-----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, Pp2RESt7hR/s3lZHwnk4s+quf8GOR61JKpbDukm4t4f8l7kuBD5cwY85Ni9M2hDI tG4qHhmFXhR+o6+1KhRfWw== 0000929624-01-000565.txt : 20010410 0000929624-01-000565.hdr.sgml : 20010410 ACCESSION NUMBER: 0000929624-01-000565 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20010203 FILED AS OF DATE: 20010405 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-K SEC ACT: SEC FILE NUMBER: 001-07562 FILM NUMBER: 1596355 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-K 1 0001.txt THE GAP, INC. - FORM 10-K 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 February 3, 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 Street San Francisco, California 94105 (Address of principal executive offices) (Zip code) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the common equity held by non-affiliates of the registrant as of March 16, 2001 was approximately $12,367,000,000 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 16, 2001 was 854,429,402. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 2001 (hereinafter referred to as the "2001 Proxy Statement") are incorporated into Parts I and III. Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended February 3, 2001 (hereinafter referred to as the "2000 Annual Report to Shareholders") are incorporated into Parts II and IV. The Exhibit Index is located on Page 12 hereof. 1 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, 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 ------ Item 1 - Business General - ------- 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 March 3, 2001, the Company operated 3,740 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 fashion apparel, 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. The Company launched GapBody in 1998, offering men's and women's underwear, sleepwear and personal care products. As of March 3, 2001, the Company operated a total of 2,643 Gap brand stores, including 2,091 in the United States and 552 outside the United States. 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 than Gap. Banana Republic products range from clothing, including intimate apparel, to personal care products and home products. As of March 3, 2001, the Company operated 408 Banana Republic stores, including 13 in Canada. 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 March 3, 2001, the Company operated 689 Old Navy stores in the United States. 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 2 comparable to those carried in Gap, GapKids and babyGap stores can be purchased online. In addition, a line of maternity apparel is available at Gap Online store. 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. In 1999 the Company established Old Navy Online, a promotional website located at www.oldnavy.com and began operating Old Navy Online as a web-based store in 2000. The online and catalog businesses are offered as an extension of our store experience and are 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. Consumer Preferences; Impact of Economic Conditions - --------------------------------------------------- The retail apparel business fluctuates according to changes in consumer 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, energy costs, taxation and consumer confidence in future economic conditions. Consumer preferences and economic conditions may differ or change from time to time in each market in which the Company operates and directly impact the Company's net sales and profitability. Merchandise Inventory, Replenishment and Distribution - ----------------------------------------------------- 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, New York, Tennessee, Canada, England and The Netherlands, and in distribution centers operated by third parties in England and Japan. Store Operations and Expansion - ------------------------------ 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) and most holidays. All sales are tendered for cash, personal checks or credit cards issued by others, including Gap, Banana Republic and Old Navy private label credit cards. 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. 3 International Expansion - ----------------------- The Company continued to expand internationally in fiscal 2000. 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 - --------- The Company purchases merchandise from approximately 1,100 suppliers located domestically and overseas. No supplier accounted for more than 5% of the Company's fiscal 2000 purchases. Of the Company's merchandise sold during fiscal 2000, approximately 20% of all units (representing approximately 14% of total cost) were produced domestically while the remaining 80% of all units (86% of cost) were made outside the United States. Approximately 12% of the Company's total merchandise units (representing 16% of cost) were from China, including Hong Kong, with the remainder coming from 56 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 additional trade restrictions imposed by the U.S. and other foreign governments, including the likelihood, type or effect of any such restrictions. Trade restrictions, including increased tariffs or quotas, embargoes, and customs restrictions, 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 - ----------------- The Company's business follows a seasonal pattern, peaking over a total of about 13 weeks during the Back-to-School (mid-August through early September) and Holiday (November through December) periods. During fiscal year 2000, these periods accounted for approximately 35% of the Company's annual sales. Competition - ----------- 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 that market 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 and other retailers which 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 consumer 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. 4 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 Company's competitive position 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, energy costs 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 - -------------- The ability of the Company to continually change and evolve its brands is a key source of competitive advantage. 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 - ----------- 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 appear in various outdoor venues, such as mass transit posters, exterior bus panels, bus shelters and billboards. The Company continues to run TV ads for Gap and Old Navy and radio ads for Old Navy. The Company plans to continue its investments in advertising and marketing in 2001. There can be no assurances that these investments will result in increased sales or profitability. Employees - --------- On February 3, 2001, the Company had a work force of approximately 166,000 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 - ---------------------------- The Gap, GapKids, babyGap, GapBody, 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. Executive Officers of the Registrant - ------------------------------------ The Chairman of the Company is Donald G. Fisher. Millard S. Drexler is the President and Chief Executive Officer of the Company. John Lillie is the Vice Chairman of the Company. Donald G. Fisher, Millard S. Drexler and John Lillie 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 2001 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, 47, Executive Vice President, Chief Supply Chain Officer since April 2000; Executive Vice President, Supply Chain and Technology from September 1998 to April 2000; 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. 5 Anne B. Gust, 43, Executive Vice President, Chief Administrative Officer since April 2000; Executive Vice President, Human Resources, Legal, Global Compliance and Corporate Administration from May 1999 to April 2000; 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, 46, Executive Vice President and Chief Financial Officer since August 1999. Executive Vice President and Chief Financial Officer of ITT Industries from 1995 to 1999. Jenny Ming, 45, President, Old Navy Brand since 1998; Executive Vice President, Merchandising, Old Navy Brand from 1996 to 1998; Senior Vice President, Merchandising, Old Navy Brand from 1993 to 1996. Joined the Company in 1986. Ken Pilot, 40, President, Gap Brand since April 2000; President, Gap International from 1998 to April 2000; Senior Vice President, Gap Outlet from 1993 to 1998. Joined the Company in 1989. Item 2 - Properties During fiscal year 2000, the Company opened 731, closed 73 and expanded 268 stores. The 3,740 stores operating as of March 3, 2001 aggregated approximately 32 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, approximately 275,000 square feet in buildings in San Bruno, California (near the San Francisco Airport), and approximately 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 approximately 725,000 square feet. Nearby Northern Kentucky facilities include an approximately 325,000 square foot warehouse for consolidation/deconsolidation purposes and three additional facilities for distribution purposes totaling approximately 1,133,000 square feet. The Company also leases a warehouse/call center of approximately 270,000 square feet in Grove City, Ohio (near Columbus) and approximately 425,000 square feet in Groveport, Ohio, both of which service the Company's catalog and online businesses. The Company leases its Japan Distribution Center (JDC), approximately 280,000 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 owns an approximately 160,000 square foot building in San Francisco, owns office buildings in San Bruno of approximately 190,000 and 260,000 square feet and nearby land 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 has nearly completed construction of an office building of approximately 540,000 square feet near its existing facilities in San Francisco, which is also owned by the Company. 6 The Company owns distribution facilities in the following locations:
Location Square Footage (Approximate) ---------------------------------------------------------------------------- Fresno, California 1,200,000 square feet 850,000 square feet (Under Construction) ---------------------------------------------------------------------------- Ventura, California 230,000 square feet ---------------------------------------------------------------------------- Edgewood, Maryland 650,000 square feet ---------------------------------------------------------------------------- Fishkill, New York 1,500,000 square feet 950,000 square feet (Under Construction) ---------------------------------------------------------------------------- Groveport, Ohio 830,000 square feet (Under Construction) ---------------------------------------------------------------------------- Gallatin, Tennessee 1,030,000 square feet 550,000 square feet 710,000 square feet ---------------------------------------------------------------------------- Rugby, England 650,000 square feet (Under Construction) ---------------------------------------------------------------------------- Roosendaal, The Netherlands 130,000 square feet ---------------------------------------------------------------------------- Brampton, Ontario, Canada 370,000 square feet 740,000 square feet
