission File No. 1-7562
<PAGE>
10.28 Non-Employee Director Retirement Plan, dated October 27, 1992, filed as
Exhibit 10.43 to Registrant's Annual Report on Form 10-K for the year
ended January 30, 1993, Commission File No. 1-7562
10.29 Statement Regarding Non-Employee Director Retirement Plan filed as Exhibit
10.25 to Registrant's Form 10-K for the year ended January 31, 1998,
Commission File No. 1-7562
10.30 The Gap, Inc. Nonemployee Director Deferred Compensation Plan, filed as
Exhibit 4.1 to Registrant's Registration Statement on Form S-8, Commission
File No. 333-36265
10.31 Amendment Number 1 to the Registrant's Nonemployee Director Deferred
Compensation Plan filed as Exhibit 10.2 to Registrant's Form 10-Q for the
quarter ended October 31, 1998, Commission File No. 1-7562
10.32 Form of Discounted Stock Option Agreement under the Nonemployee Director
Deferred Compensation Plan, filed as Exhibit 4.5 to Registrant's
Registration Statement on Form S-8, Commission File No. 333-36265
10.4 Income continuation protection arrangement, dated December 21, 1998,
between Registrant and John B. Wilson, filed as Exhibit 10.33 to
Registrant's Form 10-K for the year ended January 30, 1999, Commission
File No. 1-7562
10.33 Employment arrangement, dated July 6, 1999, between Registrant and Heidi
Kunz, filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-Q for
the quarter ended July 31, 1999, Commission File No. 1-7562
13 Portions of Registrant's annual report to security holders for the fiscal
year ended January 29, 2000
21 Subsidiaries of Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule for the year ended January 29, 2000
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION
OF
THE GAP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
The Gap, Inc.
2. The certificate of incorporation of the corporation is hereby amended by
striking out Section 1 of Article FIFTH thereof and by substituting in lieu of
said Section 1 the following new Section 1:
"FIFTH: Section 1. Classes and Number of Shares.
----------------------------
The total number of shares of all classes of stock which this
corporation shall have authority to issue is 2,390,000,000 shares. The
classes and the aggregate number of shares of stock of each class which
this corporation shall have authority to issue are as follows:
(i) 2,300,000,000 shares of Common Stock, $0.05 par value per share
(hereinafter the "Common Stock");
(ii) 60,000,000 shares of Class B Common Stock, $0.05 par value per share
(hereinafter the "Class B Stock"); and
(iii) 30,000,000 shares of Preferred Stock, $0.05 par value per share,
with such rights, privileges, restrictions and preferences as the
Board of Directors may authorize from time to time (hereinafter the
"Preferred Stock")."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
Signed on May 4, 1999.
/s/ Anne B. Gust
Anne B. Gust
Executive Vice President
and Secretary
<PAGE>
Exhibit 10.25
THE GAP, INC.
EXECUTIVE LONG-TERM CASH AWARD PERFORMANCE PLAN
(January 26, 1999 Restatement, as amended March 28, 2000)
1. Purpose of the Plan
-------------------
The purpose of the Executive Long-Term Cash Award Performance Plan is to
provide financial incentives for certain of the Company's officers to meet and
exceed the Company's multi-year financial goals. The Plan is intended to qualify
as "performance-based compensation" under Code Section 162(m).
2. Definitions
-----------
2.1 "Affiliated Company" means any company controlling, controlled by or
under common control with the Company.
2.2 "Award" means a cash award pursuant to the provisions of the Plan.
2.3 "Capital Control" means adherence to the capital budget approved by the
Company's Board of Directors as part of the annual budgeting process. Such
budget shall be inclusive of the costs of new, enlarged, and relocated stores,
remodels, lease rights, divisional capital, and other associated costs.
2.4 "Code" means the Internal Revenue Code of 1986, as amended. Reference
to a specific section of the Code shall include such section, any valid
regulation promulgated thereunder, and any comparable provision of any further
legislation or regulation amending, supplementing or superseding such section or
regulation.
2.5 "Committee" means the Compensation and Stock Option Committee of the
Company's Board of Directors, or any other Committee appointed by the Board
pursuant to Section 3 of the Plan.
2.6 "Company" means The Gap, Inc., a Delaware corporation.
2.7 "Comparable Store Sales" means the Company's or a division's same store
net sales growth for the Fiscal Year in excess of the prior year.
2.8 "Determination Date" means as to a Performance Cycle, the latest date
possible that will not jeopardize the Plan's qualification as "performance-based
compensation" under Code section 162(m).
2.9 "Earnings" means either (a) operating income of the Company or one of
its divisions for a given Performance Cycle less certain allocated expenses
(e.g., headquarters, distribution centers, etc.), or (b) income before interest
and taxes of the Company or one of its divisions; determined in accordance with
Generally Accepted Accounting Principles, provided that prior to the
Determination Date the Committee shall determine (1) whether Earnings will be
measured under clause (a) or (b), and (2) whether
<PAGE>
any significant adjustments should be made to the calculation (e.g., exclusions
for non-recurring items or unusual costs, etc.).
2.10 "Economic Value Added" means the Company's or a division's Net
Operating Profit After Tax (NOPAT) for a specific performance period less
charges for use of capital assets (Capital Charges). NOPAT for a division
includes not only the division-specific revenues and directly controllable
expenses, but also may include shared costs for applicable Information
Technology, Distribution, and other Headquarters-related expenses, as determined
by the Committee (prior to the Determination Date). Prior to applying taxes,
operating profits are adjusted for interest expense on the present value of
operating leases. Capital Charges means the Company's or a Division's Average
Capital Balances multiplied by the Weighted Average Cost of Capital. Divisional
Average Capital Balances is defined as an average of both directly controllable
assets (Inventory, Property Plant and Equipment, Net Lease Rights, and the
present value of operating leases), but also can include shared assets for
applicable Information Technology, Distribution, other Headquarters-related
capital balances, and a working capital allocation, as determined by the
Committee (prior to the Determination Date). Total Company Average Capital
Balances includes all assets except cash in excess of that attributable to day-
to-day operations, and tax-related net assets, plus the present value of
operating leases less all non-interest bearing liabilities.
2.11 "Fiscal Year" means the 1999 fiscal year of the Company and each
succeeding fiscal year of the Company.
2.12 "Officer" means an officer (whether or not a member of the Company's
Board of Directors) employed by the Company or any Affiliated Company.
2.13 "Participant" means as to any Performance Cycle, an Officer who has
been selected by the Committee for participation in the Plan for such
Performance Cycle.
2.14 "Performance Cycle" means any fiscal period of not less than two
consecutive Fiscal Years nor more than five consecutive Fiscal Years, as
determined by the Committee in its sole discretion.
2.15 "Performance Goals" means the goal(s) (or combined goals(s))
determined by the Committee (in its sole discretion) to be applicable to a
Participant for a Performance Cycle. As determined by the Committee, the
Performance Goals applicable to each Participant shall provide for a targeted
level or levels of achievement using one or more of the following measures: (a)
Capital Control, (b) Comparable Store Sales; (c) Earnings; (d) Economic Value
Added, (d) Return on Equity; (e) Return on Invested Capital; (f) Return on Net
Assets; (g) Sales Volume; (h) Spread, and (i) Total Sales. As determined in the
discretion of the Committee, the Performance Goals for any Performance Cycle
may: (a) differ among Participants, (b) relate to performance on a Company-wide
or divisional basis, and/or (c) provide for a comparison of actual performance
by the Company or a division to actual performance by a group of competitors
determined in the discretion of the Committee. For each Performance Cycle, the
Performance Goals applicable to each Participant shall be set forth in writing
on or prior to the Determination Date.
<PAGE>
2.16 "Plan" means the Executive Long-Term Cash Award Performance Plan, as
set forth in this document and as hereafter amended from time to time.
2.17 "Return on Equity" means the Company's or a division's Earnings for
the Performance Cycle, expressed as a percentage of the Company's or a
division's average shareholders' equity over the Performance Cycle.
2.18 "Return on Invested Capital" (or "ROIC") means the Company's or a
division's Net Operating Profit After Tax (NOPAT) divided by their respective
Average Capital Balances over the same period of time. For a division, NOPAT
includes not only the division-specific revenues and directly controllable
expenses, but also may include shared costs for applicable Information
Technology, Distribution, and other Headquarters-related expenses. Prior to
applying taxes, operating profits are adjusted for interest expense on the
present value of operating leases. Divisional Average Capital Balances is
defined as an average of both directly controlled assets (Inventory, Property
Plant and Equipment, Net Lease Rights and the present value of operating leases)
as well as any applicable shared assets for related Information Technology,
Distribution, other Headquarters-related capital balances, and a working capital
allocation. For the Company, NOPAT means after tax earnings, adjusted for
interest on the present value of operating leases but excluding interest expense
or income on debt and cash. Total Company Average Capital Balances includes all
assets except cash in excess of that attributable to day-to-day operations, and
tax-related net assets, plus the present value of operating leases less non-
interest bearing liabilities.
2.19 "Return on Net Assets" means the Company's or division's Earnings for
the Performance Cycle, expressed as a percentage of the Company's or a
division's average assets for Performance Cycle.
2.20 "Sales Volume" means the total sales volume per store of the Company
or one of its divisions for the Performance Cycle.
2.21 "Spread" means the difference between the Company's or a division's
ROIC for a Performance Cycle and the Weighted Average Cost of Capital. In
practice, it can be used as an alternative method of calculating Economic Value
Added, by simply multiplying the calculated spread by the Average Capital
figures.
2.22 "Termination of Employment" means the time when the employee-employer
relationship between the Participant and the Company and its Affiliated
Companies is terminated for any reason, including, but not limited to, a
termination by resignation, discharge, death, permanent disability, retirement,
or the disaffiliation of an Affiliated Company, but excluding any such
termination where there is a simultaneous reemployment by either the Company or
one of its Affiliated Companies.
2.23 "Total Sales" means the Company's or a division's net sales for the
Performance Cycle.
2.24 "Weighted Average Cost of Capital" (or "WACC") means the weighted
average of the Company's cost of debt and cost of capital. The weighting is
determined by comparing the balance of the Company's debt (acquired debt plus
capitalized leases)
<PAGE>
to the balance of the Company's equity based upon market value (rather than book
value).
3. Administration of the Plan
--------------------------
3.1 The Plan shall be administered by the Committee, which shall consist of
no fewer than two members of the Company's Board of Directors, who shall be
appointed and serve at the pleasure of the Company's Board of Directors. No
member of the Company's Board of Directors who is not an "outside director"
under Code section 162(m) shall serve on the Committee.
3.2 Subject to the provisions of the Plan, the Committee shall have
exclusive authority to select the Participants, and to determine the target
Award levels, the times when Awards will be granted, and the Performance Goals
which must be achieved prior to payment of any Awards. For each Performance
Cycle, all actions by the Committee shall be taken by the Determination Date.
3.3 The Committee shall have all discretion and authority necessary or
appropriate to administer the Plan, including, but not limited to, the power to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, and to make all other determinations necessary or advisable in
the administration of the Plan, and all such determinations shall be final and
binding upon all persons having and interest in the Plan.
3.4 A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at a meeting at which the quorum is present or
any action taken without a meeting by a writing executed by a majority of the
Committee shall constitute the act of the Committee.
3.5 All expenses and liabilities incurred by the Committee in the
administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants, or other persons. The Committee, the
Company and its officers and directors shall be entitled to rely upon the
advice, opinion, or valuations of any such persons. No member of the Committee
shall be personally liable for any action, determination, or interpretation
taken or made with respect to the Plan, unless such action, determination, or
interpretation constitutes criminal misconduct, willful negligence or
demonstrates bad faith and all members of the Committee shall be fully protected
by the Company in respect to any such action, determination or interpretation.
