The Gap 2010 Annual Report Download - page 53

Credit Cards
We have credit card agreements (the “Agreements”) with third parties to provide our customers with private label
credit cards and/or co-branded credit cards (collectively, the “Credit Cards”). Each private label credit card bears the
logo of one of our brands and can be used at any of our U.S. or Canadian store locations and online. The co-branded
credit card is a VISA credit card bearing the logo of one of our brands and can be used everywhere VISA credit cards
are accepted. A third-party financing company is the sole owner of the accounts issued under the Credit Card
programs, and this third party absorbs the losses associated with non-payment by the cardholder and a portion of
any fraudulent usage of the accounts. We receive cash from the third-party financing company in accordance with
the Agreements and based on usage of the Credit Cards. We also receive cash from Visa U.S.A. Inc. in accordance
with the Agreements and based on specified transactional fees. We recognize income for such cash receipts when
the amounts are fixed or determinable and collectibility is reasonably assured, which is generally the time at which
the actual usage of the Credit Cards or specified transaction occurs. The income is recorded in other income, which
is a component of operating expenses in our Consolidated Statements of Income.
The Credit Card programs offer incentives to cardholders in the form of reward certificates upon the cumulative
purchase of an established amount. The cost associated with reward certificates is accrued as the rewards are
earned by the cardholder and is recorded in cost of goods sold and occupancy expenses in the Consolidated
Statements of Income.
Earnings per Share
Basic earnings per share are computed as net income divided by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share are computed as net income divided by the weighted-
average number of common shares outstanding for the period plus common stock equivalents. Common stock
equivalents consist of shares subject to share-based awards with exercise prices less than the average market price
of our common stock for the period, to the extent their inclusion would be dilutive. Stock options and other stock
awards that contain performance conditions are not included in the calculation of common stock equivalents until
performance conditions have been achieved.
Foreign Currency Translation
Our international subsidiaries primarily use local currencies as the functional currency and translate their assets
and liabilities at the current rate of exchange in effect at the balance sheet date. Revenue and expenses from their
operations are translated using the monthly average exchange rates in effect for the period in which the
transactions occur. The resulting gains and losses from translation are recorded in accumulated OCI in the
Consolidated Statements of Stockholders’ Equity. Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the local functional currency are included in the
Consolidated Statements of Income. The amounts of net foreign exchange gains and losses included in the
Consolidated Statements of Income were as follows:
Fiscal Year
($ in millions) 2010 2009 2008
Foreign exchange loss ................................................................... $(3) $(6) $(13)
The foreign exchange losses above included amounts for changes in the fair value and the settlements of certain
derivative financial instruments as follows:
Fiscal Year
($ in millions) 2010 2009 2008
Gain (loss) for changes in the fair value and the settlements of certain derivative financial
instruments.......................................................................... $(2) $(4) $51
46 Gap Inc. Form 10-K