The sites in Fresno, California; Edgewood, Maryland; Fishkill, New York; Groveport, Ohio; Brampton, Ontario; and Rugby, England have additional land available for expansion (either by ownership or option) or for additional facilities. Item 3 - Legal Proceedings In 1999, the Company was 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 27 other parties. Those unidentified worker plaintiffs seek class-action status and allege, among other things, that the Company (and other defendants) violated the Racketeer Influenced and Corrupt Organizations Act in connection with the labor practices and treatment of workers of factories in Saipan that make product for the Company. The plaintiffs seek injunctive relief as well as actual and punitive damages. On September 29, 1999, the action was transferred to the United States District Court, State of Hawaii. On April 28, 2000, plaintiffs filed a First Amended Complaint adding 22 new defendants. On June 23, 2000, the United States District Court, State of Hawaii, ordered the case transferred to the United States District Court, District of the Mariana Islands. On March 23, 2001, the Ninth Circuit Court of Appeal denied Plaintiffs' writ of mandamus requesting that the action either be transferred back to the District Court in Hawaii or to the Central District of California. Now that the case is in the District of the Mariana Islands, defendants intend to renew a motion to dismiss the case. The Company continues to defend itself in both lawsuits and believes the claims against the Company are without merit. At this time the Company is unable to assess the likelihood of the outcome of these cases and cannot estimate the amount or range of potential loss, if any. 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. 7 The Company has established reserves which management believes are adequate to cover any litigation losses which may occur. Item 4 - Submission of Matters to a Vote of Security Holders Not applicable. PART II ------- Item 5 - Market For Registrant's Common Equity and Related Stockholder Matters The information required by this item is incorporated herein by reference to page 39 of the 2000 Annual Report to Shareholders 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 14 and 15 of the 2000 Annual Report to Shareholders 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 16 through 20 of the 2000 Annual Report to Shareholders 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 pages 20 and 21 of the 2000 Annual Report to Shareholders 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 22 through 38 of the 2000 Annual Report to Shareholders 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 -------- Item 10 - Directors and Executive Officers of the Registrant The information required by this item is incorporated herein by reference to the section entitled "Nominees for Election as Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2001 Proxy Statement. See also Item 1 above in the section entitled "Executive Officers of the Registrant." 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 2001 Proxy Statement. 8 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 2001 Proxy Statement. Item 13 - Certain Relationships and Related Transactions The information required by this item is incorporated herein by reference to the sections entitled "Compensation Committee Interlocks and Insider Participation" and "Other Reportable Transactions" in the 2001 Proxy Statement. PART IV ------- Item 14 - Exhibits, Financial Statements, Schedules, and Reports on Form 8-K (a) The following consolidated financial statements, schedules and exhibits are filed as part of this report or are incorporated herein as indicated. (1) Financial Statements -------------------- (i) Independent Auditors' Report. Incorporated by reference to page 22 of the 2000 Annual Report to Shareholders included as Exhibit 13 to this Annual Report on Form 10-K. (ii) The consolidated balance sheets as of February 3, 2001 and January 29, 2000 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 February 3, 2001 are incorporated by reference to pages 23 through 38 of the 2000 Annual Report to Shareholders 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 -------- 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. 9 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE GAP, INC. Date: April 3, 2001 By /s/ MILLARD S. DREXLER ----------------------- Millard S. Drexler, Chief Executive Officer (Principal Executive Officer) Date: April 3, 2001 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: April 3, 2001 By /s/ ADRIAN D. P. BELLAMY ------------------------ Adrian D. P. Bellamy, Director Date: April 3, 2001 By /s/ MILLARD S. DREXLER ---------------------- Millard S. Drexler, Director Date: April 3, 2001 By /s/ DONALD G. FISHER -------------------- Donald G. Fisher, Director Date: April 3, 2001 By /s/ DORIS F. FISHER ------------------- Doris F. Fisher, Director Date: April 3, 2001 By /s/ ROBERT J. FISHER -------------------- Robert J. Fisher, Director 10 SIGNATURES (con't.) ------------------- Date: April 3, 2001 By /s/ GLENDA A. HATCHETT ---------------------- Glenda A. Hatchett, Director Date: April 3, 2001 By /s/ STEVEN P. JOBS ------------------ Steven P. Jobs, Director Date: April 3, 2001 By /s/ JOHN M. LILLIE ------------------ John M. Lillie, Director Date: April 3, 2001 By /s/ CHARLES R. SCHWAB --------------------- Charles R. Schwab, Director Date: April 3, 2001 By /s/ BROOKS WALKER, JR. ---------------------- Brooks Walker, Jr., Director Date: April 3, 2001 By /s/ SERGIO S. ZYMAN ------------------- Sergio S. Zyman, Director 11 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, filed as Exhibit 3.2 to Registrant's Annual Report on Form 10-K for year ended January 29, 2000, Commission File No. 1-7562 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 27, 2000 among the Registrant, Citicorp USA, Inc., Bank of America, N.A., The Hong Kong and Shanghai Bank Corporation Limited, Morgan Guaranty Trust Company of New York, The Sumitomo Bank Limited, Deutsche Bank AG New York Branch and/or Cayman Islands Branch, Societe Generale, The Fuji Bank, Limited, ABN AMRO Bank N.V., The Bank of New York, Bank One, NA f/k/a The National Bank of Chicago, U.S. Bank National Association, Fleet National Bank, and Wells Fargo Bank, National Association filed as Exhibit 10.1 to Registrant's Form 10-Q for the quarter ended July 29, 2000, Commission File No. 1-7562 10.2 Second Amended and Restated Credit Agreement, dated as of June 27, 2000 among the Registrant, Banana Republic, Inc., Old Navy Inc., Banana Republic (Canada), Inc., Old Navy (Canada) Inc., Gap (Canada Inc., Gap International Sourcing Limited, Gap International Sourcing Pte. Ltd., Gap (Japan) K.K., Gap International Sourcing (Holdings) Limited, Gap (Netherlands) B.V., Gap (International) B.V., GPS Consumer Direct, Inc., Citicorp USA Inc., Bank of America, N.A., HSBC Bank USA, Morgan Guaranty Trust Company of New York, ABN AMRO Bank N.V., Deutsche Bank AG New York Branch and/or Cayman Islands Branch, Societe Generale, The Sumitomo Bank Limited, Bank One, NA f/k/a The First National Bank of Chicago, Fleet National Bank, Wells Fargo Bank, National Association, The Bank of New York, The Fuji Bank Limited, U.S. Bank National Association, Citibank, N.A., and Salomon Smith Barney Inc. filed as Exhibit 10.2 to Registrant's Form 10-Q for the quarter ended July 29, 2000, Commission File No. 1-7562
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.3 1981 Stock Option Plan, filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-8, Commission File No. 33-54690 10.4 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 10.5 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 10.6 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 10.7 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 10.8 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 10.9 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 10.10 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 10.11 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 10.12 Amendment Number 4 to the Registrant's 1996 Stock Option and Award Plan filed as Exhibit 10.3 to Registrant's Form 10-Q for the quarter ended July 29, 2000, Commission File No. 1-7562 10.13 Amendment Number 5 to the Registrant's 1996 Stock Option and Award Plan 10.14 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
10.15 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 10.16 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 10.17 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 10.18 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 10.19 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 10.20 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 10.21 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 10.22 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 10.23 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 10.24 Executive Long-Term Cash Award Performance Plan (January 26, 1999 Restatement, as amended March 28, 2000), filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the year ended January 29, 2000, Commission File No. 1-7562 10.25 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
10.26 Certificate of Corporate Resolution amending the Relocation Loan Plan, adopted by the Board of Directors on November 27, 1990, filed as Exhibit 10.34 to Registrant's Annual Report on Form 10-K for the year ended February 2, 1991, Commission File No. 1-7562 10.27 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 10.28 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 10.29 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 10.30 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 10.31 Amendment Number 2 to the Registrant's Nonemployee Director Deferred Compensation Plan filed as Exhibit 10.4 to Registrant's Form 10-Q for the quarter ended July 29, 2000, 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 10.33 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 10.34 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 10.35 Consulting Agreement, dated December 7, 2000, between Registrant and John M. Lillie 10.36 Non-qualified Stock Option Agreement, dated January 23, 2001, between Registrant and John M. Lillie 10.37 Termination of Consulting Agreement, dated January 24, 2001, between Registrant and John M. Lillie
13 Portions of Registrant's annual report to security holders for the fiscal year ended February 3, 2001 21 Subsidiaries of Registrant 23 Consent of Deloitte & Touche LLP 27 Financial Data Schedule for the year ended February 3, 2001