4. Eligibility and Participation
-----------------------------
The Plan is designed for Officers whose responsibilities significantly
influence Company results. Participants shall be selected by the Committee prior
to or on the Determination Date. Participation in the Plan is on a Performance
Cycle basis and in the sole discretion of the Committee. Thus, an Officer who is
selected for participation in a given Performance Cycle is in no way guaranteed
to be selected for participation in any subsequent Performance Cycle or
Performance Cycles.
<PAGE>
5. Determination of Awards
-----------------------
5.1 Prior to or on the Determination Date, the Committee, in its sole
discretion shall assign each Participant a target Award expressed as a
percentage of the Participant's average annual base salary during the
Performance Cycle.
5.2 On or prior to the Determination Date, the Committee, in its sole
discretion, shall establish a formula for purposes of determining the actual
Award (if any) payable to each Participant. Each formula shall: (a) be in
writing; (b) be based on a comparison of actual performance to the Performance
Goals; (c) provide for the payment of a Participant's target Award if the
Performance Goals for the Performance Cycle are achieved; and (d) provide for an
---
actual Award greater than or less than the Participant's target Award, depending
upon the extent to which actual performance exceeds or falls below the
Performance Goals.
5.3 After the end of the each Performance Cycle, the Committee shall
certify in writing the extent to which the Performance Goals applicable to each
Participant for the Performance Cycle were achieved or exceeded. The actual
Award for each Participant shall be determined by applying the formula
established pursuant to Section 5.2 of the Plan to the level of actual
performance that has been certified by the Committee. However, each
Participant's actual Award (if any) shall be subject to the maximum provided in
Section 6.
5.4 No Awards shall be paid to a Participant for a Performance Cycle unless
the minimum actual performance for the Performance Cycle specified by the
Committee pursuant to Section 5.2 of the Plan is achieved.
5.5 The Committee, in its sole discretion, may eliminate any Participant's
Award, or reduce it below that which otherwise would be payable in accordance
with the Plan.
6. Maximum Award Payable
---------------------
For any Performance Cycle, the maximum Award payable to any Participant
under the Plan shall be $8,000,000.
7. Payment of Award
----------------
7.1 Except as provided in Section 7.2 of the Plan or as otherwise
determined by the Committee, payment of Awards (if any) for a Performance Cycle
will be made in cash or its equivalent on or about the first April 1 following
the end of the Performance Cycle. If the Committee (in its discretion) so
determines, payment of all or part of an Award to one or more Participants may
be deferred for a period not to exceed five years after the date when payment
otherwise would have been made. Any such deferral shall be subject to such rules
and procedures as the Committee (in its discretion) shall determine. For example
(but not by way of limitation), the Committee may determine that a deferred
Award shall be forfeited unless the Participant remains an Officer through the
scheduled payment date.
<PAGE>
7.2 Unless otherwise specifically determined by the Committee, a
Participant actually will be entitled to payment of an Award only if the
Participant is an Officer on the date of payment (and except to the limited
extent provided in the following sentence). If, after the completion of a
Performance Cycle, a Participant incurs a Termination of Employment due to death
or permanent disability, the Participant still shall be entitled to the payment
of any Award for such Performance Cycle otherwise payable to the Participant. In
the event an Award is payable to a Participant subsequent to the Participant's
death, such payment shall be made to the Participant's estate.
7.3 The Company shall withhold all applicable income and other taxes from
any Award payment to any Participant, including any federal, FICA, state and
local taxes.
7.4 Each Award shall be payable solely from the general assets of the
Company. Each Participant's right to payment of an Award (if any) shall be
solely as an unsecured general creditor of the Company.
8. Employment Rights
-----------------
Nothing in the Plan shall confer upon any Participant the right to continue
in the employ of the Company or its Affiliated Companies or shall interfere with
or restrict in any way the rights of the Participant's employer to discharge or
change the terms of employment of any Participant at any time for any reason
whatsoever, with or without cause.
9. Effect on Other Plans
---------------------
The adoption of the Plan shall not affect any other equity or other
compensation or incentive plan in effect for the Company or any Affiliated
Company, and the Plan shall not preclude the Company's Board of Directors from
establishing any other forms of incentive compensation for Officers.
10. Amendment or Termination of the Plan
------------------------------------
The Board, in its sole discretion, may alter, amend, or terminate the Plan
or any part thereof at any time and for any reason; provided, however, that to
the extent required to ensure the Plan's qualification under Code section 162(m)
as "performance-based compensation", any such amendment shall be subject to
stockholder approval.
11. Effective Date
--------------
The Plan originally was effective as of January 23, 1996. This amended and
restated Plan is effective as of January 26, 1999, subject to the approval of
the Plan by a majority of the shares of the common stock of the Company that are
present in person or by proxy and entitled to vote at the 1999 Annual Meeting of
Stockholders.
<PAGE>
10-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Compound Annual Growth Rate Fiscal Year (in weeks)
- ------------------------------------------------------------------------------------------------- -------------------------------
3-year 5-year 10-year 1999 (52) 1998 (52)
- ------------------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results ($000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales 30% 26% 22% $ 11,635,398 $ 9,054,462
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold and occupancy expenses,
excluding depreciation and amortization -- -- -- 6,360,704 5,013,473
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales -- -- -- 54.7% 55.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (a) -- -- -- $ 414,558 $ 304,745
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses -- -- -- 3,043,432 2,403,365
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest expense (income) -- -- -- 31,755 13,617
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 34 28 27 1,784,949 1,319,262
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales -- -- -- 15.3% 14.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes -- -- -- $ 657,884 $ 494,723
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings 36 29 28 1,127,065 824,539
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales -- -- -- 9.7% 9.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid -- -- -- $ 75,795 $ 76,888
- -----------------------------------------------------------------------------------------------------------------------------------
Capital expenditures -- -- -- 1,268,811 842,655
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings-basic 40% 31% 29% $ 1.32 $ 0.95
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings-diluted 39 31 29 1.26 0.91
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (b) -- -- -- 0.09 0.09
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (book value) -- -- -- 2.63 1.83
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Position ($000)
- -----------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 34% 27% 28% $ 2,715,315 $ 1,876,370
- -----------------------------------------------------------------------------------------------------------------------------------
Merchandise inventory 36 32 20 1,462,045 1,056,444
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 25 21 25 5,188,756 3,963,919
- -----------------------------------------------------------------------------------------------------------------------------------
Working capital -- -- -- 444,911 318,721
- -----------------------------------------------------------------------------------------------------------------------------------
Current ratio -- -- -- 1.25:1 1.21:1
- -----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt, less current installments -- -- -- $ 784,925 $ 496,455
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of long-term debt to shareholders' equity -- -- -- 0.35:1 0.32:1
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity -- -- -- $ 2,233,045 $ 1,573,679
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average assets -- -- -- 24.6% 22.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity -- -- -- 59.2% 52.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Statistics
- -----------------------------------------------------------------------------------------------------------------------------------
Number of stores opened (c) 41% 27% 19% 570 356
- -----------------------------------------------------------------------------------------------------------------------------------
Number of stores expanded -- -- -- 129 135
- -----------------------------------------------------------------------------------------------------------------------------------
Number of stores closed -- -- -- 18 20
- -----------------------------------------------------------------------------------------------------------------------------------
Number of stores open at year-end (c) 18 15 12 3,018 2,466
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in number of stores -- -- -- 22% 16%
- -----------------------------------------------------------------------------------------------------------------------------------
Comparable store sales growth (52-week basis) -- -- -- 7% 17%
- -----------------------------------------------------------------------------------------------------------------------------------
Sales per square foot (52-week basis) (d) -- -- -- $ 548 $ 532
- -----------------------------------------------------------------------------------------------------------------------------------
Square footage of gross store space at year-end 24 21 19 23,978,100 18,757,400
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase in square feet -- -- -- 28% 22%
- -----------------------------------------------------------------------------------------------------------------------------------
Number of employees at year-end 28 21 20 140,000 111,000
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of shares-basic -- -- -- 853,804,924 864,062,060
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of shares-diluted -- -- -- 895,029,176 904,374,383
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at year-end,
net of treasury stock -- -- -- 850,498,941 857,960,032
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes amortization of restricted stock, discounted stock options and
discount on long-term debt.
(b) Excludes a dividend of $.0222 per share declared in January 2000 but paid
in the first quarter of fiscal 2000.
(c) Reflects new store-count methodology for 1999 and 1998 stores, see page 7.
(d) Based on weighted-average gross square footage.
