Banana Republic 2007 Annual Report Download

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We฀are฀Gap฀Inc.
2007฀Annual฀Report

Table of contents

  • Page 1
    We฀are฀Gap฀Inc. 2007฀Annual฀Report

  • Page 2
    ...฀kids฀to฀say฀"hey,฀cool!"฀ That's฀the฀fantastic฀thing฀about฀Gap฀brand;฀it฀makes฀both฀moms฀and฀ kids฀feel฀and฀look฀great.฀ ฀-฀Jennifer฀Giangualano Thomasine฀Dolan Banana฀Republic฀Jewelry฀Design฀Director฀ 13฀years Must-have฀jewelry...

  • Page 3
    ...฀Castro Banana฀Republic฀Store฀General฀Manager,฀New฀York฀City฀ 8฀years Personal฀motto:฀If฀you฀dress฀well,฀you฀feel฀good฀about฀yourself Lisa฀Mansi Gap฀Inc.฀Franchise฀Sales฀Specialist 1฀ V฀years Introduced฀Gap฀and฀Banana฀Republic฀to...

  • Page 4
    ...฀shopping฀during฀฀ a฀busy฀day. ฀-฀Heike฀Rapp-Wurm Johana฀Ozuna Banana฀Republic฀Factory฀Store฀฀ Senior฀Production฀Manager 4฀years Favorite฀item฀she฀helped฀create:฀฀ Fabulous฀silk฀charmeuse฀dress Heike฀Rapp-Wurm Old฀Navy฀Creative฀Director...

  • Page 5
    ...฀Chang Banana฀Republic฀Creative฀Director฀Online 21฀years Started฀as฀illustrator฀for฀Banana฀Republic฀safari฀catalogs Arthur฀Lewis Old฀Navy฀Senior฀Vice฀President฀of฀Women's฀Merchandising 9฀years Best฀part฀of฀his฀job...he฀gets฀to฀shop฀every...

  • Page 6
    ...part฀฀ of฀this฀annual฀report.฀We฀are฀approximately฀150,฀000฀employees฀in฀more฀than฀฀ 3,100฀stores.฀While฀we฀each฀have฀our฀own฀story,฀our฀goal฀is฀the฀same:฀to฀bring฀ fresh,฀amazing฀style฀to฀customers฀throughout฀the฀world...

  • Page 7
    ...approach฀to฀managing฀expenses฀and฀inventory฀levels฀while฀returning฀ Old฀Navy฀to฀its฀leadership฀position฀as฀our฀customers'฀first฀choice฀for฀style฀and฀quality฀at฀value฀prices.฀ Banana฀Republic At฀its฀core,฀a฀great฀brand฀knows฀itself...

  • Page 8
    ...฀our฀private฀label฀credit฀cards.฀In฀addition,฀our฀first฀online-only฀brand,฀ Piperlime,฀sells฀more฀than฀200฀brands฀of฀shoes,฀recently฀celebrated฀its฀one-year฀anniversary฀and฀adds฀new฀ customers฀every฀day.฀In฀2008,฀we฀will฀continue...

  • Page 9
    ...IV Item฀15.฀฀ Exhibits฀and฀Financial฀Statement฀Schedules฀ ...฀71 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) È Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended February...

  • Page 10
    ... expense for fiscal 2008; (xv) effective tax rate for fiscal 2008; (xvi) cash flow from operations and existing capital resources being adequate to satisfy our capital needs; (xvii) number of new store openings and store closings in fiscal 2008; (xviii) net square footage change in fiscal 2008; (xix...

  • Page 11
    ...We are a global specialty retailer operating retail and online stores selling casual apparel, accessories, and personal care products for men, women and children under the Gap, Old Navy, Banana Republic, and Piperlime brands. We operate stores in the United States, Canada, the United Kingdom, France...

  • Page 12
    ..., Canada's largest retail drug store group, from 2001 to 2007. Art Peck, 52, Executive Vice President, Strategy and Operations since May 2005; Acting President, Gap Inc. Outlet since February 2008; Senior Vice President of The Boston Consulting Group, an international strategy and general management...

  • Page 13
    ... mix of merchandise for our broad and diverse customer base, managing inventory effectively, using more effective pricing strategies, and optimizing store performance by closing under performing stores. Failure to meet the expectations of investors, security analysts or credit rating agencies in...

  • Page 14
    ... expand internationally through franchising or similar arrangements, or a failure to protect the value of our brands or any other acts or omissions by a franchisee, could have an adverse effect on our results of operations or our reputation. Our products are subject to risks associated with...

  • Page 15
    ... Not applicable. PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The principal market on which our stock is traded is the New York Stock Exchange. The number of holders of record of our stock as of March 21, 2008 was...