EX-10.13 2 0002.txt AMENDMENT TO 1996 STOCK OPTION PLAN Exhibit 10.13 AMENDMENT NO. 5 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, and having amended the Plan effective as of January 27, 1998, and having amended the Plan effective as of October 28, 1998, and having amended the Plan effective as of June 30, 2000, hereby amends Section 5.4 of the Plan, effective as of January 23, 2001, by adding the following new Section 5.4.4: Notwithstanding anything to the contrary in Section 5.4, the Committee in its discretion may grant an Option that extends the periods set forth in Sections 5.4.1(c), (d), and (e) for any length of time up to ten (10) years; provided, however, that in such case, such an Option shall terminate on the expiration of ten (10) years from the Grant Date, if earlier. IN WITNESS WHEREOF, The Gap, Inc., by its duly authorized officer, has executed this Amendment on the date indicated below. THE GAP, INC. Dated: January 23, 2001 By /s/ Anne B. Gust ------------------------ Anne B. Gust Executive Vice President EX-10.35 3 0003.txt CONSULTING AGREEMENT - JOHN M. LILLIE Exhibit 10.35 Gap Inc. 900 Cherry Avenue San Bruno, CA 94066 650-952-4400 tel December 7, 2000 John Lillie [Address] Dear John, We are very pleased that you have agreed to work with Gap, Inc. on a consulting basis, beginning on November 6, 2000. The following is a summary of the terms of this engagement. 1. Consulting Services. You will provide consulting services to Gap, Inc. for -------------------- a minimum of ten days per month. During the consulting period you will advise Mickey on operating decisions. Your primary contacts will be Anne Gust, Heidi Kunz, and Chuck Crovitz. You will report to Mickey Drexler. 2. Compensation. Gap, Inc. will pay you $50,000 per month, payable every ------------- month. You will also be granted the option to purchase 50,000 shares of Gap, Inc. stock under the 1996 Stock Option and Award Plan ("Plan"), when approved by the Compensation and Stock Option Committee of the Board of Directors, and subject to the terms and conditions of a stock option agreement under the Plan. The option price will be determined by the fair market value of the stock on the date of grant. This option will vest six months from the date of grant and expire ten years from the date of grant, provided you remain a member of the Board of Directors of Gap, Inc. You will receive no other compensation during the consulting period, including vacation, health, retirement, stock, bonus or other benefits, other than those described in this paragraph and other than those for which members of Gap, Inc.'s Board of Directors are otherwise entitled. Gap, Inc. will not withhold FICA (Social Security) contributions, or state or federal income taxes from its payments to you. You agree that you will make such contributions and pay such taxes as required by state and federal law and to indemnify and defend Gap, Inc. in any legal action commenced for payment of these items. Gap, Inc. will reimburse you for your reasonable expenses incurred while providing these consulting services. 3. Termination. You or Gap, Inc. may terminate this agreement by providing 30 ------------ days advanced written notice, or immediately without notice by mutual agreement. In any event, your services will end no later than May 2, 2001, unless this agreement is extended in writing. 4. Confidentiality. You agree to maintain in strict confidence all ---------------- confidential information that you receive in the course of providing consulting services or otherwise in connection with your relationship with Gap, Inc. and you will use confidential information only for the specific purposes of performing your obligations under this agreement, and to comply in all respects with federal securities and other applicable laws with respect to confidential information. 5. Assignment. No portion of this agreement or any of your rights, duties or ---------- obligations under this agreement may be assigned or delegated by you to any other individual. 6. Complete agreement. This agreement constitutes the complete and exclusive ------------------- statement of the agreement between you and Gap, Inc. regarding your consulting services to the company, and it supersedes all proposals, oral or written, and all other communications between you and Gap, Inc. regarding these services. Any modification of this agreement must be in writing and signed by you and an authorized agent for Gap, Inc. Again John, we are so pleased to have you working with us. Please sign both copies of this agreement and send one back to me at your earliest convenience. Sincerely, /s/ Marka Hansen - ---------------- Marka Hansen Senior Vice President Human Resources Agreed, /s/ John Lillie - --------------- John Lillie EX-10.36 4 0004.txt STOCK OPTION AGREEMENT - JOHN M. LILLIE Exhibit 10.36 Grant No. [ ] THE GAP, INC. NON-QUALIFIED STOCK OPTION AGREEMENT The Gap, Inc. (the "Company") hereby grants to John M. Lillie (the "Employee"), 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 1/23/2001. 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: 750,000 ---------------------------- Price per Share: $29.405000 --------------- Date Option was Granted: 1/23/2001 ----------------------- Date Option is Scheduled to become Exercisable: 250,000 shares on 1/23/2002 ------------------------------- 250,000 shares on 1/23/2003 250,000 shares on 1/23/2004 Latest Date Option Expires: 1/23/2011 -------------------------- As provided in the Plan and in this Agreement, this option may terminate before the date written above, including before the option becomes exercisable or is exercised. For example, if Employee's employment ends before the date this option becomes exercisable, this option will terminate at the same time as Employee's employment terminates. See paragraphs 5, 6 and 7 of Appendix A for further information concerning how changes in employment affect termination of this option. 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 Employee have executed this Agreement, in duplicate, to be effective as of the date first above written. THE GAP, INC. /s/ Millard S. Drexler Dated: 1/23/2001 ------------------------------------- Millard S. Drexler President and Chief Executive Officer 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. EMPLOYEE Dated: 2/19/2001 /s/ JOHN M. LILLIE Address: ______________________________ ______________________________ Social Security No.: __________________ APPENDIX A TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION 1. Grant of Option. The Company hereby grants to Employee under the --------------- Plan, as a separate incentive in connection with his or her employment 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. 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 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 set forth on page 1 of this Agreement, assuming that Employee is still employed with the Company or an Affiliate through such date(s). If Employee is not employed on such date(s), the option shall terminate, as set out in paragraph 7. 5. Postponement of Exercisability. Notwithstanding paragraph 4 or any ------------------------------ other provision of this Agreement, prior to the date this option is scheduled to become exercisable, the Committee, in its sole discretion, may determine that the right to exercise the option awarded by this Agreement shall accrue on a date later than such date. The Committee shall exercise its power to postpone the commencement of exercisability only if the Committee, in its sole discretion, determines that Employee has taken a personal leave of absence (as defined from time to time by the Committee) since the date of this Agreement. The duration of the period of postponement shall equal the duration of the personal leave of absence. If Employee does not return from the personal leave of absence, the option shall terminate as set out in paragraph 7. 6. Elimination of Exercisability. Notwithstanding paragraph 4 or any ----------------------------- other provision of this Agreement, prior to the date this option is scheduled to become exercisable, the Committee, in its sole discretion, may determine that the right to exercise the option awarded by this Agreement shall never accrue as to all or part of the Shares specified in paragraph 1 (and as adjusted pursuant to paragraph 3, if appropriate), in which case the option shall terminate as to such Shares. The Committee shall exercise such power only if the Committee, in its sole discretion, determines that (a) Employee's employment with the Company or an Affiliate has been reduced to less than a full-time basis, and/or (b) Employee has transferred to a position which, under the Committee's then existing policy, normally would not qualify Employee to be granted options under the Plan or to be granted the number of options granted under this Agreement. 7. Termination of Option. In the event that Employee's employment with --------------------- the Company or an Affiliate terminates for any reason other than Retirement (as defined in the Plan) or death, this option shall immediately thereupon terminate, except that Employee shall have up to the Maximum Term of the Option (as defined in paragraph 15 of this Appendix A) to exercise any unexercised portion of the option which is then exercisable. In the event of Employee's Retirement, Employee may, within the Maximum Term of the Option , exercise any unexercised portion of the option (whether or not exercisable). In the event that Employee 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 Employee's beneficiary or transferee, as hereinafter provided, for a period of one (1) year after the date of Employee'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, Employee dies or terminates employment due to Retirement, this option shall immediately thereupon terminate. 8. Persons Eligible to Exercise. The option shall be exercisable during ---------------------------- Employee's lifetime only by Employee. The option shall be non-transferable by Employee 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. 9. Death of Employee. To the extent exercisable after Employee's death, ----------------- the option shall be exercised only by Employee's designated beneficiary or beneficiaries, or if no beneficiary survives Employee, by the person or persons entitled to the option under Employee's will, or if Employee 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. 10. 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 determines is required to be withheld 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. 11. No Rights of Stockholder. Neither Employee nor any person claiming ------------------------ under or through said Employee 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 Employee. 12. No Right to Continued Employment. Employee understands and agrees -------------------------------- that this Agreement does not impact in any way the right of the Company, or the Affiliate employing Employee, as the case may be, to terminate or change the terms of the employment of Employee at any time for any reason whatsoever, with or without good cause. Employee understands and agrees that his or her employment is "at-will" and that either the Company or Employee may terminate Employee's employment at any time and for any reason. Employee also understands and agrees that his or her "at-will" status can only be changed by an express written contract signed by an authorized officer of the Company and Employee. 