-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LEavv6xaGPHo5Ck5hAV5JlGAk5gFsX/WYsq/75RiIR9TyCzDlZjplUGca7dU8Z0Y xn9xGmEDZ5WSl3IKHswKxA== 0000898430-01-500948.txt : 20010611 0000898430-01-500948.hdr.sgml : 20010611 ACCESSION NUMBER: 0000898430-01-500948 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010505 FILED AS OF DATE: 20010608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAP INC CENTRAL INDEX KEY: 0000039911 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 941697231 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07562 FILM NUMBER: 1657290 BUSINESS ADDRESS: STREET 1: ONE HARRISON CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159524400 MAIL ADDRESS: STREET 1: ONE HARRISON STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 FORMER COMPANY: FORMER CONFORMED NAME: GAP STORES INC DATE OF NAME CHANGE: 19850617 10-Q 1 d10q.txt FORM 10-Q FOR PERIOD ENDED MAY 5, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended May 5, 2001 or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to ___________ Commission File Number 1-7562 THE GAP, INC. (Exact name of registrant as specified in its charter) Delaware 94-1697231 -------- ---------- (State of Incorporation) (I.R.S. Employer Identification No.) One Harrison San Francisco, California 94105 (Address of principal executive offices) Registrant's telephone number, including area code: (650) 952-4400 _______________ Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.05 par value New York Stock Exchange, Inc. (Title of class) Pacific Exchange, Inc. (Name of each exchange where registered) Securities registered pursuant to Section 12(g) of the Act: None _______________ Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, $0.05 par value, 859,493,042 shares as of June 2, 2001 -------------------------------------------------------------------- 1 GAP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
($000 except share and par value) May 5, February 3, April 29, 2001 2001 2000 ---- ---- ---- ASSETS Current Assets: Cash and equivalents $ 663,089 $ 408,794 $ 436,172 Merchandise inventory 2,048,822 1,904,153 1,652,049 Other current assets 350,144 335,103 315,709 ---------------- ---------------- ---------------- Total Current Assets 3,062,055 2,648,050 2,403,930 Property and equipment, net 4,120,883 4,007,685 2,905,064 Lease rights and other assets 352,485 357,173 348,597 ---------------- ---------------- ---------------- Total Assets $ 7,535,423 $ 7,012,908 $ 5,657,591 ================ ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 781,224 $ 779,904 $ 631,461 Current maturities of long-term debt 250,000 250,000 - Accounts payable 912,215 1,067,207 728,121 Accrued expenses and other current liabilities 715,557 702,033 669,455 ---------------- ---------------- ---------------- Total Current Liabilities 2,658,996 2,799,144 2,029,037 Long-Term Liabilities: Long-term debt 1,270,289 780,246 769,287 Deferred lease credits and other liabilities 531,100 505,279 431,473 ---------------- ---------------- ---------------- Total Long-Term Liabilities 1,801,389 1,285,525 1,200,760 Shareholders' Equity: Common stock $.05 par value Authorized 2,300,000 shares Issued 941,407,614; 939,222,871 and 930,924,579 shares, Outstanding 856,199,748; 853,996,984 and 851,344,890 shares 47,070 46,961 46,546 Additional paid-in capital 338,468 294,967 140,797 Retained earnings 5,090,262 4,974,773 4,408,281 Accumulated other comprehensive earnings (losses) (32,332) (20,173) 6,013 Deferred compensation (12,577) (12,162) (22,512) Treasury stock, at cost (2,355,853) (2,356,127) (2,151,331) ---------------- ---------------- ---------------- Total Shareholders' Equity 3,075,038 2,928,239 2,427,794 ---------------- ---------------- ---------------- Total Liabilities and Shareholders' Equity $ 7,535,423 $ 7,012,908 $ 5,657,591 ================ ================ ================
See accompanying notes to condensed consolidated financial statements. 2 GAP INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) - --------------------------------------------------------------------------------
Thirteen Weeks Ended -------------------- ($000 except share and per share amounts) May 5, 2001 April 29, 2000 ----------- -------------- Net sales $ 3,179,656 $ 2,731,990 Costs and expenses Cost of goods sold and occupancy expenses 2,054,482 1,601,905 Operating expenses 920,412 750,303 Interest expense 24,038 11,529 Interest income (1,135) (2,576) ------------- ------------- Earnings before income taxes 181,859 370,829 Income taxes 66,379 135,353 ------------- ------------- Net earnings $ 115,480 $ 235,476 ============= ============= - ------------------------------------------------------------------------------------------ Weighted average number of shares - basic 854,333,157 850,325,670 Weighted average number of shares - diluted 875,873,227 888,020,166 Earnings per share - basic $ 0.14 $ 0.28 Earnings per share - diluted $ 0.13 $ 0.27 Cash dividends paid per share $ 0.02 /(a)/ $ 0.02 /(b)/