<PAGE>
10-YEAR SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
Fiscal Year (in weeks)
- ----------------------------------------------------------------------------------------------------------------------------------
1997 (52) 1996 (52) 1995 (53) 1994 (52)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Results ($000)
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 6,507,825 $ 5,284,381 $ 4,395,253 $ 3,722,940
- ----------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold and occupancy expenses,
excluding depreciation and amortization 3,775,957 3,093,709 2,645,736 2,202,133
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales 58.0% 58.5% 60.2% 59.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (a) $ 245,584 $ 191,457 $ 175,719 $ 148,863
- ----------------------------------------------------------------------------------------------------------------------------------
Operating expenses 1,635,017 1,270,138 1,004,396 853,524
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest expense (income) (2,975) (19,450) (15,797) (10,902)
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 854,242 748,527 585,199 529,322
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales 13.1% 14.2% 13.3% 14.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 320,341 $ 295,668 $ 231,160 $ 209,082
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 533,901 452,859 354,039 320,240
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales 8.2% 8.6% 8.1% 8.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid $ 79,503 $ 83,854 $ 66,993 $ 64,775
- ----------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 483,114 375,838 309,599 236,616
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings-basic $ 0.60 $ 0.48 $ 0.38 $ 0.34
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings-diluted 0.58 0.47 0.37 0.33
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (b) 0.09 0.09 0.07 0.07
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (book value) 1.79 1.79 1.69 1.41
- ----------------------------------------------------------------------------------------------------------------------------------
Financial Position ($000)
- ----------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net $ 1,365,246 $ 1,135,720 $ 957,752 $ 828,777
- ----------------------------------------------------------------------------------------------------------------------------------
Merchandise inventory 733,174 578,765 482,575 370,638
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 3,337,502 2,626,927 2,343,068 2,004,244
- ----------------------------------------------------------------------------------------------------------------------------------
Working capital 839,399 554,359 728,301 555,827
- ----------------------------------------------------------------------------------------------------------------------------------
Current ratio 1.85:1 1.72:1 2.32:1 2.11:1
- ----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt, less current installments $ 496,044 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of long-term debt to shareholders' equity 0.31:1 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity $ 1,583,986 $ 1,654,470 $ 1,640,473 $ 1,375,232
- ----------------------------------------------------------------------------------------------------------------------------------
Return on average assets 17.9% 18.2% 16.3% 17.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity 33.0% 27.5% 23.5% 25.6%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Statistics
- ----------------------------------------------------------------------------------------------------------------------------------
Number of stores opened (c) 298 203 225 172
- ----------------------------------------------------------------------------------------------------------------------------------
Number of stores expanded 98 42 55 82
- ----------------------------------------------------------------------------------------------------------------------------------
Number of stores closed 22 30 53 34
- ----------------------------------------------------------------------------------------------------------------------------------
Number of stores open at year-end (c) 2,130 1,854 1,680 1,508
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in number of stores 15% 10% 11% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
Comparable store sales growth (52-week basis) 6% 5% 0% 1%
- ----------------------------------------------------------------------------------------------------------------------------------
Sales per square foot (52-week basis) (d) $ 463 $ 441 $ 425 $ 444
- ----------------------------------------------------------------------------------------------------------------------------------
Square footage of gross store space at year-end 15,312,700 12,645,000 11,100,200 9,165,900
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase in square feet 21% 14% 21% 21%
- ----------------------------------------------------------------------------------------------------------------------------------
Number of employees at year-end 81,000 66,000 60,000 55,000
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of shares-basic 891,404,945 938,579,921 939,866,394 948,699,959
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of shares-diluted 922,951,706 961,351,245 962,443,160 971,144,612
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at year-end,
net of treasury stock 884,549,313 926,495,994 971,149,446 977,162,057
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
10-YEAR SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
Fiscal Year (in weeks)
- ----------------------------------------------------------------------------------------------------------------------------------
1993 (52) 1992 (52) 1991 (52) 1990 (52)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Results ($000)
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 3,295,679 $ 2,960,409 $ 2,518,893 $ 1,933,780
- ----------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold and occupancy expenses,
excluding depreciation and amortization 1,996,929 1,856,102 1,496,156 1,187,644
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales 60.6% 62.7% 59.4% 61.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (a) $ 124,860 $ 99,451 $ 72,765 $ 53,599
- ----------------------------------------------------------------------------------------------------------------------------------
Operating expenses 748,193 661,252 575,686 454,180
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest expense (income) 809 3,763 3,523 1,435
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 424,888 339,841 370,763 236,922
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales 12.9% 11.5% 14.7% 12.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 166,464 $ 129,140 $ 140,890 $ 92,400
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 258,424 210,701 229,873 144,522
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage of net sales 7.8% 7.1% 9.1% 7.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid $ 53,041 $ 44,106 $ 41,126 $ 29,625
- ----------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 215,856 213,659 244,323 199,617
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings-basic $ 0.27 $ 0.23 $ 0.25 $ 0.16
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings-diluted 0.27 0.22 0.24 0.15
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (b) 0.05 0.05 0.04 0.03
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (book value) 1.15 0.91 0.71 0.49
- ----------------------------------------------------------------------------------------------------------------------------------
Financial Position ($000)
- ----------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net $ 740,422 $ 650,368 $ 547,740 $ 383,548
- ----------------------------------------------------------------------------------------------------------------------------------
Merchandise inventory 331,155 365,692 313,899 247,462
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 1,763,117 1,379,248 1,147,414 776,900
- ----------------------------------------------------------------------------------------------------------------------------------
Working capital 494,194 355,649 235,537 101,518
- ----------------------------------------------------------------------------------------------------------------------------------
Current ratio 2.07:1 2.06:1 1.71:1 1.39:1
- ----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt, less current installments $ 75,000 $ 75,000 $ 80,000 $ 17,500
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of long-term debt to shareholders' equity 0.07:1 0.08:1 0.12:1 0.04:1
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity $ 1,126,475 $ 887,839 $ 677,788 $ 465,733
- ----------------------------------------------------------------------------------------------------------------------------------
Return on average assets 16.4% 16.7% 23.9% 21.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity 25.7% 26.9% 40.2% 36.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Statistics
- ----------------------------------------------------------------------------------------------------------------------------------
Number of stores opened (c) 108 117 139 152
- ----------------------------------------------------------------------------------------------------------------------------------
Number of stores expanded 130 94 79 56
- ----------------------------------------------------------------------------------------------------------------------------------
Number of stores closed 45 26 15 20
- ----------------------------------------------------------------------------------------------------------------------------------
Number of stores open at year-end (c) 1,370 1,307 1,216 1,092
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in number of stores 5% 7% 11% 14%
- ----------------------------------------------------------------------------------------------------------------------------------
Comparable store sales growth (52-week basis) 1% 5% 13% 14%
- ----------------------------------------------------------------------------------------------------------------------------------
Sales per square foot (52-week basis) (d) $ 463 $ 489 $ 481 $ 438
- ----------------------------------------------------------------------------------------------------------------------------------
Square footage of gross store space at year-end 7,546,300 6,509,200 5,638,400 4,762,300
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase in square feet 16% 15% 18% 17%
- ----------------------------------------------------------------------------------------------------------------------------------
Number of employees at year-end 44,000 39,000 32,000 26,000
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of shares-basic 940,287,006 928,417,491 915,766,923 904,421,435
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of shares-diluted 965,110,280 960,903,782 953,297,157 944,950,514
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at year-end,
net of treasury stock 980,428,914 973,250,357 962,032,505 953,532,203
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The information below and elsewhere in this Annual Report 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 future 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, disruption to operations from Year 2000 issues 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.
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>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ($000) $11,635,398 $ 9,054,462 $ 6,507,825
- ---------------------------------------------------------------------------------------------------------------------------
Total net sales growth percentage 29 39 23
- ---------------------------------------------------------------------------------------------------------------------------
Comparable store sales growth percentage 7 17 6
- ---------------------------------------------------------------------------------------------------------------------------
Net sales per average gross square foot $ 548 $ 532 $ 463
- ---------------------------------------------------------------------------------------------------------------------------
Square footage of gross store space at year-end (000) 23,978 18,757 15,313
- ---------------------------------------------------------------------------------------------------------------------------
Number of new stores 570 356 298
- ---------------------------------------------------------------------------------------------------------------------------
Number of expanded stores 129 135 98
- ---------------------------------------------------------------------------------------------------------------------------
Number of closed stores 18 20 22
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The total net sales growth for all years presented was 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. An increase in
comparable store sales also contributed to net sales growth for all years
presented.
The increase in net sales per average square foot for 1999 and 1998 was
primarily attributable to increases in comparable store sales.
Comparable store sales growth by division for 1999 and 1998 was as follows: Gap
domestic reported positive low single-digit growth in 1999 versus positive low
double-digit growth in 1998; Gap international reported positive mid-teens
growth in 1999 versus positive low-thirties growth in 1998; Banana Republic
reported positive low double-digit growth in 1999 versus positive high-teens
growth in 1998; Old Navy reported positive mid-teens growth in 1999 versus
positive mid-twenties growth in 1998.
<PAGE>
Store count and square footage growth were as follows:
<TABLE>
<CAPTION>
Jan. 29, 2000 Jan. 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Number of Stores Sq. Ft. (Millions) Number of Stores Sq. Ft. (Millions)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gap Domestic 1,767 10.3 1,476 9.0
- ---------------------------------------------------------------------------------------------------------------------------
Gap International 393 2.1 300 1.5
- ---------------------------------------------------------------------------------------------------------------------------
Banana Republic (a) 345 2.6 292 2.0
- ---------------------------------------------------------------------------------------------------------------------------
Old Navy 513 9.0 398 6.3
- ---------------------------------------------------------------------------------------------------------------------------
Total 3,018 24.0 2,466 18.8
===========================================================================================================================
Increase 22% 28% 16% 22%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes 10 stores in Canada in fiscal 1999 and 1998.
New Store-count Methodology
Store count numbers for 1999 and 1998 have been restated to reflect the
Company's new store-count methodology as it relates to Gap brand. Historically,
the Company has defined existing and new Gap brand stores by the number of doors
of entry, regardless of how many concepts were included in the store. Under the
new methodology, individual concepts (adult, kids, baby and body) that meet
minimum square footage requirements will be counted as a store, even when
residing in a single, physical location. This methodology change resulted in an
increase of 86 stores at January 29, 2000. The store count numbers for years
prior to1998 have not been restated as they are not significantly different
under the new methodology.
Cost of Goods Sold and Occupancy Expenses
Cost of goods sold and occupancy expenses as a percentage of net sales decreased
0.5 and 3.1 percentage points in 1999 from 1998 and in 1998 from 1997,
respectively.
The decrease in 1999 from 1998 was primarily attributable to a decrease in
occupancy expenses as a percentage of net sales due to changes in the mix of
stores as Old Navy becomes a larger part of the business, partially offset by a
decrease in the merchandise margin due to a decline in the level of merchandise
sold at regular price.
The decrease in 1998 from 1997 was primarily attributable to a decrease in
occupancy expenses as a percentage of net sales due to leverage achieved through
comparable store sales growth combined with an increase in merchandise margin
due to higher margins achieved on marked-down goods, as well as to an increase
in the percentage of merchandise sold at regular price.
As a general business practice, the Company reviews its inventory levels in
order to identify slow-moving merchandise and broken assortments (items no
longer in stock in a sufficient range of sizes) and uses markdowns to clear
merchandise. Such markdowns may have an adverse impact on earnings, depending
upon the extent of the markdown and the amount of inventory affected.
Operating Expenses
Operating expenses as a percentage of net sales decreased 0.3 percentage points
in 1999 from 1998 and increased 1.4 percentage points in 1998 from 1997.
In 1999, the decrease resulted from lower administrative costs as a percentage
of net sales.
In 1998, the increase was driven by significantly higher advertising/marketing
costs as part of the Company's continued brand development efforts, partially
offset by a decrease as a percentage of net sales in the write-off of leasehold
improvements and fixtures associated with the remodeling, relocation and closing
of certain stores, as well as to leverage from comparable store sales growth.
<PAGE>
Net Interest Expense/Income
The increase in net interest expense between 1999 and 1998 is primarily due to
the additional interest expense from the issuance of long-term debt during 1999
to support the Company's international expansion plans.
The change in 1998 to net interest expense from net interest income in 1997 was
primarily due to the interest expense incurred for the full fiscal year related
to the $500 million of debt securities issued during the third quarter of 1997.
The Company's greater short-term borrowings in the last half of 1998 compared to
1997 also contributed to the increase in interest expense.
Income Taxes
The effective tax rate was 36.9 percent in 1999 and 37.5 percent in 1998 and
1997. The decrease in the effective tax rate in 1999 resulted from the Company's
implementation of global tax planning initiatives based on long-term business
needs.
Liquidity and Capital Resources
The following sets forth certain measures of the Company's liquidity:
<TABLE>
<CAPTION>
Fiscal Year 1999 Fiscal Year 1998 Fiscal Year 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by operating activities ($000) $1,477,928 $1,394,161 $ 844,651
- ------------------------------------------------------------------------------------------------------------------------------
Working capital ($000) 444,911 318,721 839,399
- ------------------------------------------------------------------------------------------------------------------------------
Current ratio 1.25:1 1.21:1 1.85:1
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal year ended January 29, 2000, the increase in cash flows provided
by operating activities was primarily due to an increase in net earnings
exclusive of depreciation and amortization and a tax benefit from the vesting of
a large restricted stock grant, partially offset by the timing of payments for
certain payables and an increase in merchandise inventory. The increase in
working capital and the current ratio was primarily due to investments in
merchandise inventory, partially offset by an increase in payables.
For the fiscal year ended January 30, 1999, the increase in cash provided by
operating activities was primarily due to an increase in net earnings and the
timing of payments for certain payables, partially offset by investments in
merchandise inventory. The decline in working capital and the current ratio was
attributable to an increase in payables driven by business growth combined with
a decrease in cash resulting from greater capital expenditures and share
repurchases.
The Company funds inventory expenditures during normal and peak periods through
a combination of cash flows from 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. During
1999 and 1998, these periods accounted for 36 and 37 percent, respectively, of
the Company's annual sales.
The Company has committed credit facilities totaling $1 billion, consisting of
an $850 million, 364-day revolving credit facility, and a $150 million, 5-year
revolving credit facility through June 28, 2003. These credit facilities provide
for the issuance of up to $500 million in letters of credit and provide backup
for the Company's $500 million commercial paper program. The Company has
additional uncommitted credit facilities of $520 million for the issuance of
letters of credit. At January 29, 2000, the Company had outstanding letters of
credit totaling approximately $851 million. The Company had no commercial paper
outstanding at January 29, 2000.
To provide financial flexibility, the Company filed a shelf registration
statement in January 1999 with the Securities and Exchange Commission for $500
million of debt securities. The net proceeds from any issuance are expected to
be used for general corporate purposes, including expansion of stores,
distribution centers and headquarters facilities, brand investment, development
of additional distribution channels and repurchases of the Company's common
stock pursuant to its ongoing repurchase program. The Company has not issued any
securities under this shelf registration and no assurances can be given that the
Company will issue these debt securities in the future.