13. 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, San Francisco, California 94105, or at such other address as the Company may hereafter designate in writing. Any notice to be given to Employee shall be addressed to Employee at the address set forth beneath Employee's signature hereto, or at such other address as Employee 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. 14. 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. 15. 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. 16. 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. 17. 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. 18. 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 Employee, 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. 19. Captions. Captions provided herein are for convenience only and are -------- not to serve as a basis for interpretation or construction of this Agreement. 20. Modifications to this Agreement. This Agreement constitutes the ------------------------------- entire understanding of the parties on the subjects covered. Employee expressly warrants that he or she is not accepting 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. 21. 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-10.37 5 0005.txt TERMINATION AGREEMENT - JOHN M. LILLIE Exhibit 10.37 Gap Inc. One Harrison Street San Francisco, CA 94105 January 24, 2001 John M. Lillie [Address] Dear John, By signing this letter below you agree and confirm that your consulting agreement with The Gap, Inc., dated December 7, 2000, was terminated effective January 23, 2001. Very truly yours, The Gap, Inc. /s/ Millard S. Drexler - ---------------------- Millard S. Drexler Chief Executive Officer Agreed, /s/ John M. Lillie February 2, 2001 - ------------------ ---------------- John M. Lillie Date EX-13 6 0006.txt PORTIONS OF REGISTRANT'S ANNUAL REPORT 10-YEAR SELECTED FINANCIAL DATA
Compound Annual Growth Rate Fiscal Year (in weeks) - ------------------------------------------------------------------------------------------------------------------- 3-year 5-year 10-year 2000 (53) 1999 (52) 1998 (52) 1997 (52) - ------------------------------------------------------------------------------------------------------------------- Operating Results ($000) Net sales 28% 25% 22% $ 13,673,460 $ 11,635,398 $ 9,054,462 $ 6,507,825 Cost of goods sold and occupancy expenses, excluding depreciation and amortization -- -- - 8,025,374 6,360,704 5,013,473 3,775,957 Percentage of net sales -- -- - 58.7% 54.7% 55.4% 58.0% Depreciation and amortization (a) -- -- - $ 574,068 $ 414,558 $ 304,745 $ 245,584 Operating expenses -- -- - 3,629,257 3,043,432 2,403,365 1,635,017 Net interest expense (income) -- -- - 62,876 31,755 13,617 (2,975) Earnings before income taxes 17 19 19 1,381,885 1,784,949 1,319,262 854,242 Percentage of net sales -- -- - 10.1% 15.3% 14.6% 13.1% Income taxes -- -- - $ 504,388 $ 657,884 $ 494,723 $ 320,341 Net earnings 18 20 20 877,497 1,127,065 824,539 533,901 Percentage of net sales -- -- - 6.4% 9.7% 9.1% 8.2% Cash dividends paid -- -- - $ 75,488 $ 75,795 $ 76,888 $ 79,503 Net purchase of property and equipment, including lease rights -- -- - 1,881,127 1,268,811 842,655 483,114 Per Share Data Net earnings-basic 20% 22% 20% $ 1.03 $ 1.32 $ 0.95 $ 0.60 Net earnings-diluted 20 22 21 1.00 1.26 0.91 0.58 Cash dividends paid (b) -- -- - 0.09 0.09 0.09 0.09 Shareholders' equity (book value) -- -- - 3.43 2.63 1.83 1.79 Financial Position ($000) Property and equipment, net 43% 33% 26% $ 4,007,685 $ 2,715,315 $ 1,876,370 $ 1,365,246 Merchandise inventory 37 32 23 1,904,153 1,462,045 1,056,444 733,174 Total assets 28 25 25 7,012,908 5,188,756 3,963,919 3,337,502 Working capital -- -- - (151,094) 444,911 318,721 839,399 Current ratio -- -- - 0.95:1 1.25:1 1.21:1 1.85:1 Total long-term debt, less current installments -- -- - $ 780,246 $ 784,925 $ 496,455 $ 496,044 Ratio of long-term debt to shareholders' equity (c) -- -- - 0.35:1 0.35:1 0.32:1 0.31:1 Shareholders' equity -- -- - $ 2,928,239 $ 2,233,045 $ 1,573,679 $ 1,583,986 Return on average assets -- -- - 14.4% 24.6% 22.6% 17.9% Return on average shareholders' equity -- -- - 34.0% 59.2% 52.2% 33.0% Statistics Number of stores opened 35% 27% 17% 731 570 356 298 Number of stores expanded -- -- - 268 129 135 98 Number of stores closed -- -- - 73 18 20 22 Number of stores open at year-end 20 17 13 3,676 3,018 2,466 2,130 Net increase in number of stores -- -- - 22% 22% 16% 15% Comparable store sales (decrease) increase percentage (52-week basis) -- -- - (5%) 7% 17% 6% Sales per square foot (52-week basis)(d) -- -- - $ 482 $ 548 $ 532 $ 463 Square footage of gross store space at year-end 27 23 21 31,373,400 23,978,100 18,757,400 15,312,700 Percentage increase in square feet -- -- - 31% 28% 22% 21% Number of employees at year-end 27 23 20 166,000 140,000 111,000 81,000 Weighted-average number of shares-basic -- -- - 849,810,658 853,804,924 864,062,060 891,404,945 Weighted-average number of shares-diluted -- -- - 879,137,194 895,029,176 904,374,383 922,951,706 Number of shares outstanding at year-end, net of treasury stock -- -- - 853,996,984 850,498,941 857,960,032 884,549,313
(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 2001 but paid in the first quarter of fiscal 2001. (c) Long-term debt includes current installments. (d) Based on weighted-average gross square footage. 14
Fiscal Year (in weeks) - -------------------------------------------------------------------------------------------------------------------- 1996 (52) 1995 (53) 1994 (52) 1993 (52) 1992 (52) 1991 (52) - -------------------------------------------------------------------------------------------------------------------- Operating Results ($000) Net sales $ 5,284,381 $ 4,395,253 $ 3,722,940 $ 3,295,679 $ 2,960,409 $ 2,518,893 Cost of goods sold and occupancy expenses, excluding depreciation and amortization 3,093,709 2,645,736 2,202,133 1,996,929 1,856,102 1,496,156 Percentage of net sales 58.5% 60.2% 59.2% 60.6% 62.7% 59.4% Depreciation and amortization (a) $ 191,457 $ 175,719 $ 148,863 $ 124,860 $ 99,451 $ 72,765 Operating expenses 1,270,138 1,004,396 853,524 748,193 661,252 575,686 Net interest expense (income) (19,450) (15,797) (10,902) 809 3,763 3,523 Earnings before income taxes 748,527 585,199 529,322 424,888 339,841 370,763 Percentage of net sales 14.2% 13.3% 14.2% 12.9% 11.5% 14.7% Income taxes $ 295,668 $ 231,160 $ 209,082 $ 166,464 $ 129,140 $ 140,890 Net earnings 452,859 354,039 320,240 258,424 210,701 229,873 Percentage of net sales 8.6% 8.1% 8.6% 7.8% 7.1% 9.1% Cash dividends paid $ 83,854 $ 66,993 $ 64,775 $ 53,041 $ 44,106 $ 41,126 Net purchase of property and equipment, including lease rights 375,838 309,599 236,616 215,856 213,659 244,323 Per Share Data Net earnings-basic $ 0.48 $ 0.38 $ 0.34 $ 0.27 $ 0.23 $ 0.25 Net earnings-diluted 0.47 0.37 0.33 0.27 0.22 0.24 Cash dividends paid (b) 0.09 0.07 0.07 0.05 0.05 0.04 Shareholders' equity (book value) 1.79 1.69 1.41 1.15 0.91 0.71 Financial Position ($000) Property and equipment, net $ 1,135,720 $ 957,752 $ 828,777 $ 740,422 $ 650,368 $ 547,740 Merchandise inventory 578,765 482,575 370,638 331,155 365,692 313,899 Total assets 2,626,927 2,343,068 2,004,244 1,763,117 1,379,248 1,147,414 Working capital 554,359 728,301 555,827 494,194 355,649 235,537 Current ratio 1.72:1 2.32:1 2.11:1 2.07:1 2.06:1 1.71:1 Total long-term debt, less current installments -- -- -- $ 75,000 $ 75,000 $ 80,000 Ratio of long-term debt to shareholders' equity (c) N/A N/A N/A 0.07:1 0.08:1 0.12:1 Shareholders' equity $ 1,654,470 $ 1,640,473 $ 1,375,232 $ 1,126,475 $ 887,839 $ 677,788 Return on average assets 18.2% 16.3% 17.0% 16.4% 16.7% 23.9% Return on average shareholders' equity 27.5% 23.5% 25.6% 25.7% 26.9% 40.2% Statistics Number of stores opened 203 225 172 108 117 139 Number of stores expanded 42 55 82 130 94 79 Number of stores closed 30 53 34 45 26 15 Number of stores open at year-end 1,854 1,680 1,508 1,370 1,307 1,216 Net increase in number of stores 10% 11% 10% 5% 7% 11% Comparable store sales (decrease) increase percentage (52-week basis) 5% 0% 1% 1% 5% 13% Sales per square foot (52-week basis)(d) $ 441 $ 425 $ 444 $ 463 $ 489 $ 481 Square footage of gross store space at year-end 12,645,000 11,100,200 9,165,900 7,546,300 6,509,200 5,638,400 Percentage increase in square feet 14% 21% 21% 16% 15% 18% Number of employees at year-end 66,000 60,000 55,000 44,000 39,000 32,000 Weighted-average number of shares-basic 938,579,921 939,866,394 948,699,959 940,287,006 928,417,491 915,766,923 Weighted-average number of shares-diluted 961,351,245 962,443,160 971,144,612 965,110,280 960,903,782 953,297,157 Number of shares outstanding at year-end, net of treasury stock 926,495,994 971,149,446 977,162,057 980,428,914 973,250,357 962,032,505
GAP INC. ANNUAL REPORT 2000 15 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 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 53 Weeks Ended 52 Weeks Ended 52 Weeks Ended Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 - ------------------------------------------------------------------------------------------------------------ Net sales ($000) $13,673,460 $11,635,398 $ 9,054,462 Total net sales growth percentage 18 29 39 Comparable store sales (decrease) increase percentage (a) (5) 7 17 Net sales per average gross square foot (a) $ 482 $ 548 $ 532 Square footage of gross store space at year-end (000) 31,373 23,978 18,757 Number of new stores 731 570 356 Number of expanded stores 268 129 135 Number of closed stores 73 18 20
(a) 52-week basis. 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 fiscal 1999 and 1998. Comparable store sales by division for fiscal 2000 and 1999 was as follows: Gap Domestic reported negative low-single digit in 2000 versus positive low-single digit in 1999; Gap International reported negative low-single digit in 2000 versus positive mid-teens in 1999; Banana Republic reported negative low-single digit in 2000 versus positive low-double digit in 1999; Old Navy reported negative low-double digit in 2000 versus positive mid-teens in 1999. The decrease in net sales per average square foot for fiscal 2000 were primarily attributable to decreases in comparable store sales and the growing impact of the Old Navy division. Old Navy division's lower-priced merchandise and significantly larger stores resulted in lower net sales per average square foot when compared to other divisions. The increase in net sales per average square foot for fiscal 1999 was primarily attributable to increases in comparable store sales. 16 Store count and square footage growth were as follows:
Feb. 3, 2001 Jan. 29, 2000 - ------------------------------------------------------------------------------------------------------------ Number of Stores Sq. Ft. (Millions) Number of Stores Sq. Ft. (Millions) - ------------------------------------------------------------------------------------------------------------ Gap Domestic 2,079 12.1 1,767 10.3 Gap International 529 3.0 393 2.1 Banana Republic (a) 402 3.2 345 2.6 Old Navy 666 13.1 513 9.0 Total 3,676 31.4 3,018 24.0 Increase 22% 31% 22% 28%