- -------------------------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements. /(a)/ Represents a dividend of $0.02 per share declared in January 2001 but paid in first quarter of fiscal 2001. /(b)/ Represents a dividend of $0.02 per share declared in January 2000 but paid in first quarter of fiscal 2000. 3 GAP INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
- ----------------------------------------------------------------------------------------------------------------- ($000) Thirteen Weeks Ended ---------------------------------------------- May 5, 2001 April 29, 2000 ---------------------- -------------------- Cash Flows from Operating Activities: Net earnings $ 115,480 $ 235,476 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 196,148 132,016 Tax benefit from exercise of stock options and vesting of restricted stock 16,537 65,912 Changes in operating assets and liabilities: Merchandise inventory (150,422) (194,586) Other current assets (16,154) (32,461) Accounts payable (154,359) (71,718) Accrued expenses 36,888 (52,006) Income taxes payable 1,400 (36,825) Deferred lease credits and other liabilities 20,529 (5,476) ------------------ ----------------- Net cash provided by operating activities 66,047 40,332 ------------------ ----------------- Cash Flows from Investing Activities: Net purchase of property and equipment (311,131) (321,103) Acquisition of lease rights and other assets (4,958) (50,779) ------------------ ----------------- Net cash used for investing activities (316,089) (371,882) ------------------ ----------------- Cash Flows from Financing Activities: Net increase in notes payable 5,174 468,252 Net issuance of long-term debt 495,886 - Issuance of common stock 23,155 38,632 Net purchase of treasury stock - (163,266) Cash dividends paid (18,950) (18,872) ------------------ ----------------- Net cash provided by financing activities 505,265 324,746 ------------------ ----------------- Effect of exchange rate fluctuations on cash (928) (7,376) ------------------ ----------------- Net increase (decrease) in cash and equivalents 254,295 (14,180) Cash and equivalents at beginning of year 408,794 450,352 ------------------ ----------------- Cash and equivalents at end of quarter $ 663,089 $ 436,172 ================== ================= - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. 4 GAP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION --------------------- The condensed consolidated balance sheets as of May 5, 2001 and April 29, 2000 and the interim condensed consolidated statements of earnings for the thirteen weeks ended May 5, 2001 and April 29, 2000 and cash flows for the thirteen week periods ended May 5, 2001 and April 29, 2000 have been prepared by the Company, without audit. In the opinion of management, such statements include all adjustments (which include only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows of the Company at May 5, 2001 and April 29, 2000, and for all periods presented. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted from these interim financial statements. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended February 3, 2001. The condensed consolidated balance sheet as of February 3, 2001 was derived from the Company's February 3, 2001 balance sheet included in the Company's 2000 Annual Report on Form 10-K. The results of operations for the thirteen weeks ended May 5, 2001 are not necessarily indicative of the operating results that may be expected for the year ending February 2, 2002. 2. COMPREHENSIVE EARNINGS ---------------------- Comprehensive earnings include net earnings and other comprehensive earnings (losses). Other comprehensive earnings (losses) include foreign currency translation adjustments and fluctuations in the fair market value of certain financial instruments. Comprehensive earnings for the thirteen weeks ended May 5, 2001 and April 29, 2000 were as follows (in thousands): Thirteen Weeks Ended ----------------------------------- May 5, 2001 April 29, 2000 --------------- ------------------ Net earnings $115,480 $235,476 Other comprehensive (losses) earnings (12,159) 12,772 --------------- ------------------ Comprehensive earnings $103,321 $248,248 =============== ================== 5 3. EARNINGS PER SHARE ------------------ Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share includes the dilutive effect of the Company's potentially dilutive securities, which include certain stock options and unvested shares of restricted stock. The following summarizes the incremental shares from these potentially dilutive securities, calculated using the treasury stock method.