In September 1997, the Company issued $500 million of debt securities, due
September 15, 2007. The proceeds were used for general corporate purposes
similar to those described above.
<PAGE>
In March 1999, the Company's Japanese subsidiary, Gap (Japan) KK, issued $50
million of debt securities, due March 1, 2009. The net proceeds were used for
general corporate purposes similar to those described above. The cash flows
relating to the bonds were swapped for the equivalent amounts in Japanese yen to
minimize currency exposure.
Also, in September 1999, the Company's Netherlands subsidiary, Gap International
B.V., issued debt securities in the amount of 250 million Euro, approximately
$262 million at issuance, due September 30, 2004. The net proceeds will be used
to support the Company's international expansion plans.
All of the Company's long-term debt was issued at fixed interest rates to avoid
the risk of fluctuations in interest rates. Quantitative and qualitative
disclosures about market risk for the Company's long-term debt are presented on
page 11.
Capital expenditures, net of construction allowances and dispositions, totaled
approximately $1.189 billion in 1999. These expenditures resulted in a net
increase in store space of approximately 5.2 million square feet, or 28 percent,
due to the addition of 570 new stores, the expansion of 129 stores and the
remodeling of certain stores. Capital expenditures for 1998 and 1997 were $797
million and $450 million, respectively, resulting in a net increase in store
space of 3.4 million square feet in 1998 and 2.7 million square feet in 1997.
The increases in capital expenditures in 1999 and 1998 over the prior years were
primarily attributable to the number of stores opened, expanded and remodeled,
as well as the expansion of headquarters facilities. The addition and expansion
of distribution centers also contributed to the 1999 and 1998 capital
expenditure increases.
For 2000, the Company expects capital expenditures to exceed $1.6 billion, net
of construction allowances. This represents the addition of 600 to 660 new
stores, the expansion of approximately 200 stores and 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 in the mid-20 percent range. By division, the 600 to 660 new
stores are expected to be: Gap domestic 320 to 340 stores, Banana Republic 40 to
60 stores, Old Navy 120 to 130 stores and Gap international 120 to 130 stores.
New stores are generally expected to be leased.
During 1998, the Company purchased land on which to construct additional
headquarters 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.
During 1999, the Company opened a distribution center that was constructed over
fiscal 1997 and 1998 for a total cost of approximately $60 million. During 1999,
the Company commenced construction of a $55 million expansion of this
distribution center, which is expected to be complete in mid-2000.
Additionally during 1999, the Company commenced construction on three
distribution facilities for an estimated total cost of approximately $300
million. Approximately half of these expenditures were incurred during fiscal
1999, with the remainder to be incurred during fiscal 2000. These expenditures
are included in the projected capital expenditures as described above. The first
facility opened in mid-1999. The remaining two facilities are expected to open
in early 2000 and late 2000, respectively.
In 1999, the Company agreed to purchase a distribution site and building in
Ontario, Canada to support the initial international expansion plans for the Old
Navy business. The Company will take possession of the facility in early 2000
and 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.
On May 20, 1999, the Company's Board of Directors authorized a three-for-two
split of the Company's common stock that was distributed on June 21, 1999, in
the form of a stock dividend for shareholders of record at the close of business
on June 4, 1999. All share and per share amounts in the accompanying
consolidated financial statements for all periods have been restated to reflect
the stock split.
During 1999, the Company completed a 101 million share repurchase program
approved in October 1996 by acquiring approximately 2.1 million shares for
approximately $94 million. In addition, during fiscal 1999, under the 67.5
million share repurchase program approved in October 1998, the Company acquired
approximately 16.4 million shares for approximately $651 million, including 0.8
million shares acquired under put option contracts for approximately $32
million.
<PAGE>
During 1999, the Company entered into various put option contracts in connection
with the share repurchase program to hedge against stock price fluctuations. As
of January 29, 2000, the Company had an outstanding put option contract to
repurchase approximately 0.4 million shares of the Company's stock. The contract
has an exercise price of $32.00 per share, with an expiration date in March
2000.
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. Additional information on these contracts and agreements is
presented in the Notes to Consolidated Financial Statements (Note E.).
Quantitative and qualitative disclosures about market risk for financial
instruments are presented on page 11.
Year 2000 Issue
The Year 2000 issue is primarily the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year.
The Company has noticed no material impact to its operations as a result of the
transition to the Year 2000. Problems relating to the Year 2000 issue could
still arise. However, the Company does not believe that the Year 2000 issue will
have a material adverse effect on its financial condition or results of
operations. The Company operates a large number of geographically dispersed
stores and has a large supplier base and believes that these factors will
mitigate any adverse impact.
The Company's beliefs and expectations, however, are based on certain
assumptions and expectations that ultimately may prove to be inaccurate,
including the Year 2000 viability of sourcing countries, and compliance of
third-party vendors and suppliers. The Company has identified that a significant
disruption in the product supply chain represents the most reasonably likely
worst case Year 2000 scenario. A substantial, extended disruption in the product
supply chain could have a material adverse effect on the Company's financial
condition and results of operations.
To date, the Company has incurred costs of $40 million to address the Year 2000
issue. The Company does not expect to incur significant additional costs in
connection with this issue.
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about the Company's market sensitive
financial instruments as of January 29, 2000 and January 30, 1999.
The Company purchases foreign exchange forward contracts to hedge substantially
all merchandise purchases made by foreign operations. These contracts are
entered into with large reputable financial institutions, thereby minimizing the
risk of credit loss. Further discussion of these contracts appears in the Notes
to Consolidated Financial Statements (Note E).
During fiscal 1997, the Company issued $500 million of unsecured notes, due
September 15, 2007, with a fixed interest rate of 6.9 percent.
During fiscal 1999, the Company's Japanese subsidiary, Gap (Japan) KK, issued
$50 million of debt securities due March 1, 2009, with a fixed interest rate of
6.25 percent payable in U.S. dollars. The Company swapped the cash flows payable
under these debt securities to Japanese yen with a fixed interest rate of 2.43
percent. These debt securities are recorded in the balance sheet at their fair
market value as of January 29, 2000.
During 1999, the Company's Netherlands subsidiary, Gap International B.V.,
issued debt securities in the amount of 250 million Euro, approximately $262
million, with a fixed interest rate of 5.0 percent, due September 30, 2004.
By entering into the fixed-rate borrowings, the Company avoids interest rate
risk from variable rate fluctuations. A portion of the Company's fixed-rate
borrowings used to finance foreign operations is denominated in foreign
currencies. By borrowing and repaying the loans in local currencies, the Company
avoids the risk associated with exchange rate fluctuations.
<TABLE>
<CAPTION>
Jan. 29, 2000 Jan. 30, 1999
- ---------------------------------------------------------------------------- -----------------------------------------------------
Notional Amount of Notional Amount of
Average Forward Contracts Average Forward Contracts
($000) Contract Rate (a) in U.S. Dollars Fair Value (b) Contract Rate (a) in U.S. Dollars Fair Value (b)
- ---------------------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Foreign exchange
forward contracts (c)
- -----------------------------------------------------------------------------------------------------------------------------------
Sell contracts:
British pounds 0.62 $133,432 $134,469 0.61 $137,222 $136,581
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian dollars 1.47 91,151 92,678 1.51 112,967 112,228
- -----------------------------------------------------------------------------------------------------------------------------------
Japanese yen 109.12 67,648 70,393 126.24 25,776 28,197
- -----------------------------------------------------------------------------------------------------------------------------------
Buy contracts:
Italian lire 1,842.40 47,178 44,269 1,700.06 24,459 25,052
- -----------------------------------------------------------------------------------------------------------------------------------
Spanish pesetas 159.02 12,476 11,730 142.75 9,351 9,189
- -----------------------------------------------------------------------------------------------------------------------------------
Total foreign exchange
forward contracts $351,885 $353,539 $309,775 $311,247
===================================================================================================================================
<CAPTION>
Jan. 29, 2000 Jan. 30, 1999
- ---------------------------------------------------------------------------- -----------------------------------------------------
Carrying Amount in Carrying Amount
($000) U.S. Dollars Fair Value (d) in U.S. Dollars Fair Value (d)
- ---------------------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Notes payable, due 2007 $496,866 $478,393 $496,455 $551,818
- -----------------------------------------------------------------------------------------------------------------------------------
Notes payable, due 2009 44,136 44,136 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Notes payable, due 2004 243,923 231,880 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt $784,925 $754,409 $496,455 $551,818
===================================================================================================================================
</TABLE>
(a) Currency per U.S. dollar.
(b) Calculated using forward spot rates at the dates presented.
(c) All contracts mature within one year.
(d) Based on the rates at which the Company could borrow funds with similar
terms and remaining maturities at the dates presented.
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL INFORMATION
Management is responsible for the integrity and consistency of all financial
information presented in the Annual Report. The financial statements have been
prepared in accordance with generally accepted accounting principles and
necessarily include certain amounts based on Management's best estimates and
judgments.
In fulfilling its responsibility for the reliability of financial information,
Management has established and maintains accounting systems and procedures
appropriately supported by internal accounting controls. Such controls include
the selection and training of qualified personnel, an organizational structure
providing for division of responsibility, communication of requirement for
compliance with approved accounting control and business practices and a program
of internal audit. The extent of the Company's system of internal accounting
control recognizes that the cost should not exceed the benefits derived and that
the evaluation of those factors requires estimates and judgments by Management.
Although no system can ensure that all errors or irregularities have been
eliminated, Management believes that the internal accounting controls in use
provide reasonable assurance, at reasonable cost, that assets are safeguarded
against loss from unauthorized use or disposition, that transactions are
executed in accordance with Management's authorization and that the financial
records are reliable for preparing financial statements and maintaining
accountability for assets. The financial statements of the Company have been
audited by Deloitte & Touche LLP, independent auditors, whose report appears
below.
The Audit and Finance Committee (the "Committee") of the Board of Directors is
comprised solely of directors who are not officers or employees of the Company.
The Committee is responsible for recommending to the Board of Directors the
selection of independent auditors. It meets periodically with Management, the
independent auditors and the internal auditors to ensure that they are carrying
out their responsibilities. The Committee also reviews and monitors the
financial, accounting and auditing procedures of the Company in addition to
reviewing the Company's financial reports. Deloitte & Touche LLP and the
internal auditors have full and free access to the Committee, with and without
Management's presence.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE GAP, INC.:
We have audited the accompanying consolidated balance sheets of The Gap, Inc.
and subsidiaries as of January 29, 2000 and January 30, 1999, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three fiscal years in the period ended January 29, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries as
of January 29, 2000 and January 30, 1999, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
January 29, 2000 in conformity with generally accepted accounting principles.