(a) Includes 13 and 10 stores in Canada in fiscal 2000 and 1999, respectively. Cost of Goods Sold and Occupancy Expenses Cost of goods sold and occupancy expenses as a percentage of net sales increased 4.7 percentage points in fiscal 2000 from 1999 and decreased 0.5 percentage points in fiscal 1999 from 1998. The increase in fiscal 2000 from 1999 was primarily attributable to a decrease in merchandise margin as a percentage of net sales due to a greater percentage of merchandise sold at markdown and lower margins from marked-down and regular priced goods. Occupancy expenses as a percentage of net sales increased from fiscal 1999 primarily due to the decrease in net sales per average square foot. The decrease in fiscal 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 became 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. 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 a n 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 increased 0.3 percentage points in fiscal 2000 from 1999 and decreased 0.3 percentage points in fiscal 1999 from 1998. In fiscal 2000, the increase was primarily attributable to the decrease in comparable store sales and higher payroll as a percentage of net sales, partially offset by lower advertising costs and lower bonus expense. In fiscal 1999, the decrease resulted from lower administrative costs as a percentage of net sales. Interest Expense The increase in interest expense between fiscal 2000 and 1999 was primarily due to an increase in average borrowings, partially offset by additional interest capitalized. The decrease in interest expense between fiscal 1999 and 1998 was primarily due to increased interest capitalized. Interest Income The decreases in interest income between fiscal 2000, 1999 and 1998 were due to decreases in cash available for investment. GAP INC. ANNUAL REPORT 2000 17 Income Taxes The effective tax rate was 36.5, 36.9 and 37.5 percent in fiscal 2000, 1999 and 1998, respectively. The decrease in the effective tax rate 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:
Fiscal Year 2000 Fiscal Year 1999 Fiscal Year 1998 - ------------------------------------------------------------------------------------------------------------ Cash provided by operating activities ($000) $1,291,205 $1,477,928 $1,394,161 Working capital ($000) (151,094) 444,911 318,721 Current ratio 0.95:1 1.25:1 1.21:1
For the fiscal year ended February 3, 2001, the decrease in cash flows provided by operating activities was primarily due to a decrease in net earnings exclusive of depreciation and amortization, a decrease in tax benefit from the exercise of stock options and vesting of restricted stock and an increase in merchandise inventory. The decrease in working capital and the current ratio was primarily due to an increase in current maturities of long-term debt and an increase in payables, partially offset by an increase in merchandise inventory. 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. The Company funds inventory expenditures during normal and peak periods through a combination of cash flows from 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. During fiscal 2000 and 1999, these periods accounted for 35 and 36 percent, respectively, of the Company's annual sales. The Company has committed credit facilities totaling $1.35 billion, consisting of a $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 February 3, 2001, the Company had outstanding letters of credit and commercial paper of $1.06 billion and $41 million, respectively. The Company also had unused lines of credit of approximately $260 million at February 3, 2001. 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 and development of additional distribution channels. In May 2000, the Company issued $250 million of debt securities under this shelf registration statement at a rate per annum, reset quarterly, equal to three-month LIBOR plus 0.125%, due November 15, 2001. The net proceeds were used for general corporate purposes, similar to those described above. In February 2001, the Company filed a shelf registration statement with the Securities and Exchange Commission for $250 million of debt securities. The net proceeds from any issuance are expected to be used for general corporate purposes, similar to those described above. No assurances can be given that the Company will issue the remaining $500 million of debt securities under these registration statements in the future. In March 1 1999, the Company's Japanese subsidiary, Gap (Japan) KK, issued $50 million of debt securities, due March 1, 2009, with a fixed annual interest rate of 6.25 percent. 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. 18 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, with a fixed annual interest rate of 5.0 percent, due September 30, 2004. The net proceeds were used to support the Company's international expansion plans. Quantitative and qualitative disclosures about market risk for the Company's long-term debt are presented on page 20. Capital expenditures, net of construction allowances, totaled approximately $1.80 billion in fiscal 2000. The majority of these expenditures were used for expansion of the store base, headquarters and distribution facilities. These expenditures resulted in a net increase in store space of approximately 7.4 million square feet, or 31 percent, due to a net addition of 658 new stores, the expansion of 268 stores and the remodeling of certain stores. Capital expenditures for fiscal 1999 and 1998 were $1.19 billion and $797 million, respectively, resulting in a net increase in store space of 5.2 million square feet in fiscal 1999 and 3.4 million square feet in fiscal 1998. 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 and the remodeling of certain stores, as well as amounts for headquarters facilities, 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. Looking at the long-term growth domestically and abroad, the Company anticipates a growth rate more in the range of 15 percent per year for fiscal 2002 and 2003. The Company's store growth plan for fiscal 2001 is as follows:
Fiscal 2001 --------------------------- Store Growth Sq. Ft. Range - ------------------------------------------------------------------------ Gap Domestic 280-300 11-14% Gap International 100-120 20-25% Banana Republic 40-60 13-17% Old Navy 130-160 23-27% Total 550-630 17-20%
During fiscal 1998, the Company purchased land on which to construct additional headquarters facilities in San Francisco and San Bruno, California. The total project costs were approximately $240 million and $100 million, respectively. Construction commenced on the San Francisco facility during the third quarter of 1998 and is estimated to be completed by the third quarter of 2001. Construction commenced on the San Bruno facility during the first quarter of 1999 and was completed in November 2000. 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 was incurred during fiscal 2000. The facilities are expected to be opened by the fourth quarter of fiscal 2001. The Company took possession of a distribution site and building in Ontario, Canada during the first quarter of fiscal 2000 to support initial international expansion plans for the Old Navy business. The Company remodeled the facility and it was opened during the first quarter of 2001. The total project cost was approximately $65 million. During fiscal 2000, under the 67.5 million share repurchase program approved in October 1998, the Company acquired approximately 11 million shares for approximately $393 million, including 0.8 million shares acquired under put option contracts for approximately $26 million. During the fourth quarter of fiscal 2000, the Company discontinued repurchasing shares due to the lower cash flows generated by the business. The Company does not anticipate repurchasing stock in the near term and its policy has been and will remain that it uses excess cash flows to repurchase. The Company will continue the program when its cash flows support it. GAP INC. ANNUAL REPORT 2000 19 During fiscal 2000, the Company entered into various put option contracts in connection with the share repurchase program to hedge against stock price fluctuations. As of February 3, 2001, the Company had an outstanding put option contract to repurchase 400,000 shares of the Company's stock. The contract had an exercise price of $25.53 per share, with an expiration date of February 15, 2001 and it expired unexercised. 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 as well as a portion of its Euro-denominated sales 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 below. New Accounting Pronouncements Beginning with the fourth quarter of fiscal 2000, the Company adopted Emerging Issues Task Force (EITF) Issue 00-10, Accounting for Shipping and Handling Fees and Costs. The Company records all amounts billed to a customer in a sale transaction related to shipping and handling as Net Sales. Also, the Company classifies shipping costs and the cost of supplies used to package product for shipment to customers as Cost of Goods Sold and Occupancy Expenses. Prior to the adoption of this consensus, shipping and handling revenues and costs were classified as Operating Expenses. The Company did not reclassify prior period amounts as the amounts were insignificant. EITF Issue 00-14, Accounting for Certain Sales Incentives, provides guidance on the recognition, measurement and income statement classification for sales incentives offered voluntarily by a vendor without charge to customers. This consensus must be adopted no later than the second quarter of fiscal 2001. The Company does not expect this consensus to have a material impact on its consolidated financial statements as the Company currently accounts for most sales incentives in accordance with this guidance. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The table on the right provides information about the Company's market sensitive financial instruments as of February 3, 2001 and January 29, 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 as well as a portion of its Euro-denominated sales through the use of foreign exchange forward contracts to minimize this risk. The Company also uses forward contracts to hedge its market risk exposure associated with foreign currency exchange rate fluctuations for certain loans denominated in currencies other than the functional currency of the entity holding or issuing the loan. 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. 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 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 February 3, 2001. 20 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 interest rate of 5.0 percent, due September 30, 2004. 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. During fiscal 2000, the Company issued $250 million of debt securities at a rate per annum, reset quarterly, equal to three-month LIBOR plus 0.125%, due November 15, 2001. The notes are recorded in the balance sheet at their issuance amount. 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.
