The Gap 2008 Annual Report Download - page 74

Weighted-average number of shares is as follows:
Fiscal Year
(shares in millions) 2008 2007 2006
Weighted-average number of shares—basic ........................................ 716 791 831
Commonstockequivalents ....................................................... 335
Weighted-average number of shares—diluted ...................................... 719 794 836
The above computations of weighted-average number of shares—diluted exclude stock options and other stock
awards to purchase 31 million, 33 million, and 42 million shares of common stock for fiscal 2008, 2007, and 2006,
respectively, as their inclusion would be antidilutive.
Note 15. Commitments and Contingencies
In January 2006, we entered into a non-exclusive services agreement with International Business Machines
Corporation (“IBM”) to operate certain aspects of our information technology infrastructure. The agreement was
amended effective 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. We paid $134 million, $146 million, and $118 million to IBM for fixed charges during fiscal 2008, 2007,
and 2006, respectively. 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 as of January 31, 2009, 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.
As a multinational company, we are subject to various proceedings, lawsuits, disputes and claims (“Actions”)
arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are
subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property,
customer, employment, data privacy, and securities related claims, including class action lawsuits in which
plaintiffs allege that we violated federal and state wage and hour and other laws. The plaintiffs in some Actions
seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are
62 Gap Inc. Form 10-K