/s/ Deloitte and Touche LLP
San Francisco, California
February 23, 2000
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
52 Weeks Ended Percentage 52 Weeks Ended Percentage 52 Weeks Ended Percentage
($000 except per share amounts) Jan. 29, 2000 to Sales Jan. 30, 1999 to Sales Jan. 31, 1998 to Sales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $11,635,398 100.0% $ 9,054,462 100.0% $ 6,507,825 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold and occupancy expenses 6,775,262 58.2 5,318,218 58.7 4,021,541 61.8
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses 3,043,432 26.2 2,403,365 26.5 1,635,017 25.1
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest expense (income) 31,755 0.3 13,617 0.2 (2,975) 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 1,784,949 15.3 1,319,262 14.6 854,242 13.1
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes 657,884 5.6 494,723 5.5 320,341 4.9
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 1,127,065 9.7% $ 824,539 9.1% $ 533,901 8.2%
===================================================================================================================================
Weighted-average number of shares-basic 853,804,924 864,062,060 891,404,945
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of shares-diluted 895,029,176 904,374,383 922,951,706
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share-basic $ 1.32 $ 0.95 $ 0.60
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share-diluted 1.26 0.91 0.58
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
($000 except par value) Jan. 29, 2000 Jan. 30, 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- --------------------------------------------------------------------------------------------
Current Assets
- --------------------------------------------------------------------------------------------
Cash and equivalents $ 450,352 $ 565,253
- --------------------------------------------------------------------------------------------
Merchandise inventory 1,462,045 1,056,444
- --------------------------------------------------------------------------------------------
Other current assets 285,393 250,127
- --------------------------------------------------------------------------------------------
Total current assets 2,197,790 1,871,824
- --------------------------------------------------------------------------------------------
Property and Equipment
- --------------------------------------------------------------------------------------------
Leasehold improvements 1,426,537 1,040,959
- --------------------------------------------------------------------------------------------
Furniture and equipment 2,083,604 1,601,572
- --------------------------------------------------------------------------------------------
Land and buildings 278,422 160,776
- --------------------------------------------------------------------------------------------
Construction-in-progress 414,725 245,020
- --------------------------------------------------------------------------------------------
4,203,288 3,048,327
- --------------------------------------------------------------------------------------------
Accumulated depreciation and amortization (1,487,973) (1,171,957)
- --------------------------------------------------------------------------------------------
Property and equipment, net 2,715,315 1,876,370
- --------------------------------------------------------------------------------------------
Lease rights and other assets 275,651 215,725
- --------------------------------------------------------------------------------------------
Total assets $ 5,188,756 $ 3,963,919
============================================================================================
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------------------
Current Liabilities
- --------------------------------------------------------------------------------------------
Notes payable $ 168,961 $ 90,690
- --------------------------------------------------------------------------------------------
Accounts payable 805,945 684,130
- --------------------------------------------------------------------------------------------
Accrued expenses and other current liabilities 751,710 655,770
- --------------------------------------------------------------------------------------------
Income taxes payable 26,263 122,513
- --------------------------------------------------------------------------------------------
Total current liabilities 1,752,879 1,553,103
- --------------------------------------------------------------------------------------------
Long-Term Liabilities
- --------------------------------------------------------------------------------------------
Long-term debt 784,925 496,455
- --------------------------------------------------------------------------------------------
Deferred lease credits and other liabilities 417,907 340,682
- --------------------------------------------------------------------------------------------
Total long-term liabilities 1,202,832 837,137
- --------------------------------------------------------------------------------------------
Shareholders' Equity
- --------------------------------------------------------------------------------------------
Common stock $.05 par value
- --------------------------------------------------------------------------------------------
Authorized 2,300,000,000 shares; issued 1,007,356,790
and 997,496,214 shares; outstanding 850,498,941
and 857,960,032 shares 50,368 49,875
- --------------------------------------------------------------------------------------------
Additional paid-in capital 669,490 349,037
- --------------------------------------------------------------------------------------------
Retained earnings 4,172,796 3,121,360
- --------------------------------------------------------------------------------------------
Accumulated other comprehensive loss (6,759) (12,518)
- --------------------------------------------------------------------------------------------
Deferred compensation (23,150) (31,675)
- --------------------------------------------------------------------------------------------
Treasury stock, at cost (2,629,700) (1,902,400)
- --------------------------------------------------------------------------------------------
Total shareholders' equity 2,233,045 1,573,679
- --------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 5,188,756 $ 3,963,919
============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
($000) Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
- -----------------------------------------------------------------------------------------------------------------------
Net earnings $ 1,127,065 $ 824,539 $ 533,901
- -----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to
net cash provided by operating activities:
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 436,184 326,447 269,706
- -----------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options
and vesting of restricted stock 211,891 79,808 23,682
- -----------------------------------------------------------------------------------------------------------------------
Deferred income taxes 2,444 (34,766) (13,706)
- -----------------------------------------------------------------------------------------------------------------------
Change in operating assets and liabilities:
- -----------------------------------------------------------------------------------------------------------------------
Merchandise inventory (404,211) (322,287) (156,091)
- -----------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other (55,519) (77,292) (44,736)
- -----------------------------------------------------------------------------------------------------------------------
Accounts payable 118,121 265,296 63,532
- -----------------------------------------------------------------------------------------------------------------------
Accrued expenses 89,071 231,178 107,365
- -----------------------------------------------------------------------------------------------------------------------
Income taxes payable (94,893) 38,805 (8,214)
- -----------------------------------------------------------------------------------------------------------------------
Deferred lease credits and other long-term liabilities 47,775 62,433 69,212
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,477,928 1,394,161 844,651
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
- -----------------------------------------------------------------------------------------------------------------------
Net purchase of property and equipment (1,238,722) (797,592) (465,843)
- -----------------------------------------------------------------------------------------------------------------------
Acquisition of lease rights and other assets (39,839) (28,815) (19,779)
- -----------------------------------------------------------------------------------------------------------------------
Net maturity of short-term investments -- -- 174,709
- -----------------------------------------------------------------------------------------------------------------------
Net purchase of long-term investments -- -- (2,939)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,278,561) (826,407) (313,852)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
- -----------------------------------------------------------------------------------------------------------------------
Net increase in notes payable 84,778 1,357 44,462
- -----------------------------------------------------------------------------------------------------------------------
Net issuance of long-term debt 311,839 -- 495,890
- -----------------------------------------------------------------------------------------------------------------------
Issuance of common stock 76,211 36,655 23,309
- -----------------------------------------------------------------------------------------------------------------------
Net purchase of treasury stock (707,125) (879,383) (585,798)
- -----------------------------------------------------------------------------------------------------------------------
Cash dividends paid (75,795) (76,888) (79,503)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (310,092) (918,259) (101,640)
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate fluctuations on cash (4,176) 2,589 (1,634)
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and equivalents (114,901) (347,916) 427,525
- -----------------------------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of year 565,253 913,169 485,644
- -----------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 450,352 $ 565,253 $ 913,169
=======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------------------------
Additional
($000 except share and per share amounts) Shares Amount Paid-in Capital
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at February 1, 1997 1,072,791,305 $ 53,640 $ 404,304
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans 6,409,277 320 47,785
- -----------------------------------------------------------------------------------------------------------------------------------
Net cancellations of common stock pursuant to management
incentive restricted stock plans (2,130,438) (107) (10,392)
- -----------------------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock 23,682
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments
- -----------------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock
- -----------------------------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 7,344
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement of treasury stock (87,243,750) (4,362) (267,330)
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.09 per share)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1998 989,826,394 $ 49,491 $ 205,393
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans 7,575,195 380 46,709
- -----------------------------------------------------------------------------------------------------------------------------------
Net issuance of common stock pursuant to management
incentive restricted stock plans 94,625 4 4,361
- -----------------------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock 79,808
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments for foreign currency translation ($1,893) and
fluctuations in fair market value of financial instruments ($819)
- -----------------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock
- -----------------------------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 12,766
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.11 per share)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at January 30, 1999 997,496,214 $ 49,875 $ 349,037
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans 9,933,713 497 81,456
- -----------------------------------------------------------------------------------------------------------------------------------
Net cancellations of common stock pursuant to management
incentive restricted stock plans (73,137) (4) 2,583
- -----------------------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock 211,891
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments for foreign currency translation ($3,305) and
fluctuations in fair market value of financial instruments ($2,454)
- -----------------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options 72
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock 4,276
- -----------------------------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 20,175
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.09 per share)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at January 29, 2000 1,007,356,790 $ 50,368 $ 669,490
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
<TABLE>
<CAPTION>
Accumulated Other
Retained Comprehensive Deferred
($000 except share and per share amounts) Earnings Loss Compensation
- --------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C>
Balance at February 1, 1997 $ 1,938,352 $ (5,187) $ (47,838)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans (18,166)
- --------------------------------------------------------------------------------------------------------------------------
Net cancellations of common stock pursuant to management
incentive restricted stock plans 3,869
- --------------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock
- --------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments (10,043)
- --------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options 23,968
- --------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock
- --------------------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock
- --------------------------------------------------------------------------------------------------------------------------
Retirement of treasury stock
- --------------------------------------------------------------------------------------------------------------------------
Net earnings 533,901
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.09 per share) (79,503)
- --------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1998 $ 2,392,750 $ (15,230) $ (38,167)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans (10,351)
- --------------------------------------------------------------------------------------------------------------------------
Net issuance of common stock pursuant to management
incentive restricted stock plans (3,873)
- --------------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock
- --------------------------------------------------------------------------------------------------------------------------
Adjustments for foreign currency translation ($1,893) and
fluctuations in fair market value of financial instruments ($819) 2,712
- --------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options 20,716
- --------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock
- --------------------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock
- --------------------------------------------------------------------------------------------------------------------------
Net earnings 824,539
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.11 per share) (95,929)
- --------------------------------------------------------------------------------------------------------------------------
Balance at January 30, 1999 $ 3,121,360 $ (12,518) $ (31,675)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans (9,186)
- --------------------------------------------------------------------------------------------------------------------------
Net cancellations of common stock pursuant to management
incentive restricted stock plans (3,411)
- --------------------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock
- --------------------------------------------------------------------------------------------------------------------------
Adjustments for foreign currency translation ($3,305) and
fluctuations in fair market value of financial instruments ($2,454) 5,759
- --------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options 21,122
- --------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock
- --------------------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock
- --------------------------------------------------------------------------------------------------------------------------
Net earnings 1,127,065
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.09 per share) (75,629)
- --------------------------------------------------------------------------------------------------------------------------
Balance at January 29, 2000 $ 4,172,796 $ (6,759) $ (23,150)
==========================================================================================================================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
<TABLE>
<CAPTION>
Treasury Stock
---------------------------------------
($000 except share and per share amounts) Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at February 1, 1997 (146,295,311) $ (688,801)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans
- -------------------------------------------------------------------------------------------------------------
Net cancellations of common stock pursuant to management
incentive restricted stock plans
- -------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock
- -------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments
- -------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options
- -------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (47,678,177) (598,149)
- -------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 1,452,657 5,007
- -------------------------------------------------------------------------------------------------------------
Retirement of treasury stock 87,243,750 271,692
- -------------------------------------------------------------------------------------------------------------
Net earnings
- -------------------------------------------------------------------------------------------------------------
Cash dividends ($.09 per share)
- -------------------------------------------------------------------------------------------------------------
Balance at January 31, 1998 (105,277,081) $ (1,010,251)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans
- -------------------------------------------------------------------------------------------------------------
Net issuance of common stock pursuant to management
incentive restricted stock plans
- -------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock
- -------------------------------------------------------------------------------------------------------------
Adjustments for foreign currency translation ($1,893) and
fluctuations in fair market value of financial instruments ($819)
- -------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options
- -------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (35,714,475) (910,387)
- -------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 1,455,374 18,238
- -------------------------------------------------------------------------------------------------------------
Net earnings
- -------------------------------------------------------------------------------------------------------------
Cash dividends ($.11 per share)
- -------------------------------------------------------------------------------------------------------------
Balance at January 30, 1999 (139,536,182) $ (1,902,400)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans
- -------------------------------------------------------------------------------------------------------------
Net cancellations of common stock pursuant to management
incentive restricted stock plans
- -------------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock
- -------------------------------------------------------------------------------------------------------------
Adjustments for foreign currency translation ($3,305) and
fluctuations in fair market value of financial instruments ($2,454)
- -------------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options
- -------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (18,500,000) (745,056)
- -------------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 1,178,333 17,756
- -------------------------------------------------------------------------------------------------------------
Net earnings
- -------------------------------------------------------------------------------------------------------------
Cash dividends ($.09 per share)
- -------------------------------------------------------------------------------------------------------------
Balance at January 29, 2000 (156,857,849) $ (2,629,700)
=============================================================================================================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
<TABLE>
<CAPTION>
Comprehensive
($000 except share and per share amounts) Total Earnings
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at February 1, 1997 $ 1,654,470
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans 29,939
- -----------------------------------------------------------------------------------------------------------
Net cancellations of common stock pursuant to management
incentive restricted stock plans (6,630)
- -----------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock 23,682
- -----------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments (10,043) $ (10,043)
- -----------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options 23,968
- -----------------------------------------------------------------------------------------------------------
Purchase of treasury stock (598,149)
- -----------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 12,351
- -----------------------------------------------------------------------------------------------------------
Retirement of treasury stock --
- -----------------------------------------------------------------------------------------------------------
Net earnings 533,901 533,901
- -----------------------------------------------------------------------------------------------------------
Cash dividends ($.09 per share) (79,503)
- -----------------------------------------------------------------------------------------------------------
Balance at January 31, 1998 $ 1,583,986 $ 523,858
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans 36,738
- -----------------------------------------------------------------------------------------------------------
Net issuance of common stock pursuant to management
incentive restricted stock plans 492
- -----------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock 79,808
- -----------------------------------------------------------------------------------------------------------
Adjustments for foreign currency translation ($1,893) and
fluctuations in fair market value of financial instruments ($819) 2,712 2,712
- -----------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options 20,716
- -----------------------------------------------------------------------------------------------------------
Purchase of treasury stock (910,387)
- -----------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 31,004
- -----------------------------------------------------------------------------------------------------------
Net earnings 824,539 824,539
- -----------------------------------------------------------------------------------------------------------
Cash dividends ($.11 per share) (95,929)
- -----------------------------------------------------------------------------------------------------------
Balance at January 30, 1999 $ 1,573,679 $ 827,251
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Issuance of common stock pursuant to stock option plans 72,767
- -----------------------------------------------------------------------------------------------------------
Net cancellations of common stock pursuant to management
incentive restricted stock plans (832)
- -----------------------------------------------------------------------------------------------------------
Tax benefit from exercise of stock options by employees
and from vesting of restricted stock 211,891
- -----------------------------------------------------------------------------------------------------------
Adjustments for foreign currency translation ($3,305) and
fluctuations in fair market value of financial instruments ($2,454) 5,759 5,759
- -----------------------------------------------------------------------------------------------------------
Amortization of restricted stock and discounted stock options 21,194
- -----------------------------------------------------------------------------------------------------------
Purchase of treasury stock (740,780)
- -----------------------------------------------------------------------------------------------------------
Reissuance of treasury stock 37,931
- -----------------------------------------------------------------------------------------------------------
Net earnings 1,127,065 1,127,065
- -----------------------------------------------------------------------------------------------------------
Cash dividends ($.09 per share) (75,629)
- -----------------------------------------------------------------------------------------------------------
Balance at January 29, 2000 $ 2,233,045 $ 1,132,824
===========================================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED JANUARY 29, 2000 (FISCAL 1999), JANUARY 30, 1999
(FISCAL 1998), AND JANUARY 31, 1998 (FISCAL 1997).