Thirteen Weeks Ended --------------------------------------- May 5, 2001 April 29, 2000 ------------------ ----------------- Weighted-average number of shares - basic 854,333,157 850,325,670 Incremental shares resulting from: Stock options 21,406,811 36,951,619 Restricted stock 133,259 742,877 ----------------- ---------------- Weighted-average number of shares - diluted 875,873,227 888,020,166 ================= ================
Excluded from the above computations of weighted-average shares for diluted earnings per share were options to purchase 27,066,303 and 2,475,924 shares of common stock during the thirteen weeks ended May 5, 2001 and April 29, 2000, respectively. Additionally, put options to repurchase 750,000 shares during the thirteen weeks ended April 29, 2000 were excluded from the above computations. Issuance or repurchase of these securities would have resulted in an antidilutive effect on earnings per share. 4. LONG-TERM DEBT -------------- On April 27, 2001, the Company issued $500 million of debt securities at a fixed annual interest rate of 5.625 percent, due May 1, 2003. Interest on the notes is payable semi-annually. The notes are recorded in the balance sheet at their issuance amount. In connection with the debt issuance, the Company entered into interest rate swaps in order to reduce interest rate risk. The swap agreements were settled in the first quarter and the net losses of approximately $2.2 million associated with these swaps will be amortized over the life of the debt securities. 6 Deloitte & Touche LLP 50 Fremont Street San Francisco, California 94105-2230 Tel: (415) 783 4000 Fax: (415) 783 4329 www.us.deloitte.com Deloitte & Touche INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Shareholders of The Gap, Inc.: We have reviewed the accompanying condensed consolidated balance sheets of The Gap, Inc. and subsidiaries as of May 5, 2001 and April 29, 2000, and the related condensed consolidated statements of earnings and cash flows for the thirteen week periods ended May 5, 2001 and April 29, 2000. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of The Gap, Inc. and subsidiaries as of February 3, 2001, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 3, 2001 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Deloitte & Touche LLP May 16, 2001 7 GAP INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------------- The information below contains certain forward-looking statements which reflect the current view of Gap Inc. (the "Company") with respect to future events and financial performance. Wherever used, the words "expect," "plan," "anticipate," "believe," and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties and the Company's actual results of operations could differ materially from historical results or current expectations. Some of these risks include, without limitation, ongoing competitive pressures in the apparel industry, risks associated with challenging international retail environments, changes in the level of consumer spending or preferences in apparel, trade restrictions and political or financial instability in countries where the Company's goods are manufactured, and/or other factors that may be described in the Company's Annual Report on Form 10-K and/or other filings with the Securities and Exchange Commission. Future economic and industry trends that could potentially impact revenues and profitability are difficult to predict. It is suggested that this document be read in conjunction with the Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended February 3, 2001. 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 - --------------------------------------------------------------- -------------------------------------------- Thirteen Weeks Ended -------------------------------------------- May 5, 2001 April 29, 2000 - --------------------------------------------------------------- -------------------------------------------- Net sales ($000) $3,179,656 $2,731,990 Total net sales growth percentage 16 20 Comparable store sales decrease percentage (7) (2) Net sales per average square foot $ 96 $ 109 Square footage of gross store space - at end of period (000) 33,271 25,519 Number of Stores: Beginning of Year 3,676 3,018 New stores 195 133 Expanded stores/(1)/ 55 24 Closed stores 21 6 End of Period 3,850 3,145 - --------------------------------------------------------------- --------------------------------------------
(1) Expanded stores do not change store count. 8 Store count and square footage at quarter end for fiscal 2001 and 2000 were as follows:
May 5, 2001 April 29, 2000 - -------------------------------------------------------- --------------------------------- -------------------------------- Number of Sq. Ft. Number of Sq. Ft. Stores (millions) Stores (millions) - -------------------------------------------------------- ----------------- ---------------- ---------------- ---------------- Gap Domestic 2,143 12.4 1,812 10.6 Gap International 575 3.2 433 2.4 Banana Republic 415 3.3 354 2.7 Old Navy 717 14.4 546 9.8 - -------------------------------------------------------- ----------------- ---------------- ---------------- ---------------- Total 3,850 33.3 3,145 25.5 ======================================================== ================= ================ ================ ================ Increase 22% 30% 22% 31%
The increase in net sales for the first quarter of fiscal 2001 over the same period last year was attributable to the increase in retail selling space, both through the opening of new stores (net of stores closed) and the expansion of existing stores. The company's first quarter comparable store sales by division were as follows: Gap Domestic had a negative mid-single digit versus a negative mid-single digit last year, Gap International had a negative high-single digit versus a positive mid-single digit last year, Banana Republic had a negative high-single digit versus a positive mid-single digit last year, Old Navy had a negative high-single digit versus a negative low-single digit last year. The decrease in net sales per average square foot for the first quarter of fiscal 2001 was primarily attributable to negative comparable store sales. Cost of Goods Sold and Occupancy Expenses Cost of goods sold and occupancy expenses as a percentage of net sales increased 6.0 percentage points in the first quarter from the same period in fiscal 2000. For the first quarter, the decrease in merchandise margin as a percentage of net sales was primarily attributable to lower margins from regular-priced goods and a greater percentage of merchandise sold at markdown when compared to the same period last year. The increase in occupancy expenses as a percentage of net sales for the first quarter was primarily attributable to negative comparable store sales. Operating Expenses Operating expenses as a percentage of net sales increased 1.4 percentage points for the first quarter of fiscal 2001, from the same period in fiscal 2000. The increase was primarily attributable to negative comparable store sales, higher medical costs and software maintenance costs as a percentage of net sales offset by lower advertising costs as a percentage of net sales. Interest Expense The increase in interest expense in the first quarter of fiscal 2001 as compared to the same period in fiscal 2000 was primarily due to an increase in average borrowings. Interest Income The decrease in interest income in the first quarter of fiscal 2001 as compared to the same period in fiscal 2000 was primarily due to a decrease in average cash available for investment. 