Feb. 3, 2001 Jan. 29, 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Average Notional Amount of Average Notional Amount of Contract Forward Contracts Unrealized Contract Forward Contracts Unrealized ($000) Rate (a) in U.S. Dollars Gain/Loss (b) Rate (a) in U.S. Dollars Gain/Loss (b) - ----------------------------------------------------------------------------------------------------------------------------------- Foreign exchange forward contracts (c) Sell contracts: British pounds 0.66 $ 262,365 $ 7,232 0.62 $133,432 $ (1,037) Canadian dollars 1.49 261,106 1,328 1.47 91,151 (1,527) Euro 1.08 39,200 (550) -- -- -- Japanese yen 103.63 189,721 15,465 109.12 67,648 (2,745) Buy contracts: Euro 1.06 23,316 (131) 0.95 59,654 (3,655) Total foreign exchange forward contracts $ 775,708 $ 23,344 $351,885 $ (8,964) Feb. 3, 2001 Jan. 29, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Carrying Amount Carrying Amount ($000) in U.S. Dollars Fair Value (d) in U.S. Dollars Fair Value (d) - ----------------------------------------------------------------------------------------------------------------------------------- Notes payable, due 2001 $ 250,000 $ 249,930 $ -- $ -- Notes payable, due 2004 234,002 218,510 243,923 231,880 Notes payable, due 2007 497,277 501,590 496,866 478,393 Notes payable, due 2009 48,967 48,967 44,136 44,136 Total long-term debt, including current maturities $1,030,246 $1,018,997 $784,925 $754,409
(a) Currency per U. S. dollar. (b) The unrealized gain/(loss) represents the effect of the changes in the forward rates compared to the average contract rates at February 3, 2001 and January 29, 2000. Approximately $22 million and $3 million of pre-tax unrealized gain was included in Accumulated Other Comprehensive Losses at February 3, 2001 and January 29, 2000, respectively. Approximately $1 million of pre-tax unrealized gain and $12 million of pre-tax unrealized loss was recognized in the consolidated statements of earnings for fiscal 2000 and 1999, respectively, fully offset by a corresponding valuation adjustment of the hedged items. (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. GAP INC. ANNUAL REPORT 2000 21 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 accounting principles generally accepted in the United States of America 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 February 3, 2001 and January 29, 2000, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three fiscal years in the period ended February 3, 2001. 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 auditing standards generally accepted in the United States of America. 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 February 3, 2001 and January 29, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 3, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche San Francisco, California February 28, 2001 22 CONSOLIDATED STATEMENTS OF EARNINGS
($000 except share and 53 Weeks Ended Percentage 52 Weeks Ended Percentage 52 Weeks Ended Percentage per share amounts) Feb. 3, 2001 to Sales Jan. 29, 2000 to Sales Jan. 30, 1999 to Sales - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $ 13,673,460 100.0% $ 11,635,398 100.0% $ 9,054,462 100.0% Costs and expenses Cost of goods sold and occupancy expenses 8,599,442 62.9 6,775,262 58.2 5,318,218 58.7 Operating expenses 3,629,257 26.5 3,043,432 26.2 2,403,365 26.5 Interest expense 74,891 0.5 44,966 0.4 46,143 0.5 Interest income (12,015) 0.0 (13,211) (0.1) (32,526) (0.3) Earnings before income taxes 1,381,885 10.1 1,784,949 15.3 1,319,262 14.6 Income taxes 504,388 3.7 657,884 5.6 494,723 5.5 Net earnings $ 877,497 6.4% $ 1,127,065 9.7% $ 824,539 9.1% Weighted-average number of shares-basic 849,810,658 853,804,924 864,062,060 Weighted-average number of shares-diluted 879,137,194 895,029,176 904,374,383 Earnings per share-basic $ 1.03 $ 1.32 $0.95 Earnings per share-diluted 1.00 1.26 0.91
See Notes to Consolidated Financial Statements. GAP INC. ANNUAL REPORT 2000 23 CONSOLIDATED BALANCE SHEETS
($000 except share and par value) Feb. 3, 2001 Jan. 29, 2000 - --------------------------------------------------------------------------------------- Assets - --------------------------------------------------------------------------------------- Current Assets Cash and equivalents $ 408,794 $ 450,352 Merchandise inventory 1,904,153 1,462,045 Other current assets 335,103 285,393 Total current assets 2,648,050 2,197,790 Property and Equipment Leasehold improvements 1,899,820 1,426,537 Furniture and equipment 2,826,863 2,083,604 Land and buildings 558,832 278,422 Construction-in-progress 615,722 414,725 5,901,237 4,203,288 Accumulated depreciation and amortization (1,893,552) (1,487,973) Property and equipment, net 4,007,685 2,715,315 Lease rights and other assets 357,173 275,651 Total assets $ 7,012,908 $ 5,188,756 Liabilities and Shareholders' Equity Current Liabilities Notes payable $ 779,904 $ 168,961 Current maturities of long-term debt 250,000 -- Accounts payable 1,067,207 805,945 Accrued expenses and other current liabilities 684,209 751,710 Income taxes payable 17,824 26,263 Total current liabilities 2,799,144 1,752,879 Long-Term Liabilities Long-term debt 780,246 784,925 Deferred lease credits and other liabilities 505,279 417,907 Total long-term liabilities 1,285,525 1,202,832 Shareholders' Equity Common stock $.05 par value Authorized 2,300,000,000 shares; issued 939,222,871 and 1,007,356,790 shares; outstanding 853,996,984 and 850,498,941 shares 46,961 50,368 Additional paid-in capital 294,967 669,490 Retained earnings 4,974,773 4,172,796 Accumulated other comprehensive losses (20,173) (6,759) Deferred compensation (12,162) (23,150) Treasury stock, at cost (2,356,127) (2,629,700) Total shareholders' equity 2,928,239 2,233,045 Total liabilities and shareholders' equity $ 7,012,908 $ 5,188,756
See Notes to Consolidated Financial Statements. 24 CONSOLIDATED STATEMENTS OF CASH FLOWS
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended ($000) Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 - --------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities - --------------------------------------------------------------------------------------------------------- Net earnings $ 877,497 $ 1,127,065 $ 824,539 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 590,365 436,184 326,447 Tax benefit from exercise of stock options and vesting of restricted stock 130,882 211,891 79,808 Deferred income taxes (38,872) 2,444 (34,766) Change in operating assets and liabilities: Merchandise inventory (454,595) (404,211) (322,287) Prepaid expenses and other (61,096) (55,519) (77,292) Accounts payable 249,545 118,121 265,296 Accrued expenses (48,046) 89,071 231,178 Income taxes payable (8,495) (94,893) 38,805 Deferred lease credits and other long-term liabilities 54,020 47,775 62,433 Net cash provided by operating activities 1,291,205 1,477,928 1,394,161 Cash Flows from Investing Activities Net purchase of property and equipment (1,858,662) (1,238,722) (797,592) Acquisition of lease rights and other assets (16,252) (39,839) (28,815) Net cash used for investing activities (1,874,914) (1,278,561) (826,407) Cash Flows from Financing Activities Net increase in notes payable 621,420 84,778 1,357 Net issuance of long-term debt 250,000 311,839 - Issuance of common stock 152,105 114,142 56,411 Net purchase of treasury stock (392,558) (745,056) (899,139) Cash dividends paid (75,488) (75,795) (76,888) Net cash provided by (used for) financing activities 555,479 (310,092) (918,259) Effect of exchange rate fluctuations on cash (13,328) (4,176) 2,589 Net decrease in cash and equivalents (41,558) (114,901) (347,916) Cash and equivalents at beginning of year 450,352 565,253 913,169 Cash and equivalents at end of year $ 408,794 $ 450,352 $ 565,253
See Notes to Consolidated Financial Statements. GAP INC. ANNUAL REPORT 2000 25 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated Common Stock Additional Other --------------- Paid-in Retained Comprehensive ($000 except per share and per share amounts) Shares Amount Capital Earnings Losses - ------------------------------------------------------------------------------------------------------------------------------------ Balance at January 31, 1998 989,826,394 $49,491 $ 205,393 $2,392,750 $(15,230) 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 ($819) 2,712 Amortization of restricted stock and discounted stock options Purchase of treasury stock Reissuance of treasury stock 12,766 Net earnings 824,539 Cash dividends ($.11 per share) (95,929) Balance at January 30, 1999 997,496,214 $49,875 $ 349,037 $3,121,360 $(12,518) 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 ($2,454) 5,759 Amortization of restricted stock and discounted stock options 72 Purchase of treasury stock 4,276 Reissuance of treasury stock 20,175 Net earnings 1,127,065 Cash dividends ($.09 per share) (75,629) Balance at January 29, 2000 1,007,356,790 $50,368 $ 669,490 $4,172,796 $ (6,759) Issuance of common stock pursuant to stock option plans 13,078,981 654 115,167 Net cancellations of common stock pursuant to management incentive restricted stock plans (185,563) (10) (364) Tax benefit from exercise of stock options by employees and from vesting of restricted stock 130,882 Adjustments for foreign currency translation (24,286) Adjustments for fluctuations in fair market value of financial instruments, net of tax of $8,131 10,872 Amortization of restricted stock and discounted stock options 45 Purchase of treasury stock 1,873 Reissuance of treasury stock 15,458 Retirement of treasury stock (81,027,337) (4,051) (637,584) Net earnings 877,497 Cash dividends ($.09 per share) (75,520) Balance at February 3, 2001 939,222,871 $46,961 $ 294,967 $4,974,773 $(20,173)
See Notes to Consolidated Financial Statements. 26
Treasury Stock Compre- Deferred ------------------- hensive ($000 except per share and per share amounts) Compensation Shares Amount Total Earnings - ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 31, 1998 $(38,167) (105,277,081) $(1,010,251) $1,583,986 Issuance of common stock pursuant to stock option plans (10,351) 36,738 Net issuance of common stock pursuant to management incentive restricted stock plans (3,873) 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 20,716 Purchase of treasury stock (35,714,475) (910,387) (910,387) Reissuance of treasury stock 1,455,374 18,238 31,004 Net earnings 824,539 824,539 Cash dividends ($.11 per share) (95,929) Balance at January 30, 1999 $(31,675) (139,536,182) $(1,902,400) $1,573,679 $ 827,251 Issuance of common stock pursuant to stock option plans (9,186) 72,767 Net cancellations of common stock pursuant to management incentive restricted stock plans (3,411) (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 ($2,454) 5,759 5,759 Amortization of restricted stock and discounted stock options 21,122 21,194 Purchase of treasury stock (18,500,000) (745,056) (740,780) Reissuance of treasury stock 1,178,333 17,756 37,931 Net earnings 1,127,065 1,127,065 Cash dividends ($.09 per share) (75,629) Balance at January 29, 2000 $(23,150) (156,857,849) $(2,629,700) $2,233,045 $1,132,824 Issuance of common stock pursuant to stock option plans (4,249) 111,572 Net cancellations of common stock pursuant to management incentive restricted stock plans (919) (1,293) Tax benefit from exercise of stock options by employees and from vesting of restricted stock 130,882 Adjustments for foreign currency translation (24,286) (24,286) Adjustments for fluctuations in fair market value of financial instruments, net of tax of $8,131 10,872 10,872 Amortization of restricted stock and discounted stock options 16,156 16,201 Purchase of treasury stock (11,020,038) (392,558) (390,685) Reissuance of treasury stock 1,624,663 24,496 39,954 Retirement of treasury stock 81,027,337 641,635 -- Net earnings 877,497 877,497 Cash dividends ($.09 per share) (75,520) Balance at February 3, 2001 $(12,162) (85,225,887) $(2,356,127) $2,928,239 $ 864,083
See Notes to Consolidated Financial Statements. Annual Report 2000 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the 53 Weeks Ended February 3, 2001 (Fiscal 2000), 52 Weeks Ended January 29, 2000 (Fiscal 1999) and January 30, 1999 (Fiscal 1998) NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Gap Inc. (the "Company") is a global specialty retailer 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. 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 Accumulated Other Comprehensive Losses 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 2000, 1999 and 1998 consisted of 53, 52 and 52 weeks, respectively. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. 28 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. Estimated useful lives are as follows: Leasehold improvements for offices Life of the lease Leasehold improvements for stores Life of the lease, not to exceed 12 years Furniture and equipment Up to 10 years Buildings 39 years