  • Page 16
    ... notes, less current maturities (d) ...Stockholders' equity ...Other Data ($ and square footage in millions) Purchase of property and equipment ...Number of new store locations opened ...Number of store locations closed ...Number of store locations open at year-end ...Percentage increase (decrease...

  • Page 17
    ... are a global specialty retailer operating retail and online stores selling casual apparel, accessories, and personal care products for men, women, and children under the Gap, Old Navy, Banana Republic, and Piperlime brands. We operate stores in the United States, Canada, the United Kingdom, France...

  • Page 18
    ...Canada ...Europe ...Asia ...Other (2) ...Total ...Global Sales Growth (Decline) ... Stores Direct (Online) In fiscal 2007, we focused on three critical areas to restore the health of the Company: simplifying the business and holding each brand accountable to its priorities, managing our inventory...

  • Page 19
    ..., we review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes) and use markdowns to clear the majority of this merchandise. Gap North America ...Gap Europe ...Gap Asia ...Old Navy North America ...Banana...

  • Page 20
    ...related benefits (for our store operations, field management, distribution centers, and corporate functions); advertising; general and administrative expenses; costs to design and develop our products; merchandise handling and receiving in distribution centers and stores; distribution center general...

  • Page 21
    ...flows is cash collections from our customers. Our primary uses of cash include merchandise inventory purchases, personnel related expenses, and payment of taxes and occupancy. In fiscal 2007, net cash provided by operating activities increased $831 million compared with fiscal 2006, primarily due to...

  • Page 22
    ... family whose ownership represented approximately 17 percent of the Company's outstanding shares at the end of the second quarter of fiscal 2007. The shares were purchased each month at the same weighted-average market price that we paid for share repurchases in the open market. During fiscal 2007...

  • Page 23
    ... Balance Sheet as of February 2, 2008. (d) Maintenance, insurance, taxes, and contingent rent obligations are excluded. See Note 10 of Notes to the Consolidated Financial Statements for discussion of our operating leases. (e) Represents estimated open purchase orders to purchase inventory...

  • Page 24
    ...accounting policy for the Company. We recognize revenue and the related cost of goods sold at the time the products are received by the customers. For store sales, revenue is recognized when the customer receives and pays for the merchandise at the register, primarily with either cash or credit card...

  • Page 25
    ... dates of adoption and estimated effects on our financial position, statement of cash flows and results of operations. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate...

  • Page 26
    ... FINANCIAL STATEMENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Gap, Inc.: We have audited the accompanying consolidated balance sheets of The Gap, Inc. and subsidiaries (the "Company") as of February 2, 2008 and February 3, 2007...

  • Page 27
    ... SHEETS ($ and shares in millions except par value) February 2, 2008 February 3, 2007 THE GAP, INC. CONSOLIDATED STATEMENTS OF EARNINGS ($ and shares in millions except per share amounts) 52 Weeks Ended February 2, 2008 53 Weeks Ended February 3, 2007 52 Weeks Ended January 28, 2006 ASSETS Current...

  • Page 28
    ...and vesting of stock units ...Excess tax benefit from exercise of stock options and vesting of stock units ...Non-cash and other items ...Deferred income taxes ...Changes in operating assets and liabilities: Merchandise inventory ...Other current assets and other long-term assets ...Accounts payable...

  • Page 29
    ... "Company," "we," "our"), a Delaware Corporation, is a specialty retailer selling casual apparel, accessories and personal care products for men, women and children under a variety of brand names including Gap, Banana Republic, Old Navy, and Piperlime. We operate stores in the United States, Canada...

  • Page 30
    ...related benefits (for our store operations, field management, distribution centers, and corporate functions); advertising; general and administrative expenses; costs to design and develop our products; merchandise handling and receiving in distribution centers and stores; distribution center general...

  • Page 31
    ... our U.S. or Canada 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 any place that accepts VISA credit cards. A third-party financing company is the sole owner of the accounts issued under the Credit Card programs and...

  • Page 32
    ... any new fair value measurements. SFAS 157 will be effective for fiscal 2008 except for certain nonfinancial and lease-related assets and liabilities for which the effective date has been deferred by one year in accordance with FASB Staff Position ("FSP") No. 157-1, "Application of FASB Statement No...

  • Page 33
    ...payable on the Consolidated Balance Sheets, were reclassified to conform to the current year presentation. No other items accounted for greater than five percent of total current liabilities as of February 2, 2008 or February 3, 2007. Lease Incentives and Other Long-Term Liabilities Lease incentives...

  • Page 34
    ... is available for general corporate purposes, including commercial paper backstop, working capital, trade letters of credit and standby letters of credit. The facility usage fees and fees related to the New Facility fluctuate based on our long-term senior unsecured credit ratings and our leverage...