9 Income Taxes The effective tax rate was 36.5 percent for the first quarter of fiscal 2001 and 2000. 10 LIQUIDITY AND CAPITAL RESOURCES The following sets forth certain measures of the Company's liquidity: - -------------------------------------------------------------------------------- Thirteen Weeks Ended -------------------- May 5, 2001 April 29, 2000 - -------------------------------------------------------------------------------- Cash provided by operating activities ($000) $ 66,047 $ 40,332 Working capital ($000) $403,059 $374,893 Current ratio 1.15:1 1.18:1 - -------------------------------------------------------------------------------- For the thirteen weeks ended May 5, 2001, the increase in cash flows provided by operating activities, compared to the same period in the prior year, was primarily attributable to a decrease in the growth of merchandise inventory and changes in other operating assets and liabilities which were primarily driven by timing of certain payments. This increase was partially offset by decreases in net earnings exclusive of depreciation and amortization and decreases in tax benefit from the exercise of stock options and vesting of restricted stock. The Company funds inventory expenditures during normal and peak periods through a combination of cash flows provided by operations as well as short-term and long-term financing arrangements. The Company's business follows a seasonal pattern, peaking over a total of about 13 weeks during the Back-to-School and Holiday periods. The Company has committed credit facilities totaling $1.35 billion, consisting of an $1.20 billion, 364-day revolving credit facility, and a $150 million, 5- year revolving credit facility through June 27, 2005. These credit facilities provide for the issuance of up to $600 million in letters of credit and provide backup for the Company's $750 million commercial paper program. The Company has additional uncommitted credit facilities of $845 million for the issuance of letters of credit. At May 5, 2001, the Company had outstanding letters of credit and commercial paper of approximately $927 million and $42 million, respectively. The Company also had additional unused lines of credit of approximately $235 million at May 5, 2001. On April 27, 2001, the Company issued $500 million of debt securities at a fixed annual interest rate of 5.625 percent, due May 1, 2003. Interest on the notes is payable semi-annually. The notes are recorded in the balance sheet at their issuance amount. In connection with the debt issuance, the Company entered into interest rate swaps in order to reduce interest rate risk. The swap agreements were settled in the first quarter and the net losses of approximately $2.2 million associated with these swaps will be amortized over the life of the debt securities. For the thirteen weeks ended May 5, 2001, capital expenditures, net of construction allowances, totaled approximately $293 million. The majority of these expenditures were used for expansion of the store base, headquarters and distribution facilities. During the first quarter of fiscal 2001, the Company experienced a net increase in store space of approximately 1.9 million square feet, or 6 percent, due to a net addition of 174 stores, the expansion of 55 stores and the remodeling of certain stores. For fiscal 2001, the Company expects capital expenditures to be in the range of $1.3 to $1.4 billion, net of construction allowances. This represents the addition of 550 to 630 new stores, the expansion of approximately 150 stores, the remodeling of certain stores, as well as amounts for headquarter facility, distribution centers and equipment and information technology. The Company expects to fund such capital expenditures with cash flows from operations and other sources of financing. Square footage growth is expected to be in the 17 to 20 percent range for fiscal 2001. In light of the lower level of new store openings during the first quarter, the Company expects capital expenditures, new store openings and square footage growth to fall at the lower end of these ranges. New stores are generally expected to be leased. 11 During fiscal 1998, the Company purchased land in San Francisco to construct an additional headquarter facility. The estimated total project cost is approximately $240 million and approximately $55 million will be incurred during fiscal 2001. The Company commenced construction on this facility during the third quarter of fiscal 1998 and it was partially opened during the first quarter of fiscal 2001. Construction is estimated to be completed by the third quarter of fiscal 2001. The Company commenced construction on several distribution facilities in the second quarter and third quarter of fiscal 2000. The estimated total cost for these facilities is approximately $455 million. Approximately one-half of the expenditures will be incurred during fiscal 2001. The facilities are expected to be open by the fourth quarter of fiscal 2001. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------- The market risk of the Company's financial instruments as of May 5, 2001 has not significantly changed since February 3, 2001. The market risk profile of the Company on February 3, 2001 is disclosed on the Company's 2000 Annual Report on Form 10-K. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------ a) Exhibits (10.1) Amendment No. 6 to the 1996 Stock Option and Award Plan (10.2) Amendment No. 3 to the Nonemployee Director Deferred Compensation Plan (10.3) Amendment to the Non-Qualified Stock Option Agreements by and between The Gap, Inc. and Brooks Walker, Jr. (10.4) Form of Non-Qualified Stock Option Agreement for directors under the 1996 Stock Option and Award Plan (10.5) Form of Non-Qualified Stock Option Agreement for directors under the Nonemployee Director Deferred Compensation Plan (15) Letter re: Unaudited Interim Financial Information b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended May 5, 2001. 