Interest costs related to assets under construction are capitalized during the construction period. Interest of $41 million, $25 million and $11 million was capitalized in fiscal 2000, 1999 and 1998, respectively. Lease Rights Temporary 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 $487 million, $504 million and $399 million in fiscal 2000, 1999 and 1998, 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. GAP INC. ANNUAL REPORT 2000 29 Segments The Company's brands have been aggregated into 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 12.2 percent, 11.3 percent and 10.1 percent of the Company's revenues for fiscal 2000, 1999 and 1998, respectively. Long-term assets of international operations, including retail and sourcing, represent 14.5 percent and 13.8 percent of the Company's long-term assets for fiscal 2000 and 1999, 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. Accounting Pronouncements Beginning with the fourth quarter of fiscal 2000, the Company adopted Emerging Issues Task Force (EITF) Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." The Company records all amounts billed to a customer in a sale transaction related to shipping and handling as Net Sales. Also, the Company classifies shipping costs and the cost of supplies used to package product for shipment to customers as Cost of Goods Sold and Occupancy Expenses. Prior to the adoption of this consensus, shipping and handling revenues and costs were classified as Operating Expenses. The Company did not reclassify prior period amounts as the amounts were insignificant. In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company adopted SAB 101 in fiscal 1999. SAB 101 did not have a material impact on the Company's consolidated financial statements. Treasury Share Retirement During fiscal 2000, the Company retired approximately 81 million treasury shares with a cost basis of approximately $642 million. This retirement did not affect results of operations. Reclassifications Certain reclassifications have been made to the 1999 and 1998 financial statements to conform with the 2000 presentation. 30 NOTE B: DEBT AND OTHER CREDIT ARRANGEMENTS The Company has committed credit facilities totaling $1.35 billion, consisting of a $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 February 3, 2001, the Company had outstanding letters of credit and commercial paper of $1.06 billion and $41 million, respectively. The Company also had unused lines of credit of approximately $260 million at February 3, 2001. Borrowings under the Company's credit agreements are subject to the Company not exceeding a certain debt ratio. 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 gain or loss on the swaps net of the exchange gain or loss on the underlying debt was recognized in Operating Expenses. The net losses were $503,000 and $483,000 in fiscal 2000 and 1999, respectively. The fair value of the notes at February 3, 2001 was approximately $49 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. 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 February 3, 2001 was approximately $219 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. 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 and development of additional distribution channels. In May 2000, the Company issued $250 million of debt securities under this shelf registration statement at a rate per annum, reset quarterly, equal to three-month LIBOR plus 0.125%, due November 15, 2001. The interest rate at February 3, 2001 was 6.88 percent. Interest on the notes is payable semi-annually. The fair value of the notes at February 3, 2001 was approximately $250 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. In February 2001, the Company filed a shelf registration statement with the Securities and Exchange Commission for $250 million of debt securities. The net proceeds from any issuance are expected to be used for general corporate purposes, similar to those described above. No assurances can be given that the Company will issue the remaining $500 million of debt securities under these registration statements in the future. Gross interest payments were approximately $104 million, $54 million and $47 million in fiscal 2000, 1999 and 1998, respectively. A summary of the Company's long-term debts is as follows:
Carrying Amount in U.S. Dollars - -------------------------------------------------------------------------------------------- ($000) Feb. 3, 2001 Jan. 29, 2000 - -------------------------------------------------------------------------------------------- Notes payable, variable, interest due semi-annually, due 2001 $ 250,000 $ -- Notes payable, 5.0%, interest due annually, due 2004 234,002 243,923 Notes payable, 6.9%, interest due semi-annually, due 2007 497,277 496,866 Notes payable, 6.25%, interest due semi-annually, due 2009 48,967 44,136 Total long-term debt, including current maturities $1,030,246 $784,925
GAP INC. ANNUAL REPORT 2000 31 NOTE C: INCOME TAXES Income taxes consisted of the following:
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended ($000) Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 - ----------------------------------------------------------------------- Current Federal $442,264 $549,107 $438,110 State 47,814 62,357 55,716 Foreign 53,182 43,976 35,663 Total current 543,260 655,440 529,489 Deferred Federal (30,005) (3,815) (29,163) State and foreign (8,867) 6,259 (5,603) Total deferred (38,872) 2,444 (34,766) Total provision $504,388 $657,884 $494,723
The foreign component of pretax earnings before eliminations and corporate allocations in fiscal 2000, 1999 and 1998 was approximately $334 million, $226 million and $191 million, 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 approximately $447 million at February 3, 2001. The difference between the effective income tax rate and the U.S. federal income tax rate is summarized as follows:
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 - ---------------------------------------------------------------------------------------------- Federal tax rate 35.0% 35.0% 35.0% State income taxes, less federal benefit 1.8 2.5 2.5 Other (0.3) (0.6) 0.0 Effective Tax Rate 36.5% 36.9% 37.5%
Deferred tax assets (liabilities) consisted of the following:
($000) Feb. 3, 2001 Jan. 29, 2000 - ------------------------------------------------------------------------ Compensation and benefits accruals $ 47,930 $ 26,377 Scheduled rent 61,741 50,164 Inventory caplitalization 52,880 39,485 Nondeductible accruals 20,678 24,126 Other 48,510 44,501 Gross deferred tax assets 231,739 184,653 Depreciation (25,281) (23,054) Fair value of financial instruments included in Accumulated Other Comprehensive Losses (8,131) - Other (8,711) (2,724) Gross deferred tax liabilities (42,123) (25,778) Net deferred tax assets $189,616 $158,875
Net deferred tax assets at February 3, 2001 and January 29, 2000 are included in Other Current Assets (approximately $76 million and $82 million, respectively), and Lease Rights and Other Assets (approximately $113 million and $77 million, respectively)in the Consolidated Balance Sheets. Income tax payments were approximately $427 million, $537 million and $411 million in fiscal 2000, 1999 and 1998, respectively. 32 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 2025. The aggregate minimum non-cancelable annual lease payments under leases in effect on February 3, 2001 are as follows:
Fiscal Year ($000) - -------------------------------------------------------------------------- 2001 $ 774,560 2002 749,281 2003 696,541 2004 635,092 2005 529,749 Thereafter 2,072,630 Total minimum lease commitment $5,457,853
Some of the leases contain renewal options for periods ranging up to 30 years. Many leases also provide for payment of operating expenses, real estate taxes and additional rent based on a percentage of sales. No lease directly imposes any restrictions relating to leasing in other locations, other than radius clauses. 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. 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 February 3, 2001 and January 29, 2000, this liability amounted to approximately $180 million and $170 million, 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 and Other Liabilities. At February 3, 2001 and January 29, 2000, the long-term deferred credit was approximately $250 million and $169 million, respectively. Rental expense for all operating leases was as follows:
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended ($000) Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 - -------------------------------------------------------------------------- Minimum rentals $705,760 $561,994 $471,628 Contingent rentals 135,406 114,484 75,601 Total $841,166 $676,478 $547,229
GAP INC. ANNUAL REPORT 2000 33 NOTE E: FINANCIAL INSTRUMENTS Derivative Financial Instruments 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 as well as a portion of its Euro-denominated sales through the use of foreign exchange forward contracts to minimize this risk. Forward contracts used to hedge forecasted merchandise purchases and forecasted Euro- denominated sales are designated as cash-flow hedges. Forward contracts used to hedge merchandise purchases based on firm commitments are designated as fair- value hedges. At February 3, 2001, the Company had contracts maturing at various dates through March 2002 to buy and sell the equivalent of approximately $776 million in foreign currencies (Buy contracts: approximately 25 million Euro; Sell contracts: approximately 174 million British pounds, 388 million Canadian dollars, 42 million Euro and 19.7 billion 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 Costs of Goods Sold and Occupancy Expenses 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 Costs of Goods Sold and Occupancy Expenses in the period in which the hedged merchandise inventory is sold, or in Net Sales when the forecasted sales take place. Approximately $14 million included in Accumulated Other Comprehensive Losses at February 3, 2001 will be recognized in Costs of Goods Sold and Occupancy Expenses or Net Sales over the next 12 months. The critical terms of the forward contracts and the respective firm commitments and forecasted foreign purchase and sales transactions are essentially the same. As a result, there were no amounts reflected in fiscal 2000 earnings resulting from hedge ineffectiveness. The Company also uses for ward contracts to hedge its market risk exposure associated with foreign currency exchange rate fluctuations for certain loans denominated in currencies other than the functional currency of the entity holding or issuing the loan. Gains and losses on the currency forward contracts as well as on the underlying loans are recognized in Operating Expenses in the same period and generally offset. 34 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 fiscal 2000, 1999 and 1998 were approximately $18 million, $16 million and $14 million, 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. The Company does not match employees' contributions under the current plan. 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 nonemployee 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 or over a four-year period, with shares becoming exercisable in equal annual installments of 25%. 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 approximately $10 million, $19 million and $21 million in fiscal 2000, 1999 and 1998, 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 fiscal 2000, options to purchase approximately 1,159,000 shares were granted to approximately 23,000 employees under the plan. These stock options generally have a vesting period of one-and-a-half years and expire 10 years after the grant date. GAP INC. ANNUAL REPORT 2000 35 Employee Stock Purchase Plan The Company has an Employee Stock Purchase Plan under which eligible United States 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 first or last day of the six-month purchase period on the New York Stock Exchange. 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 1,624,663, 1,178,333 and 1,440,615 shares issued under the plan during fiscal 2000, 1999 and 1998, respectively. All shares were acquired from reissued treasury stock. At February 3, 2001, there were 5,153,691 shares reserved for future subscriptions. During fiscal 2000, the Company established an Employee Stock Purchase Plan for employees in the United Kingdom. Under the plan, all eligible employees may purchase common stock of the Company at the lower of the closing price of the Company's common stock on the first or last day of the six-month purchase period on the New York Stock Exchange. The Company will provide a share match for every seven shares purchased. Employees pay for their stock purchases through payroll deductions from (British Pounds)10 to (British Pounds)125 per month, not to exceed the lesser of either (British Pounds)750 per each six-month purchase period or 10 percent of gross annual base salary per tax year. At February 3, 2001, (British Pound)1 was equivalent to $1.45. All shares will be acquired from reissued treasury stock. The first purchase will take place during the first quarter of fiscal 2001. At February 3, 2001, there were 1,000,000 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 fiscal 2000, under the 67.5 million share repurchase program approved in October 1998, the Company acquired approximately 11 million shares for approximately $393 million, including 0.8 million shares acquired under put option contracts for approximately $26 million. During the fourth quarter of fiscal 2000, the Company discontinued repurchasing shares due to the lower cash flows generated by the business. The Company does not anticipate repurchasing stock in the near term and its policy has been and will remain that it uses excess cash flows to repurchase. The Company will continue the program when its cash flows support it. As of February 3, 2001, the Company had an outstanding put option contract to repurchase 400,000 shares of the Company's stock. The contract had an exercise price of $25.53 per share, with an expiration date of February 15, 2001 and it expired unexercised. 36 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:
Weighted-Average Shares Exercise Price - --------------------------------------------------------------------------- Balance at January 31, 1998 79,253,053 $ 7.54 Granted 26,445,033 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 Granted 28,593,295 33.66 Exercised (13,090,888) 8.82 Canceled (10,939,938) 20.44 Balance at February 3, 2001 97,076,095 $21.29
Outstanding options at February 3, 2001 have expiration dates ranging from April 2001 to January 2011. At February 3, 2001, the Company reserved 133,449,837 shares of its common stock, including 972,502 treasury shares, for the exercise of stock options. There were 35,810,440, 53,480,298 and 36,214,437 shares available for granting of options at February 3, 2001, January 29, 2000 and January 30, 1999, respectively. Options for 27,675,466, 15,682,738 and 10,913,039 shares were exercisable as of February 3, 2001, January 29, 2000 and January 30, 1999, respectively, and had a weighted-average exercise price of $9.59, $7.76 and $5.51 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.
