The Gap 2008 Annual Report Download - page 42

issued under the revolving credit facility lines), surety bonds of $38 million, and bank guarantees of $4 million
outstanding at January 31, 2009.
Amounts Reflected in the Consolidated Balance Sheet
We have other long-term liabilities reflected in the Consolidated Balance Sheet, including deferred income taxes.
The payment obligations associated with these liabilities are not reflected in the table above due to the absence of
scheduled maturities. Therefore, the timing of these payments cannot be determined, except for amounts
estimated to be paid in fiscal 2009 that are included in current liabilities.
Other Cash Obligations Not Reflected in the Consolidated Balance Sheet (Off-Balance Sheet Arrangements)
The majority of our contractual obligations are made up of operating leases for our stores. Commitments for
operating leases represent future minimum lease payments under non-cancelable leases. In accordance with
accounting principles generally accepted in the United States of America, our operating leases are not recorded in
the Consolidated Balance Sheet; however, the minimum lease payments related to these leases are disclosed in
Note 11 of Notes to the Consolidated Financial Statements.
Purchase obligations include our non-exclusive services agreement with International Business Machines
Corporation (“IBM”) to operate certain aspects of our information technology structure. The agreement was
amended March 2, 2009. The services agreement expires in March 2016, and we have the right to renew it for up to
three additional years. We have various options to terminate the agreement, and we pay IBM under a combination
of fixed and variable charges, with the variable charges fluctuating based on our actual consumption of services.
IBM also has certain termination rights in the event of our material breach of the agreement and failure to cure.
Based on the current projection of service needs, we expect to pay approximately $741 million to IBM over the
remaining term of the contract.
We have assigned certain store and corporate facility leases to third parties as of January 31, 2009. Under these
arrangements, we are secondarily liable and have guaranteed the lease payments of the new lessees for the
remaining portion of our original lease obligation. We account for these guarantees in accordance with FIN 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the
Indebtedness of Others.” The maximum potential amount of future lease payments we could be required to make
is approximately $33 million as of January 31, 2009. The carrying amount of the liability related to the guarantees
was not material as of January 31, 2009.
We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other
party for certain matters. These contracts primarily relate to our commercial contracts, operating leases,
trademarks, intellectual property, financial agreements, and various other agreements. Under these contracts we
may provide certain routine indemnifications relating to representations and warranties (e.g., ownership of assets,
environmental or tax indemnifications) or personal injury matters. The terms of these indemnifications range in
duration and may not be explicitly defined. Generally, the maximum obligation under such indemnifications is not
explicitly stated and, as a result, the overall amount of these obligations cannot be reasonably estimated.
Historically, we have not made significant payments for these indemnifications. We believe that if we were to
incur a loss in any of these matters, the loss would not have a material effect on our financial condition or results
of operations.
As party to a reinsurance pool for workers’ compensation, general liability, and automobile liability, we have
guarantees with a maximum exposure of $14 million, of which $0.2 million has been cash collateralized. We are
currently in the process of winding down our participation in the reinsurance pool. Our maximum exposure and
cash collateralized balance are expected to decrease in the future as our participation in the reinsurance
pool diminishes.
30 Gap Inc. Form 10-K