13 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GAP, INC. Date: June 7, 2001 By /s/ Heidi Kunz -------------------------------- Heidi Kunz Chief Financial Officer (Principal financial officer of the registrant) Date: June 7, 2001 By /s/ Millard S. Drexler -------------------------------- Millard S. Drexler President and Chief Executive Officer 14 EXHIBIT INDEX (10.1) Amendment No. 6 to the 1996 Stock Option and Award Plan (10.2) Amendment No. 3 to the Nonemployee Director Deferred Compensation Plan (10.3) Amendment to the Non-Qualified Stock Option Agreements by and between The Gap, Inc. and Brooks Walker, Jr. (10.4) Form of Non-Qualified Stock Option Agreement for directors under the 1996 Stock Option and Award Plan (10.5) Form of Non-Qualified Stock Option Agreement for directors under the Nonemployee Director Deferred Compensation Plan (15) Letter re: Unaudited Interim Financial Information EX-10.1 2 dex101.txt AMEND. NO. 6 TO 1996 STOCK OPTION & AWARD PLAN EXHIBIT 10.1 AMENDMENT NO. 6 TO THE GAP, INC. 1996 STOCK OPTION AND AWARD PLAN THE GAP, INC., having adopted The Gap, Inc. 1996 Stock Option and Award Plan effective as of March 26, 1996 (the "Plan"), and having amended the Plan effective as of May 27, 1997, January 27, 1998, October 28, 1998, June 30, 2000, and January 23, 2001, hereby amends and restates Section 9.2.4 and Section 9.2.5 of the Plan in its entirety, effective as of April 3, 2001, as follows: 9.24 Expiration of Options. Each Option shall terminate --------------------- upon the first to occur of the following events: (a) The expiration of ten (10) years from the Grant Date; or (b) The expiration of three (3) months from the date of the Participant's Termination of Service for a reason other than death, Disability or Retirement; or (c) The expiration of three (3) years from the date of the Participant's Termination of Service by reason of Disability or Retirement. 9.25 Death of Director. Notwithstanding Section 9.2.4, ----------------- if a Director dies prior to the expiration of his or her options in accordance with Section 9.2.4, his or her options shall terminate three (3) years after the date of his or her death. IN WITNESS WHEREOF, The Gap, Inc., by its duly authorized officer, has executed this Amendment on the date indicated below. THE GAP, INC. Dated: April 3, 2001 By /s/ Anne B. Gust ---------------- Anne B. Gust Executive Vice President EX-10.2 3 dex102.txt AMEND. NO. 3 TO NONEMPLOYEE COMPENSATION PLAN EXHIBIT 10.2 AMENDMENT NO. 3 TO THE GAP, INC. NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN THE GAP, INC., having adopted The Gap, Inc. Nonemployee Director Deferred Compensation Plan effective as of August 26, 1997 (the "Plan"), and having amended the Plan effective as of October 28, 1998, and June 30, 2000, hereby amends and restates Section 5.3.3 and Section 5.3.4 of the Plan in its entirety, effective as of April 3, 2001, as follows: 5.3.3 Expiration of Options. Each Option shall --------------------- terminate upon the first to occur of the following events: (a) The expiration of seven (7) years from the Grant Date; or (b) The expiration of three (3) months from the date of the Participant's Termination of Service for a reason other than death, Disability or Retirement; or (c) The expiration of three (3) years from the date of the Participant's Termination of Service by reason of Disability or Retirement. 5.3.4 Death of Participant. Notwithstanding Section -------------------- 5.3.3, if a Director dies prior to the expiration of his or her Option pursuant to Section 5.3.3, such Option shall terminate three (3) years after the date of his or her death. IN WITNESS WHEREOF, The Gap, Inc., by its duly authorized officer, has executed this Amendment on the date indicated below. THE GAP, INC. Dated: April 3, 2001 By /s/ Anne B. Gust ---------------- Anne B. Gust Executive Vice President EX-10.3 4 dex103.txt AMENDMENT TO NON-QUALIFIED STOCK OPTION AGREEMENTS EXHIBIT 10.3 THE GAP, INC. AMENDMENT TO NON-QUALIFIED STOCK OPTION AGREEMENTS The Gap, Inc. (the "Company") and Brooks Walker, Jr. ("Director") are parties to certain agreements whereby the Company granted stock options to Director under the 1996 Stock Option and Award Plan (and its predecessor plan) and the Nonemployee Director Deferred Compensation Plan. The Company hereby amends the following agreements reflecting stock option awards to Director under such plans to provide that, with respect to the options represented by such agreements, upon Director's Retirement (as defined in the respective plan) from the Board, he shall be entitled to exercise such options up to the date three (3) years from the date of such Retirement: - ------------------------------- Option # Option Date - ------------------------------- 016282 4/29/98 - ------------------------------- T00016 5/1/98 - ------------------------------- T00051 7/31/98 - ------------------------------- T00064 10/30/98 - ------------------------------- T00069 1/29/99 - ------------------------------- T00075 4/30/99 - ------------------------------- 040025 5/5/99 - ------------------------------- T00099 7/30/99 - ------------------------------- T00109 10/29/99 - ------------------------------- T00117 1/28/00 - ------------------------------- T00143 4/28/00 - ------------------------------- 067705 5/8/00 - ------------------------------- T00173 7/28/00 - ------------------------------- T00230 10/27/00 - ------------------------------- T00354 2/2/01 - ------------------------------- IN WITNESS WHEREOF, the Company has executed this Agreement to be effective as of the date set forth below. THE GAP, INC. Dated: April 3, 2001 /s/ Donald G. Fisher -------------------- Donald G. Fisher Chairman of the Board EX-10.4 5 dex104.txt FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.4 Grant No. __________ THE GAP, INC. NON-QUALIFIED STOCK OPTION AGREEMENT Gap, Inc. (the "Company") hereby grants to ___________________ (the "Director"), a stock option under The Gap, Inc. 1996 Stock Option and Award Plan (the "Plan"), to purchase shares of common stock of the Company, $0.05 par value ("Shares"). This option is subject to all of the terms and conditions contained in this Agreement, including the terms and conditions contained in the attached Appendix A. The date of this Agreement is ___________. Subject to the provisions of Appendix A and of the Plan, the principal features of this option are as follows: Number of Shares Purchasable with this Option: ---------------------------- --------- Price per Share: --------------- --------- Date Option was Granted: ----------------------- --------- Date Option is Scheduled to become Exercisable: ------------------------------- --------- Latest Date Option Expires: -------------------------- --------- As provided in this Plan and in this Agreement, this option may terminate before the date written above, including before the option is exercised. For example, if Director's service ends for a reason other than death, Disability or Retirement, this option will terminate on the earlier of its normal expiration date or three months after the date on which Director's service ends. PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION. IN WITNESS WHEREOF, the Company and the Director have executed this Agreement, in duplicate, to be effective as of the day and year first above written. THE GAP, INC. Dated: ___________ ______________________________________________ Chairman of the Board My signature below indicates that I understand that this option is subject to all of the terms and conditions of this Agreement (including the attached Appendix A) and of the Plan. DIRECTOR Dated: ______________ ______________________________________________ Address: _____________________________________ _____________________________________ _____________________________________ Social Security No: __________________________ APPENDIX A TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION 1. Grant of Option. The Company hereby grants to the Director under --------------- the Plan, as a separate incentive in connection with his or her service and not in lieu of any salary or other compensation for his or her services, a non- qualified stock option to purchase, on the terms and conditions set forth in this Agreement and the Plan, all or any part of the number of shares set forth on page 1 of this Agreement. The option granted hereby is not intended to be an Incentive Stock Option within the meaning of Section 422 of the Code. 2. Exercise Price. The purchase price per Share (the "Option Price") -------------- shall be equal to the price set forth on page 1 of this Agreement, which is the fair market value per Share on the date of this Agreement. The Option Price shall be payable in the legal tender of the United States. 3. Number of Shares. The number and class of Shares specified in ---------------- paragraph 1 above, and/or the Option Price, are subject to appropriate adjustment in the event of changes in the capital stock of the Company by reason of stock dividends, split-ups or combinations of Shares, reclassifications, mergers, consolidations, reorganizations or liquidations. Subject to any required action of the stockholders of the Company, if the Company shall be the surviving corporation in any merger or consolidation, the option granted hereunder (to the extent that it is still outstanding) shall pertain to and apply to the securities to which a holder of the same number of Shares of Common Stock that are then subject to the option would have been entitled. To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Compensation and Stock Option Committee of the Company's Board of Directors (the "Committee"), whose determination in that respect shall be final, binding and conclusive. 4. Commencement of Exercisability. Except as otherwise provided in ------------------------------ this Agreement, the right to exercise the option awarded by this Agreement shall accrue as to 100% of the Shares subject to such option on the third anniversary date of the date of this Agreement. 5. Reduction or Elimination of Exercisability. Notwithstanding ------------------------------------------ paragraph 4 or any other provision of this Agreement, prior to the third anniversary of the date of this Agreement, the Committee, in its sole discretion, may determine that the right to exercise the option awarded by this Agreement shall not accrue as to all or part of the Shares specified in paragraph 1 (and as adjusted pursuant to paragraph 3, if appropriate). 6. Termination of Option. In the event that Director's service with --------------------- the Company or an Affiliate terminates for any reason other than Retirement, Total Disability or death, this option shall immediately thereupon terminate, except that Director shall have three (3) months from such termination to exercise any unexercised portion of the option which is then exercisable. In the event of the Director's Retirement or Termination of Service by reason of his or her total Disability, the Director may, within three (3) years after the date of such Termination of Service, or within ten (10) years from the date of this Agreement, whichever shall first occur, exercise any unexercised portion of the option (whether or not exercisable). In the event that the Director shall die while in the employ of the Company or an Affiliate, any unexercised portion of the option (whether or not exercisable) may be exercised by the Director's beneficiary or transferee, as hereinafter provided, for a period of three (3) years after the date of the Director's death or within ten (10) years from the date of this Agreement, whichever shall first occur. Notwithstanding the preceding two sentences, in the event that within one year of the date of this Agreement, Director's service with the Company or an Affiliate is terminated on account of his or her Retirement, total Disability or death, this option shall immediately thereupon terminate. 7. Persons Eligible to Exercise. The option shall be exercisable ---------------------------- during the Director's lifetime only by the Director. The option shall be non- transferable by the Director other than by a beneficiary designation made in a form and manner acceptable to the Committee, or by will or the applicable laws of descent and distribution. 8. Death of Director. To the extent exercisable after the Director's ----------------- death, the option shall be exercised only by the Director's designated beneficiary or beneficiaries, or if no beneficiary survives the Director, by the person or persons entitled to the option under the Director's will, or if the Director shall fail to make testamentary disposition of the option, his or her legal representative. Any transferee exercising the option must furnish the Company (a) written notice of his or her status as transferee, (b) evidence satisfactory to the Company to establish the validity of the transfer of the option and compliance with any laws or regulations pertaining to said transfer, and (c) written acceptance of the terms and conditions of the option as prescribed in this Agreement. 