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 - ------------------------------------------------------------------------------- Net earnings ($000) - ------------------------------------------------------------------------------- As reported $877,497 $1,127,065 $824,539 Pro forma 759,597 1,031,144 748,907 - ------------------------------------------------------------------------------- Earnings per share - ------------------------------------------------------------------------------- As reported-basic $ 1.03 $ 1.32 $ 0.95 Pro forma-basic 0.89 1.21 0.87 As reported-diluted 1.00 1.26 0.91 Pro forma-diluted 0.86 1.15 0.83
GAP INC. ANNUAL REPORT 2000 37 The weighted-average fair value of the stock options granted during fiscal 2000, 1999 and 1998 was $11.42, $16.77 and $7.50, 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 2000: dividend yield of 0.3 percent; expected price volatility of between 39 percent and 43 percent; risk-free interest rates ranging from 4.1 percent to 5.2 percent and expected lives between 3.3 and 8.4 years. The fair value of stock options granted in 1999 was based on the following weighted- average assumptions: 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 following table summarizes information about stock options outstanding at February 3, 2001:
Options Outstanding Options Exercisable --------------------------------------------------------------------------------------------------- Number Weighted-Average Number Outstanding at Remaining Contractual Weighted-Average Exercisable at Weighted-Average Range of Exercise Prices Feb. 3, 2001 Life (in years) Exercise Price Feb. 3, 2001 Exercise Price - ----------------------------------------------------------------------------------------------------------------------------- $ 4.17 to $ 9.28 29,064,644 4.10 $ 6.81 18,602,711 $ 7.16 9.30 to 20.21 24,453,330 6.56 16.29 7,975,217 11.40 20.39 to 38.91 25,346,670 8.86 25.45 293,283 26.34 38.94 to 59.23 18,211,451 8.74 45.33 804,255 41.59 $ 4.17 to $59.23 97,076,095 6.83 $21.29 27,675,466 $ 9.59
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 and unvested shares of restricted stock. 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.
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 - ---------------------------------------------------------------------------------------------- Weighted-average number of shares-basic 849,810,658 853,804,924 864,062,060 Incremental shares resulting from: Stock options 28,811,344 39,781,579 35,340,667 Restricted stock 515,192 1,442,673 4,971,656 Weighted-average number of shares-diluted 879,137,194 895,029,176 904,374,383
Excluded from the above computations of weighted-average shares for diluted earnings per share were options to purchase 20,154,144, 7,089,268 and 27,263 shares of common stock for fiscal 2000, 1999 and 1998, respectively. Additionally, a put option to repurchase 400,000 shares for fiscal 2000 was excluded from the above computations. 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 annual agreement with Fisher Development, Inc. (FDI), a company wholly owned by the brother of the Company's chairman and his immediate family, setting forth the terms under which FDI may act as one of the Company's general contractors in connection with the Company's construction activities. FDI acted as general contractor for 675,547 and 340 new stores' leasehold improvements and fixtures during fiscal 2000, 1999 and 1998, respectively. In the same respective years, FDI supervised construction of 262,123 and 135 expansions, remodels and relocations as well as headquarters facilities. Total cost of construction was approximately $741 million, $485 million and $342 million, including profit and overhead costs of approximately $59 million, $47 million and $29 million, for fiscal 2000, 1999 and 1998, respectively. At February 3, 2001 and January 29, 2000, amounts due to FDI were approximately $62 million and $26 million, respectively. The terms and conditions of the agreement with FDI are reviewed annually by the Audit and Finance Committee of the Board of Directors. 38 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Fiscal 2000 13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 14 Weeks Ended 53 Weeks Ended ($000 except per share amounts) Apr. 29, 2000 Jul. 29, 2000 Oct. 28, 2000 Feb. 3, 2001 Feb. 3, 2001 - ------------------------------------------------------------------------------------------------------------------------ Net sales $2,731,990 $2,947,714 $3,414,668 $ 4,579,088 $13,673,460 Gross profit 1,130,085 1,110,650 1,257,207 1,576,076 5,074,018 Net earnings 235,476 183,920 186,348 271,753 877,497 Earnings per share-basic 0.28 0.22 0.22 0.32 1.03 Earnings per share-diluted 0.27 0.21 0.21 0.31 1.00 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 - ------------------------------------------------------------------------------------------------------------------------ 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 Per Share Data Market Prices Cash Dividends Paid ------------------------------------------------- -------------------------- Fiscal 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------- High Low High Low - --------------------------------------------------------------------------------------------------------------- 1st Quarter $53.75 $35.00 $51.56 $39.81 $0.0222 $0.0222 2nd Quarter 39.81 28.00 52.69 39.38 0.0222 0.0222 3rd Quarter 38.00 18.50 47.94 30.81 0.0222 0.0222 4th Quarter 34.00 21.50 49.31 32.41 0.0222 0.0222 Year $0.0888 $0.0888
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 13, 2001 was 10,086. GAP INC. ANNUAL REPORT 2000 39 EX-21 7 0007.txt SUBSIDIARIES OF REGISTRANT 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 Distribution Facilities, LLC California GPS Management Services, Inc. California GPS Park Restaurant, Inc. California GPS Real Estate, Inc. California GPS Realty Company Inc. Delaware GPS Sourcing (South Africa) (Proprietary) Limited South Africa 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 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 (New Jersey) LP California 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 (Honduras) S.A. de C.V. Honduras Gap International Sourcing (JV) LLC California Gap International Sourcing (Mexico) S.A. de C.V. Mexico Gap International Sourcing (Thailand) Limited Thailand 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 Real Estate Ventures (Wheaton) Inc. Illinois The Fisher Gap Stores Inc. California The Gap Limited England and Wales WCB Twenty-Eight Limited Partnership Delaware
EX-23 8 0008.txt CONSENT OF DELOITTE & TOUCHE LLP 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 of The Gap, Inc. 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 No. 333-47508, and Registration Nos. 333-70991 and 333-54842 on Form S-3 of our report dated February 28, 2001, appearing in this Annual Report on Form 10-K of The Gap, Inc. for the fiscal year ended February 3, 2001. /s/ Deloitte & Touche LLP San Francisco, California April 2, 2001 EX-27 9 0009.txt FINANCIAL DATA SCHEDULE
5 FINANCIAL DATA SCHEDULE APPENDIX A TO ITEM 601(c) OF REGULATION S-K 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. 1,000 12-MOS FEB-03-2001 JAN-30-2000 FEB-03-2001 408,794 0 0 0 1,904,153 2,648,050 5,901,237 1,893,552 7,012,908 2,799,144 780,246 0 0 46,961 2,881,278 7,012,908 13,673,460 13,673,460 8,599,442 8,599,442 3,629,257 0 62,876 1,381,885 504,388 877,497 0 0 0 877,497 1.03 1.00
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