Note A: Summary of Significant Accounting Policies
Organization
Gap Inc. (the "Company") is a global specialty retailer that operates stores
selling casual apparel, personal care and other accessories for men, women and
children under a variety of brand names including Gap, Banana Republic and Old
Navy. Its principal markets consist of the United States, Canada, Europe and
Japan with the United States being the most significant. The Company sells its
products through traditional retail stores, a catalog and online.
Stock Split
On May 20, 1999, the Company's Board of Directors authorized a three-for-two
split of the Company's common stock that was distributed on June 21, 1999, in
the form of a stock dividend for shareholders of record at the close of business
on June 4, 1999. All share and per share amounts in the accompanying
consolidated financial statements for all periods have been restated to reflect
the stock split.
Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany transactions have been eliminated.
Translation adjustments result from translating foreign subsidiaries` financial
statements into U.S. dollars. Balance sheet accounts are translated at exchange
rates in effect at the balance sheet date. Income statement accounts are
translated at average exchange rates during the year. Resulting translation
adjustments are included in shareholders' equity.
Fiscal Year
The Company's fiscal year is a 52- or 53-week period ending on the Saturday
closest to January 31. Fiscal years 1999, 1998 and 1997 each consisted of 52
weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Equivalents
Cash and equivalents represent cash and short-term, highly liquid investments
with original maturities of three months or less.
Merchandise Inventory
Merchandise inventory is stated at the lower of FIFO (first-in, first-out) cost
or market.
<PAGE>
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets. Interest costs related to assets under construction are
capitalized during the construction period.
Lease Rights
Lease rights are recorded at cost and are amortized over the estimated useful
lives of the respective leases, not to exceed 20 years.
Impairment of Long-lived Assets
The Company reviews long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. If the undiscounted future
cash flows from the long-lived asset are less than the carrying value, a loss
equal to the difference between the carrying value and the fair market value of
the asset is recorded.
Advertising
Costs associated with the production of advertising, such as writing copy,
printing and other costs, are expensed as incurred. Costs associated with
communicating advertising that has been produced, such as television and
magazine, are expensed when the advertising event takes place. Direct response
costs of catalogs are capitalized and amortized over the expected lives of the
related catalogs, not to exceed six months. Advertising costs were $529 million,
$419 million and $175 million in fiscal 1999, 1998 and 1997, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this
method, deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the consolidated
financial statements.
Stock-based Awards
The Company accounts for stock-based awards using the intrinsic value-based
method of accounting, under which no compensation cost is recognized for stock
option awards granted at fair market value. Restricted stock and discounted
stock option awards, which are granted at less than fair market value, result in
the recognition of deferred compensation. Deferred compensation is shown as a
reduction of shareholders' equity and is amortized to operating expenses over
the vesting period of the stock award.
Segments
The Company has one reportable segment given the similarities of economic
characteristics between the operations represented by the Company's three
brands. Revenues of international retail operations represent 11.3 percent, 10.1
percent and 9.7 percent of the Company's revenues for fiscal 1999, 1998 and
1997, respectively. Long-term assets of international operations, including
retail and sourcing, represent 13.8 percent and 14.3 percent of the Company's
long-term assets for fiscal 1999 and 1998, respectively.
Derivatives
The Company records the fair value of derivatives designated as fair-value and
cash-flow hedges on the balance sheet. The Company also records the fair value
of the hedged firm commitments on the balance sheet.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform with the 1999 presentation.
<PAGE>
Note B: Debt and Other Credit Arrangements
The Company has committed credit facilities totaling $1 billion, consisting of
an $850 million, 364-day revolving credit facility, and a $150 million, 5-year
revolving credit facility through June 28, 2003. These credit facilities provide
for the issuance of up to $500 million in letters of credit and provide backup
for the Company's $500 million commercial paper program. The Company has
additional uncommitted credit facilities of $520 million for the issuance of
letters of credit. At January 29, 2000, the Company had outstanding letters of
credit totaling approximately $851 million. The Company had no commercial paper
outstanding as of January 29, 2000.
Borrowings under the Company's credit agreements are subject to the Company not
exceeding a certain debt ratio. The Company was in compliance with this debt
covenant at January 29, 2000.
During fiscal 1997, the Company issued $500 million of unsecured notes, due
September 15, 2007, with a fixed annual interest rate of 6.9 percent. Interest
on the notes is payable semi-annually. The fair value of the notes at January
29, 2000 was approximately $478 million, based on the current rates at which the
Company could borrow funds with similar terms and remaining maturities. The
notes are recorded in the balance sheet at their issuance amount net of
unamortized discount.
During fiscal 1999, the Company's Japanese subsidiary, Gap (Japan) KK, issued
$50 million of 10-year debt securities, due March 1, 2009, with a fixed annual
interest rate of 6.25 percent payable in U.S. dollars. Interest on the notes is
payable semi-annually. The Company swapped the cash flows payable under these
debt securities to Japanese yen with a fixed annual interest rate of 2.43
percent to minimize foreign currency exposure. The fair value of the notes at
January 29, 2000 was approximately $44 million, based on the current rates at
which the Company could borrow funds with similar terms and remaining
maturities. The notes are recorded in the balance sheet at their fair value.
Also, during fiscal 1999, the Company's Netherlands subsidiary, Gap
International B.V., issued debt securities in the amount of 250 million Euro,
approximately $262 million at issuance, with a fixed annual interest rate of 5.0
percent, due September 30, 2004. Interest on the notes is payable annually. The
fair value of the notes at January 29, 2000 was approximately $232 million,
based on the current rates at which the Company could borrow funds with similar
terms and remaining maturities. The notes are recorded in the balance sheet at
their issuance amount net of an unamortized discount and are translated into
U.S. dollars at the period-end exchange rate.
Gross interest payments were $53,790,000, $47,415,000 and $8,399,000 in fiscal
1999, 1998 and 1997, respectively.
Note C: Income Taxes
Income taxes consisted of the following:
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
($000) Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current
- ----------------------------------------------------------------------------
Federal $ 549,107 $ 438,110 $ 279,068
- ----------------------------------------------------------------------------
State 62,357 55,716 33,384
- ----------------------------------------------------------------------------
Foreign 43,976 35,663 21,595
- ----------------------------------------------------------------------------
Total current 655,440 529,489 334,047
- ----------------------------------------------------------------------------
Deferred
- ----------------------------------------------------------------------------
Federal (3,815) (29,163) (14,832)
- ----------------------------------------------------------------------------
State and foreign 6,259 (5,603) 1,126
- ----------------------------------------------------------------------------
Total deferred 2,444 (34,766) (13,706)
- ----------------------------------------------------------------------------
Total provision $ 657,884 $ 494,723 $ 320,341
============================================================================
</TABLE>
The foreign component of pretax earnings before eliminations and corporate
allocations in fiscal 1999, 1998 and 1997 was $225,873,000, $190,864,000 and
$84,487,000, respectively. No provision was made for U.S. income taxes on the
undistributed earnings of the foreign subsidiaries as it is the Company's
intention to utilize those earnings in the foreign operations for an indefinite
period of time or repatriate such earnings only when tax effective to do so.
Accumulated undistributed earnings of foreign subsidiaries were $524,982,000 at
January 29, 2000.
<PAGE>
The difference between the effective income tax rate and the U.S. federal
income tax rate is summarized as follows:
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Federal tax rate 35.0% 35.0% 35.0%
- --------------------------------------------------------------------------------------------------------
State income taxes, less federal benefit 2.5 2.5 3.2
- --------------------------------------------------------------------------------------------------------
Other (0.6) 0.0 (0.7)
- --------------------------------------------------------------------------------------------------------
Effective tax rate 36.9% 37.5% 37.5%
========================================================================================================
</TABLE>
Deferred tax assets (liabilities) consisted of the following:
<TABLE>
<CAPTION>
($000) Jan. 29, 2000 Jan. 30, 1999
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Compensation and benefits accruals $ 26,377 $ 43,509
- --------------------------------------------------------------------------------------------------------
Scheduled rent 50,164 54,687
- --------------------------------------------------------------------------------------------------------
Inventory capitalization 39,485 40,976
- --------------------------------------------------------------------------------------------------------
Nondeductible accruals 24,126 10,257
- --------------------------------------------------------------------------------------------------------
Other 44,501 22,031
- --------------------------------------------------------------------------------------------------------
Gross deferred tax assets 184,653 171,460
- --------------------------------------------------------------------------------------------------------
Depreciation (23,054) (4,058)
- --------------------------------------------------------------------------------------------------------
Other (2,724) (6,083)
- --------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities (25,778) (10,141)
- --------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 158,875 $ 161,319
=======================================================================================================
</TABLE>
Net deferred tax assets at January 29, 2000 and January 30, 1999 are included in
Other Current Assets ($81,920,000 and $101,048,000, respectively), and Lease
Rights and Other Assets ($76,955,000 and $60,271,000, respectively) in the
Consolidated Balance Sheets. Income tax payments were $537,187,000, $410,919,000
and $320,744,000 in fiscal 1999, 1998 and 1997, respectively.