9. Exercise of Option. The option may be exercised by the person then ------------------ entitled to do so as to any Shares which may then be purchased (a) by giving written notice of exercise to the Company, specifying the number of full Shares to be purchased and accompanied by full payment of the purchase price thereof (and the amount of any income tax the Company is required by law to withhold by reason of such exercise), and (b) by giving satisfactory assurances in writing if requested by the Company, signed by the person exercising the option, that the Shares to be purchased upon such exercise are being purchased for investment and not with a view to the distribution thereof. 10. No Rights of Stockholder. Neither the Director nor any person ------------------------ claiming under or through said Director shall be or have any of the rights or privileges of a stockholder of the Company in respect of any of the Shares issuable upon the exercise of the option, unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Director. 11. No Effect on Service. Nothing in this Agreement shall confer upon -------------------- the Director the right to continue in service on the Board. 12. Addresses for Notices. Any notice to be given to the Company under --------------------- the terms of this Agreement shall be addressed to the Company, in care of its Law Department, at The Gap, Inc., One Harrison Street, San Francisco, California 94105, or at such other address as the Company may hereafter designate in writing. Any notice to be given to the Director shall be addressed to the Director at the address set forth beneath the Director's signature hereto, or at such other address as the Director may hereafter designate in writing. Any such notice shall be deemed to have been duly given if and when enclosed in a properly sealed envelope, addressed as aforesaid, registered or certified and deposited, postage and registry fee prepaid, in a United States post office. 13. Non-Transferability of Option. Except as otherwise herein provided, ----------------------------- the option herein granted and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of said option, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, said option and the rights and privileges conferred hereby shall immediately become null and void. 14. Maximum Term of Option. Notwithstanding any other provision of this ---------------------- Agreement, this option is not exercisable after the expiration of ten (10) years from the date of this Agreement. 15. Binding Agreement. Subject to the limitation on the transferability ----------------- of the option contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto. 16. Plan Governs. This Agreement is subject to all terms and provisions ------------ of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan shall govern. Terms used and not defined in this Agreement shall have the meaning set forth in the Plan. 17. Committee Authority. The Committee shall have the power to ------------------- interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon Director, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement. 18. Captions. Captions provided herein are for convenience only and are -------- not to serve as a basis for interpretation or construction of this Agreement. 19. Agreement Severable. In the event that any provision in this ------------------- Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement. * * * EX-10.5 6 dex105.txt FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.5 Grant No. __________ THE GAP, INC. NON-QUALIFIED STOCK OPTION AGREEMENT The Gap, Inc. (the "Company") hereby grants to __________________ (the "Director"), a stock option under The Gap, Inc. Nonemployee Director Deferred Compensation Plan (the "Plan"), to purchase shares of common stock of the Company, $0.05 par value ("Shares"). This option is subject to all of the terms and conditions contained in this Agreement, including the terms and conditions contained in the attached Appendix A. The date of this Agreement is ___________. Subject to the provisions of Appendix A and of the Plan, the principal features of this option are as follows: Number of Shares Purchasable with this Option: ---------------------------- _________ Price per Share: --------------- _________ Date Option was Granted: ----------------------- _________ Date Option is Scheduled to become Exercisable: ------------------------------- _________ Latest Date Option Expires: -------------------------- _________ As provided in this Plan and in this Agreement, this option may terminate before the date written above, including before the option is exercised. For example, if Director's service ends for a reason other than death, Disability or Retirement, this option will terminate on the earlier of its normal expiration date or three months after the date on which Director's service ends. PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION. IN WITNESS WHEREOF, the Company and the Director have executed this Agreement, in duplicate, to be effective as of the day and year first above written. THE GAP, INC. Dated: ___________ ____________________________________ Chairman of the Board My signature below indicates that I understand that this option is subject to all of the terms and conditions of this Agreement (including the attached Appendix A) and of the Plan. DIRECTOR Dated:________________ _____________________________________________ Address: ____________________________________ ____________________________________ ____________________________________ Social Security No.: _______________ APPENDIX A ---------- TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION 1. Grant of Option. The Company hereby grants to the Director under --------------- the Plan a non-qualified stock option to purchase, on the terms and conditions set forth in this Agreement and the Plan, all or any part of the number shares set forth on page 1 of this Agreement. The option granted hereby is not intended to be an Incentive Stock Option within the meaning of Section 422 of the Code. 2. Exercise Price. The purchase price per Share (the "Option Price") -------------- shall be equal to the price set forth on page 1 of this Agreement, which is the fair market value of the Shares subject to the option on the date of this Agreement, minus the amount of the Director's Compensation deferrals for the Fiscal Quarter which includes the date of this Agreement, and divided by 937 (rounded to the nearest whole cent). The Option Price shall be payable in the legal tender of the United States. 3. Number of Shares. The number and class of Shares specified in ---------------- paragraph 1 above, and/or the Option Price, are subject to appropriate adjustment in the event of changes in the capital stock of the Company by reason of merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares. Such adjustments shall be made by the Board of Directors (the "Board"), whose determination in that respect shall be final, binding and conclusive. 