The Gap 2013 Annual Report Download - page 69

Download and view the complete annual report

Please find page 69 of the 2013 The Gap annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 110

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110

45
Pre-Opening Costs
Pre-opening and start-up activity costs, which include rent and occupancy, supplies, advertising, and payroll
expenses incurred prior to the opening of a new store or other facility, are expensed in the period in which they
occur.
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 costs, are expensed when the advertising event takes place. Advertising expense was $637 million,
$653 million, and $548 million in fiscal 2013, 2012, and 2011, respectively, and is recorded in operating expenses
in the Consolidated Statements of Income.
Prepaid catalog expense consists of the cost to prepare, print, and distribute catalogs. Such costs are amortized
over their expected period of future benefit, which is approximately one to eight months.
Share-Based Compensation
Share-based compensation expense for stock options and other stock awards is determined based on the grant-
date fair value. We use the Black-Scholes-Merton option-pricing model to determine the fair value of stock
options, which requires the input of subjective assumptions regarding the expected term, expected volatility,
dividend yield, and risk-free interest rate. For units granted whereby one share of common stock is issued for
each unit as the unit vests (“Stock Units”), the fair value is determined based on the Company’s stock price on the
date of grant less future expected dividends during the vesting period. For stock options and Stock Units, we
recognize share-based compensation cost net of estimated forfeitures and revise the estimates in subsequent
periods if actual forfeitures differ from the estimates. We estimate the forfeiture rate based on historical
experience as well as expected future behavior. Share-based compensation expense is recorded primarily in
operating expenses in the Consolidated Statements of Income over the period during which the employee is
required to provide service in exchange for stock options and Stock Units.
Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers
Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The
liability is relieved and net sales are recorded upon redemption by the customer. Over time, some portion of these
instruments is not redeemed. We determine breakage income for gift cards, gift certificates, and credit vouchers
based on historical redemption patterns. Breakage income is recorded in other income, which is a component of
operating expenses in the Consolidated Statements of Income, when we can determine the portion of the liability
where redemption is remote. Based on our historical information, three years after the gift card, gift certificate, or
credit voucher is issued, we can determine the portion of the liability where redemption is remote. When breakage
income is recorded, a liability is recognized for any legal obligation to remit the unredeemed portion to relevant
jurisdictions. Substantially all of our gift cards, gift certificates, and credit vouchers have no expiration dates.