Note D: Leases
The Company leases most of its store premises and headquarters facilities and
some of its distribution centers. These leases expire at various dates through
2019.
The aggregate minimum non-cancelable annual lease payments under leases in
effect on January 29, 2000 are as follows:
<TABLE>
<CAPTION>
Fiscal Year ($000)
<S> <C>
- -----------------------------------------------------------------------------
2000 $ 633,985
- -----------------------------------------------------------------------------
2001 611,753
- -----------------------------------------------------------------------------
2002 582,483
- -----------------------------------------------------------------------------
2003 527,717
- -----------------------------------------------------------------------------
2004 460,770
- -----------------------------------------------------------------------------
Thereafter 1,818,509
- -----------------------------------------------------------------------------
Total minimum lease commitment $4,635,217
=============================================================================
</TABLE>
Many leases entered into by the Company include options that may extend the
lease term beyond the initial commitment period, subject to terms agreed to at
lease inception. Some leases also include early termination options which can be
exercised under specific conditions.
<PAGE>
For leases that contain predetermined fixed escalations of the minimum rentals,
the Company recognizes the related rental expense on a straight-line basis and
records the difference between the recognized rental expense and amounts payable
under the leases as deferred lease credits. At January 29, 2000 and January 30,
1999, this liability amounted to $170,275,000 and $154,897,000, respectively.
Cash or rent abatements received upon entering into certain store leases are
recognized on a straight-line basis as a reduction to rent expense over the
lease term. The unamortized portion is included in deferred lease credits. At
January 29, 2000 and January 30, 1999, the long-term deferred credit was
$168,903,000 and $112,416,000, respectively.
Some of the leases relating to stores in operation at January 29, 2000 contain
renewal options for periods ranging up to 30 years. Many leases also provide for
payment of operating expenses, real estate taxes and for additional rent based
on a percentage of sales. No lease directly imposes any restrictions relating to
leasing in other locations, other than radius clauses.
Rental expense for all operating leases was as follows:
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
($000) Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Minimum rentals $546,215 $460,715 $391,472
- ---------------------------------------------------------------------------
Contingent rentals 114,484 75,601 38,657
- ---------------------------------------------------------------------------
Total $660,699 $536,316 $430,129
===========================================================================
</TABLE>
Note E: Financial Instruments
Foreign Exchange Forward Contracts
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 U.S. dollar-denominated
merchandise purchases for foreign operations through the use of foreign exchange
forward contracts to minimize this risk. At January 29, 2000, the Company had
contracts maturing at various dates through November 2000 to buy and sell the
equivalent of $351,885,000 in foreign currencies (Buy contracts: 86,921,000,000
Italian lire and 1,984,000,000 Spanish pesetas; Sell contracts: 83,000,000
British pounds, 133,700,000 Canadian dollars and 7,382,000,000 Japanese yen) at
the contracted rates.
Changes in the fair value of forward contracts designated as fair-value hedges,
along with the offsetting changes in fair value of the related firm commitments
to purchase foreign merchandise, are recorded in cost of sales in the current
period. Changes in the fair value of forward contracts designated as cash-flow
hedges are recorded as a component of comprehensive earnings, and are recognized
in earnings in the period in which the hedged merchandise inventory is sold. The
related balance included in comprehensive earnings at January 29, 2000 will be
recognized in earnings over the next 12 months. The critical terms of the
forward contracts and the respective firm commitments and forecasted foreign
purchase transactions are essentially the same. As a result, there were no
amounts reflected in fiscal 1999 earnings resulting from hedge ineffectiveness.
Note F: Employee Benefit and Incentive Stock Compensation Plans
Retirement Plans
The Company has a qualified defined contribution retirement plan, called
GapShare, which is available to employees who meet certain age and service
requirements. This plan permits employees to make contributions up to the
maximum limits allowable under the Internal Revenue Code. Under the plan, the
Company matches all or a portion of employees' contributions under a
predetermined formula. The Company's contributions vest immediately. Company
contributions to the retirement plan in 1999, 1998 and 1997 were $16,035,000,
$14,284,000 and $12,907,000, respectively.
A nonqualified Executive Deferred Compensation Plan was established on January
1, 1999 which allows eligible employees to defer compensation up to a maximum
amount. This plan superseded an earlier nonqualified Executive Deferred
Compensation Plan, established on January 1, 1994, and a nonqualified Executive
Capital Accumulation Plan, established on April 1, 1994. The Company does not
match employees' contributions under the current plan.
<PAGE>
A Deferred Compensation Plan was established on August 26, 1997 for nonemployee
members of the Board of Directors. Under this plan, Board members may elect to
defer receipt on a pre-tax basis of eligible compensation received for serving
as non-employee directors of the Company. In exchange for compensation deferred,
Board members are granted discounted stock options to purchase shares of the
Company's common stock. All options are fully exercisable upon the date granted
and expire seven years after grant or one year after retirement from the Board,
if earlier. The Company may issue up to 675,000 shares under the plan.
Incentive Stock Compensation Plans
The 1996 Stock Option and Award Plan (the "1996 Plan") was established on March
26, 1996. The Board authorized 93,341,342 shares for issuance under the 1996
Plan, which includes shares available under the Management Incentive Restricted
Stock Plan ("MIRSP") and an earlier stock option plan established in 1981, both
of which were superseded by the 1996 Plan. The 1996 Plan empowers the
Compensation and Stock Option Committee of the Board of Directors (the
"Committee") to award compensation primarily in the form of nonqualified stock
options or restricted stock to key employees. The 1999 Stock Option Plan (the
"1999 Plan") was established on March 29, 1999. The Board authorized 22,500,000
shares for issuance under the 1999 Plan. The 1999 Plan empowers the Committee to
award nonqualified stock options to non-officers. Stock options generally expire
10 years from the grant date or one year after the date of retirement, if
earlier. Stock options generally vest over a three-year period, with shares
becoming exercisable in full on the third anniversary of the grant date.
Nonqualified stock options are generally issued at fair market value but may be
issued at prices less than the fair market value at the date of grant or at
other prices as determined by the Committee. Total compensation cost for those
stock options issued at less than fair market value and for the restricted
shares issued was $19,175,000, $20,845,000 and $17,170,000 in 1999, 1998 and
1997, respectively.
In 1998, the Company established a stock option plan for non-officers, called
Stock Up On Success, under which eligible employees may receive nonqualified
stock options. The Board of Directors authorized 6,000,000 shares for issuance
under Stock Up On Success. Stock options under the plan must be issued at not
less than fair market value. During 1999, options to purchase approximately
1,484,000 shares were granted to approximately 19,000 employees under the plan.
These stock options have a vesting period of one-and-a-half years and expire 10
years after the grant date.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan under which all eligible
employees may purchase common stock of the Company at 85 percent of the lower of
the closing price of the Company's common stock on the grant date or the
purchase date on the New York Stock Exchange Composite Transactions Index.
Employees pay for their stock purchases through payroll deductions at a rate
equal to any whole percentage from 1 percent to 15 percent. There were 1,178,333
shares issued under the plan during fiscal 1999, 1,440,615 shares during 1998
and 1,452,657 shares during 1997. All shares were acquired from reissued
treasury stock. At January 29, 2000, there were 6,778,354 shares reserved for
future subscriptions.
Note G: Shareholders' Equity and Stock Options
Common and Preferred Stock
The Company is authorized to issue 60,000,000 shares of Class B common stock,
which is convertible into shares of common stock on a share-for-share basis;
transfer of the shares is restricted. In addition, the holders of the Class B
common stock have six votes per share on most matters and are entitled to a
lower cash dividend. No Class B shares have been issued.
The Board of Directors is authorized to issue 30,000,000 shares of one or more
series of preferred stock and to establish at the time of issuance the issue
price, dividend rate, redemption price, liquidation value, conversion features
and such other terms and conditions of each series (including voting rights) as
the Board of Directors deems appropriate, without further action on the part of
the shareholders. No preferred shares have been issued.
During 1999, the Company completed a 101 million share repurchase program
approved in 1996 by acquiring approximately 2.1 million shares for approximately
$94 million. In addition, during fiscal 1999, under the 67.5 million share
repurchase program approved in 1998, the Company acquired approximately 16.4
million shares for approximately $651 million, including 0.8 million shares
acquired under put option contracts for approximately $32 million.
<PAGE>
At the end of fiscal 1999, 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 $32.00 per share, with an expiration date of March 22, 2000.
Stock Options
Under the Company's stock option plans, nonqualified options to purchase common
stock are granted to officers, directors and employees at exercise prices equal
to the fair market value of the stock at the date of grant or at other prices as
determined by the Compensation and Stock Option Committee of the Board of
Directors.
Stock option activity for all employee benefit plans was as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
<S> <C> <C>
- ----------------------------------------------------------------------
Balance at February 1, 1997 65,788,599 $ 6.43
- ----------------------------------------------------------------------
Granted 25,633,196 9.61
- ----------------------------------------------------------------------
Exercised (6,410,327) 4.73
- ----------------------------------------------------------------------
Canceled (5,758,415) 7.11
- ----------------------------------------------------------------------
Balance at January 31, 1998 79,253,053 $ 7.54
- ----------------------------------------------------------------------
Granted 28,445,033 21.45
- ----------------------------------------------------------------------
Exercised (7,603,242) 4.95
- ----------------------------------------------------------------------
Canceled (2,836,809) 11.94
- ----------------------------------------------------------------------
Balance at January 30, 1999 97,258,035 $ 11.69
- ----------------------------------------------------------------------
Granted 11,780,067 42.15
- ----------------------------------------------------------------------
Exercised (9,942,133) 7.50
- ----------------------------------------------------------------------
Canceled (6,582,343) 17.30
- ----------------------------------------------------------------------
Balance at January 29, 2000 92,513,626 $ 15.61
======================================================================
</TABLE>
Outstanding options at January 29, 2000 have expiration dates ranging from March
2000 to January 2010.
At January 29, 2000, the Company reserved 145,993,924 shares of its common
stock, including 160,912 treasury shares, for the exercise of stock options.
There were 53,480,298 and 36,214,437 shares available for granting of options at
January 29, 2000 and January 30, 1999, respectively. Options for 15,682,738,
10,913,039 and 9,674,657 shares were exercisable as of January 29, 2000, January
30, 1999 and January 31, 1998, respectively, and had a weighted-average exercise
price of $7.76, $5.51 and $5.18 for those respective periods.
The Company accounts for its stock option and award plans using the intrinsic
value-based method of accounting, under which no compensation cost has been
recognized for stock option awards granted at fair market value. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans, the Company's net earnings and earnings per share would have been reduced
to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Net earnings ($000)
- ------------------------------------------------------------------------------
As reported $1,127,065 $ 824,539 $ 533,901
- ------------------------------------------------------------------------------
Pro forma 1,047,304 772,062 507,966
- ------------------------------------------------------------------------------
Earnings per share
- ------------------------------------------------------------------------------
As reported-basic $ 1.32 $ 0.95 $ 0.60
- ------------------------------------------------------------------------------
Pro forma-basic 1.23 0.89 0.57
- ------------------------------------------------------------------------------
As reported-diluted 1.26 0.91 0.58
- ------------------------------------------------------------------------------
Pro forma-diluted 1.17 0.85 0.55
==============================================================================
</TABLE>
<PAGE>
The weighted-average fair value of the stock options granted during fiscal 1999,
1998 and 1997 was $16.77, $7.50 and $3.89, respectively. The fair value of each
option granted is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for grants
in 1999: dividend yield of 0.2 percent; expected price volatility of 35 percent;
risk-free interest rates ranging from 5.4 percent to 6.7 percent and expected
lives between 3.9 and 6.2 years. The fair value of stock options granted in 1998
was based on the following weighted-average assumptions: dividend yield of 0.4
percent; expected price volatility of 32 percent; risk-free interest rates
ranging from 5.3 percent to 5.7 percent and expected lives between 3.9 and 6.1
years. The fair value of stock options granted in 1997 was based on the
following weighted-average assumptions: dividend yield of 0.7 percent; expected
price volatility of 31 percent; risk-free interest rates ranging from 5.9
percent to 7.0 percent and expected lives between 3.9 and 5.8 years.