4. Commencement of Exercisability. The option awarded by this ------------------------------ Agreement shall be fully exercisable on the date of this Agreement. 5. Termination of Option. In the event of the Director's Termination --------------------- of Service for any reason other than Retirement, Disability or death, the Director may, within three (3) months after the date of such Termination of Service, or within seven (7) years from the date of this Agreement, whichever shall first occur, exercise any unexercised portion of the option. In the event of the Director's Termination of Service by reason of his or her Retirement or Disability, the Director may, within three (3) years after the date of such Termination of Service, or within seven (7) years from the date of this Agreement, whichever shall first occur, exercise any unexercised portion of the option. In the event that the Director shall die prior to the expiration of his or her option, any unexercised portion of the option may be exercised by the Director's beneficiary or transferee, as hereinafter provided, for a period of three (3) years after the date of the Director's death. 6. Persons Eligible to Exercise. The option shall be exercisable ---------------------------- during the Director's lifetime only by the Director. The option shall be non- transferable by the Director other than by a beneficiary designation made in a form and manner acceptable to the Board, or by will or the applicable laws of descent and distribution. 7. Death of Director. To the extent exercisable after the Director's ----------------- death, the option shall be exercised only by the Director's designated beneficiary or beneficiaries, or if no such beneficiary is designated, by his or her legal representative. Any transferee exercising the option must furnish the Company (a) written notice of his or her status as transferee, (b) evidence satisfactory to the Company to establish the validity of the transfer of the option and compliance with any laws or regulations pertaining to said transfer, and (c) written acceptance of the terms and conditions of the option as prescribed in this Agreement. 8. Exercise of Option. The option may be exercised by the person then ------------------ entitled to do so as to any Shares which may then be purchased by giving written notice of exercise to the Company, specifying the number of full Shares to be purchased and accompanied by full payment of the purchase price thereof (and the amount of any income tax the Company is required by law to withhold by reason of such exercise). 9. No Rights of Stockholder. Neither the Director nor any person ------------------------ claiming under or through said Director shall be or have any of the rights or privileges of a stockholder of the Company in respect of any of the Shares issuable upon the exercise of the option, unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Director. 10. No Effect on Service. Nothing in this Agreement shall confer upon -------------------- the Director the right to continue in service on the Board. 11. Addresses for Notices. Any notice to be given to the Company under --------------------- the terms of this Agreement shall be addressed to the Company, in care of its Law Department, at The Gap, Inc., One Harrison Street, San Francisco, California 94105, or at such other address as the Company may hereafter designate in writing. Any notice to be given to the Director shall be addressed to the Director at the address set forth beneath the Director's signature hereto, or at such other address as the Director may hereafter designate in writing. Any such notice shall be deemed to have been duly given if and when enclosed in a properly sealed envelope, addressed as aforesaid, registered or certified and deposited, postage and registry fee prepaid, in a United States post office. 12. Non-Transferability of Option. Except as otherwise herein provided, ----------------------------- the option herein granted and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of said option, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, said option and the rights and privileges conferred hereby shall immediately become null and void. 13. Maximum Term of Option. Notwithstanding any other provision of this ---------------------- Agreement except the last sentence of Paragraph 5 above relating to the death of the Director (in which case this option is exercisable to the extent set forth therein), this option is not exercisable after the expiration of seven (7) years from the date of this Agreement. 14. Binding Agreement. Subject to the limitation on the transferability ----------------- of the option contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto. 15. Plan Governs. This Agreement is subject to all the terms and ------------ provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan shall govern. Terms used and not defined in this Agreement shall have the meaning set forth in the Plan. 16. Board Authority. The Board shall have the power to interpret the --------------- Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon Director, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement. 17. Captions. Captions provided herein are for convenience only and are -------- not to serve as a basis for interpretation or construction of this Agreement. 18. Agreement Severable. In the event that any provision in this ------------------- Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement. 19. Modifications to the Agreement. This Agreement constitutes the ------------------------------ entire understanding of the parties on the subjects covered. The Director expressly warrants that he or she is not executing this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. EX-15 7 dex15.txt LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15 Deloitte & Touche LLP 50 Fremont Street San Francisco, California 94105-2230 Tel: (415) 783 4000 Fax: (415) 783 4329 www.us.deloitte.com Deloitte & Touche To the Board of Directors and Shareholders of The Gap, Inc.: We have made reviews, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of The Gap, Inc. and subsidiaries for the periods ended May 5, 2001 and April 29, 2000, as indicated in our report dated May 16, 2001; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended May 5, 2001, is incorporated 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, No. 333-47508 and No. 333-59292. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /s/ Deloitte & Touche LLP June 7, 2001 -----END PRIVACY-ENHANCED MESSAGE-----