The Gap 2010 Annual Report Download - page 72

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Balance Sheets. As of January 29, 2011 and January 30, 2010, the corresponding liabilities relating to the deferred
compensation plan were $27 million and $22 million, respectively, and were recorded in lease incentives and other
long-term liabilities in the Consolidated Balance Sheets. We match all or a portion of employees’ contributions
under a predetermined formula. Plan investments are elected by the participants, and investment returns are not
guaranteed by the Company. Our contributions to the deferred compensation plan in fiscal 2010, 2009, and 2008
were not material.
Note 12. Earnings per Share
Weighted-average number of shares used for earnings per share is as follows:
Fiscal Year
(shares in millions) 2010 2009 2008
Weighted-average number of shares—basic ............................................... 636 694 716
Commonstockequivalents .............................................................. 553
Weighted-average number of shares—diluted ............................................. 641 699 719
The above computations of weighted-average number of shares—diluted exclude 11 million, 25 million, and
31 million shares related to stock options and other stock awards for fiscal 2010, 2009, and 2008, respectively, as
their inclusion would have an antidilutive effect on earnings per share.
Note 13. Commitments and Contingencies
In January 2006, we entered into a non-exclusive services agreement with IBM to operate certain aspects of our
information technology infrastructure. 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 $118 million, $120 million, and $134 million to IBM for fixed charges during
fiscal 2010, 2009, and 2008, respectively. Based on the current projection of service needs, we expect to pay
approximately $486 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 29, 2011. 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 obligations at various dates through 2019. The maximum potential amount
of future lease payments we could be required to make is approximately $21 million as of January 29, 2011. We
recognize a liability for such guarantees when events or changes in circumstances indicate that the loss is probable
and the amount of such loss can be reasonably estimated. There was no liability recorded for the guarantees as of
January 29, 2011. As of January 30, 2010, the carrying amount of the liability related to the guarantees was
approximately $2 million.
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 29, 2011. We are currently in the process of
winding down our participation in the reinsurance pool.
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