The following table summarizes information about stock options outstanding at
January 29, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------- ------------------------------------
Number Weighted-Average Number
Outstanding at Remaining Contractual Weighted-Average Exercisable at Weighted-Average
Range of Exercise Prices Jan. 29, 2000 Life (in years) Exercise Price Jan. 29, 2000 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.17 to $ 5.79 24,865,302 3.87 $ 5.39 5,435,433 $ 4.73
- ----------------------------------------------------------------------------------------------------------------------------------
5.96 to 9.80 27,755,468 6.45 9.09 9,741,033 8.98
- ----------------------------------------------------------------------------------------------------------------------------------
9.87 to 24.25 25,061,458 8.15 19.59 467,201 15.00
- ----------------------------------------------------------------------------------------------------------------------------------
24.36 to 50.29 14,831,398 8.84 38.24 39,071 36.43
- ----------------------------------------------------------------------------------------------------------------------------------
$ 4.17 to $50.29 92,513,626 6.60 $15.61 15,682,738 $ 7.76
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note H: 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 additional dilutive effect of the Company's potentially dilutive
securities, which includes 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, as included in the calculation of diluted weighted-average shares.
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average number of shares-basic 853,804,924 864,062,060 891,404,945
- -----------------------------------------------------------------------------------------------------------
Incremental shares resulting from:
- -----------------------------------------------------------------------------------------------------------
Stock options 39,781,579 35,340,667 22,584,825
- -----------------------------------------------------------------------------------------------------------
Restricted stock 1,442,673 4,971,656 8,961,936
- -----------------------------------------------------------------------------------------------------------
Weighted-average number of shares-diluted 895,029,176 904,374,383 922,951,706
===========================================================================================================
</TABLE>
Excluded from the above computations of weighted-average shares for diluted
earnings per share were options to purchase 7,089,268 shares of common stock for
fiscal 1999, 27,263 shares for fiscal 1998 and 990,143 shares for fiscal 1997.
Issuance or repurchase of these securities would have resulted in an
antidilutive effect on earnings per share.
Note I: Related Party Transactions
The Company has an agreement with Fisher Development, Inc. (FDI), a company
wholly owned by the brother of the Company's chairman, setting forth the terms
under which FDI may act as general contractor in connection with the Company's
construction activities. FDI acted as general contractor for 547, 340 and 266
new stores' leasehold improvements and fixtures during fiscal 1999, 1998 and
1997, respectively. In the same respective years, FDI supervised construction of
123, 135 and 97 expansions, as well as remodels of existing stores and
headquarters facilities. Total cost of construction was $485,295,000,
$342,030,000 and $233,777,000, including profit and overhead costs of
$46,886,000, $28,877,000 and $16,845,000, for fiscal 1999, 1998 and 1997,
respectively. At January 29, 2000 and January 30, 1999, amounts due to FDI were
$26,265,000 and $15,302,000, respectively. The terms and conditions of the
agreement with FDI are reviewed annually by the Audit and Finance Committee of
the Board of Directors.
<PAGE>
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Fiscal 1999
13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 52 Weeks Ended
($000 except per share amounts) May 1, 1999 Jul. 31, 1999 Oct. 30, 1999 Jan. 29, 2000 Jan. 29, 2000
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 2,277,734 $ 2,453,339 $ 3,045,386 $ 3,858,939 $11,635,398
- ------------------------------------------------------------------------------------------------------------------------------
Gross profit 943,579 1,009,794 1,304,288 1,602,475 4,860,136
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings 202,370 195,829 315,017 413,849 1,127,065
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per share-basic 0.24 0.23 0.37 0.49 1.32
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per share-diluted 0.22 0.22 0.35 0.47 1.26
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal 1998
13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 52 Weeks Ended
($000 except per share amounts) May 2, 1998 Aug. 1, 1998 Oct. 31, 1998 Jan. 30, 1999 Jan. 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,719,712 $ 1,904,970 $ 2,399,948 $ 3,029,832 $ 9,054,462
- ------------------------------------------------------------------------------------------------------------------------------
Gross profit 688,708 769,805 1,023,943 1,253,788 3,736,244
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings 136,066 136,874 237,749 313,850 824,539
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per share-basic 0.16 0.16 0.28 0.37 0.95
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per share-diluted 0.15 0.15 0.27 0.35 0.91
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Per Share Data
Market Prices Cash Dividends Paid
---------------------------------------------------------------------------------------------
Fiscal 1999 1998 1999 1998
- --------------------------------------------------------------------------------------- -----------------------------------
High Low High Low
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $51 9/16 $39 13/16 $22 7/8 $ 17 9/16 $0.0222 $0.0222
- ------------------------------------------------------------------------------------------------------------------------------
2nd Quarter 52 11/16 39 3/8 29 15/16 22 7/16 0.0222 0.0222
- ------------------------------------------------------------------------------------------------------------------------------
3rd Quarter 47 15/16 30 13/16 30 3/16 20 3/16 0.0222 0.0222
- ------------------------------------------------------------------------------------------------------------------------------
4th Quarter 49 5/16 32 13/32 43 5/16 26 1/16 0.0222 0.0222
- ------------------------------------------------------------------------------------------------------------------------------
Year $0.0888 $0.0888
==============================================================================================================================
</TABLE>
The principal markets on which the Company's stock is traded are the New York
Stock Exchange and the Pacific Exchange. The number of holders of record of the
Company's stock as of March 10, 2000 was 9,409.
<PAGE>
Exhibit 21
Banana Republic (Apparel) Inc. California
Banana Republic (California) LLC Delaware
Banana Republic (Canada) Inc. Canada
Banana Republic (East) L.P. California
Banana Republic (Florida) LLC California
Banana Republic (H.K.) Limited Hong Kong
Banana Republic (Holdings) Inc. California
Banana Republic (ITM) Inc. California
Banana Republic (New York) LLC Delaware
Banana Republic (Puerto Rico) Inc. Puerto Rico
Banana Republic Direct, Inc. California
Banana Republic Limited England and Wales
Banana Republic Stores Pty. Ltd. New South Wales, Australia
Banana Republic, Inc. Delaware
GPS (Bermuda) Insurance Services Limited Bermuda
GPS (Delaware), Inc. Delaware
GPS (Great Britain) Limited England and Wales
GPS (Japan), Limited Delaware
GPS (Maryland), Inc. Maryland
GPS (Puerto Rico) Limited California
GPS (UK) Limited California
GPS (USA) Limited California
GPS Brand Services, Inc. California
GPS Consumer Direct, Inc. California
GPS Corporate Facilities, Inc. California
GPS Employee Services, Inc. California
GPS Management Services, Inc. California
GPS Park Restaurant, Inc. California
GPS Real Estate, Inc. California
GPS Realty Company Inc. Delaware
GPSDC (CADC) LLC California
GPSDC (Fresno) LLC California
GPSDC (NEW YORK) INC. Delaware
GPSDC (WDC) LLC California
Gap (Apparel), Inc. California
Gap (Canada) Inc. Canada
Gap (Deutschland) GmbH Dusseldorf, Germany
Gap (Distribution) B.V. Amsterdam, The Netherlands
Gap (ESO) Limited England and Wales
Gap (Florida) LLC California
Gap (France) S.A.S. Paris, France
Gap (Georgia) LP California
<PAGE>
Gap (Hong Kong) Limited Hong Kong
Gap (ITM) Inc. California
Gap (Indiana) LP California
Gap (Ireland) Limited Dublin, Ireland
Gap (Japan) K.K. Tokyo, Japan
Gap (Kentucky) LP California
Gap (Netherlands) B.V. Amsterdam, The Netherlands
Gap (Puerto Rico), Inc. Puerto Rico
Gap (RHC) B.V. Amsterdam, The Netherlands
Gap (Tennessee) LP California
Gap (Texas) LP California
Gap (UK Distribution) Limited England and Wales
Gap (UK Holdings) Limited England and Wales
Gap (UK Lettings) Limited England and Wales
Gap (UK) Limited England and Wales
Gap (Wisconsin) LP California
Gap Direct, Inc. California
Gap Holdings, Inc. California
Gap International B.V. Amsterdam, The Netherlands
Gap International Sourcing (Americas) LLC California
Gap International Sourcing (California) Inc. California
Gap International Sourcing (Holdings) Limited Hong Kong
Gap International Sourcing (JV) LLC California
Gap International Sourcing (Mexico) S.A. de C.V. Mexico
Gap International Sourcing (U.S.A.) Inc. California
Gap International Sourcing FZE Free Zone, United Arab Emirates
Gap International Sourcing Limited Hong Kong
Gap International Sourcing Pte. Ltd. Singapore
Gap International Sourcing, Inc. California
Gap International Sourcing, Srl. Florence, Italy
Gap International, Inc. California
Gebe S.A.R.L. Paris, France
Goldhawk B.V. Amsterdam, The Netherlands
La Mer S.A. Paris, France
Maravan S.A.R.L. Paris, France
Melanie Rennes Saint Germain SARL Paris, France
Old Navy (Apparel) Inc. California
Old Navy (California) LLC Delaware
Old Navy (Canada) Inc. Province of Ontario
Old Navy (East) L.P. California
Old Navy (Florida) LLC California
Old Navy (Holdings) Inc. California
Old Navy (ITM) Inc. California
Old Navy (Puerto Rico) Inc. Puerto Rico
Old Navy Direct, Inc. California
Old Navy Inc. Delaware
Real Estate Ventures (Glastonbury), Inc. Delaware
Real Estate Ventures (Glen Eagle), Inc. Delaware
<PAGE>
Real Estate Ventures (Wheaton) Inc. Illinois
The Fisher Gap Stores Inc. California
The Gap Limited England and Wales
WCB Twenty-Eight Limited Partnership Delaware
<PAGE>
Exhibit 23
Deloitte & Touche LLP
50 Fremont Street Telephone: (415) 783-4000
San Francisco, California 94105-2230 Facsimile: (415) 783-4329
To the Board of Directors and Shareholders of
The Gap, Inc.:
We consent to the incorporation by reference in the following Registration
Statements on Form S-8: No. 2-72586, No. 2-60029, No. 33-39089, No. 33-40505,
No. 33-54686, No. 33-54688, No. 33-54690, No. 33-56021, No. 333-00417,
No. 333-12337, No. 333-36265, No. 333-68285, No. 333-72921, No. 333-76523, and
Registration Statement No. 333-70991 on Form S-3 of our report dated February
23, 2000, appearing in this Annual Report on Form 10-K of The Gap, Inc. for the
fiscal year ended January 29, 2000.
/s/ Deloitte & Touche LLP
San Francisco, California
March 31, 2000
Deloitte Touche
Tohmatsu
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JAN-29-2000
<CASH> 450,352
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,462,045
<CURRENT-ASSETS> 2,197,790
<PP&E> 4,203,288
<DEPRECIATION> 1,487,973
<TOTAL-ASSETS> 5,188,756
<CURRENT-LIABILITIES> 1,752,879
<BONDS> 784,925
0
0
<COMMON> 50,368
<OTHER-SE> 2,182,677
<TOTAL-LIABILITY-AND-EQUITY> 5,188,756
<SALES> 11,635,398
<TOTAL-REVENUES> 11,635,398
<CGS> 6,775,262
<TOTAL-COSTS> 6,775,262
<OTHER-EXPENSES> 3,043,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,755
<INCOME-PRETAX> 1,784,949
<INCOME-TAX> 657,884
<INCOME-CONTINUING> 1,127,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,127,065
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.26
</TABLE>