  • Page 35
    ..., except average per share cost) 52 Weeks Ended February 2, 2008 53 Weeks Ended February 3, 2007 52 Weeks Ended January 28, 2006 We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. Our risk management policy is to hedge...

  • Page 36
    ...are granted to officers, directors, eligible employees and consultants at exercise prices or with initial values equal to the fair market value of the stock at the date of grant or as determined by the Compensation and Management Development Committee of the Board of Directors (the "Committee"). The...

  • Page 37
    ... a credit to operating expenses in the first quarter of fiscal 2006. We evaluate the probability that the Performance Shares will vest at the end of each reporting period. We record share-based compensation cost based on the grant-date fair value and the probability that the pre-determined financial...

  • Page 38
    ... the closing price on the New York Stock Expected term (in years) ...Expected volatility ...Dividend yield ...Risk-free interest rate ... 0.5 25.1% 1.4% 4.8% 0.5 21.8% 0.8% 4.1% The average discounted price of ESPP purchases in fiscal 2007 was $16.34 per share. The weighted-average fair value of...

  • Page 39
    ... For financial reporting purposes, earnings from continuing operations before income taxes include the following components: ($ in millions) 52 Weeks Ended February 2, 2008 53 Weeks Ended February 3, 2007 52 Weeks Ended January 28, 2006 February 2, 2008 February 3, 2007 United States ...Foreign...

  • Page 40
    ...of limitation in fiscal 2007. The impact of the decrease on our effective tax rate was not material. The following table summarizes the activity related to our unrecognized tax benefits: ($ in millions) Balance at February 4, 2007 ...Increases related to current year tax positions ...Prior year tax...

  • Page 41
    ...2007. The shares were purchased each month at the same weighted-average market price that we paid for share repurchases in the open market. During fiscal 2007, we repurchased approximately 13 million shares of our common stock for a total cost of $249 million from the Fisher family. In February 2008...

  • Page 42
    ... include Gap North America, Banana Republic North America, Old Navy North America, Europe, Asia, Outlet and Direct. Our stores sell merchandise under the Gap, Old Navy, and Banana Republic brand names. We consider our operating segments to be similar in terms of economic characteristics, production...

  • Page 43
    ..., the Company's internal control over financial reporting. Item 9B. Other Information Not applicable. Net sales ...Gross profit ...Earnings from continuing operations, net of income taxes ...Loss from discontinued operation, net of income tax benefit ...Net earnings ...Basic earnings per share...

  • Page 44
    ...entitled "Compensation of Directors," "Corporate Governance-Compensation and Management Development Committee" and "Executive Compensation and Related Information" in the 2008 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The...

  • Page 45
    ...) Date: March 28, 2008 By /s/ SABRINA L. SIMMONS Sabrina L. Simmons Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons...

  • Page 46
    ... 21, 2001, between Registrant and The Bank of New York, filed as Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the year ended February 2, 2002, Commission File No. 1-7562. Credit Agreement, dated as of August 30, 2004, among The Gap, Inc., the LC Subsidiaries, the Subsidiary Borrowers...

  • Page 47
    ...Commission File No. 1-7562. Non-Employee Director Retirement Plan, dated October 27, 1992, filed as Exhibit 10.43 to Registrant's Annual Report on Form 10-K for the year ended January 30, 1993, Commission File No. 1-7562. Statement Regarding Non-Employee Director Retirement Plan, filed as Exhibit 10...

  • Page 48
    ... of Stock Unit Agreement and Stock Unit Deferral Election Form for Nonemployee Directors under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.2 to Registrant's Form 10-Q for the quarter ended July 29, 2006, Commission File No. 1-7562. Form of Performance Share Agreement for Executives under...

  • Page 49
    ...Shop฀ International฀plc,฀a฀personal฀care฀retailer,฀since฀2002.฀Chairman฀ of฀Reckitt฀Benckiser฀plc.฀Director฀of฀Williams-Sonoma,฀Inc.฀ Lead฀Independent฀Director฀since฀2002.฀Chief฀Executive฀฀ Officer฀(part-time)฀of฀Mcon฀Management฀Services...

  • Page 50
    ...LLP฀ San฀Francisco,฀CA Fiscal฀2008฀Earnings฀Release฀Dates Trading฀Symbol฀"GPS"฀/฀New฀York฀Stock฀Exchange Annual฀Shareholders'฀Meeting Bo฀Woodward Maintenance฀Mechanic฀฀ for฀the฀Fresno฀Distribution฀Center 7฀ V฀ years Hal฀Marz Gap฀Foundation...

  • Page 51
    2฀Folsom฀Street San฀Francisco,฀CA฀฀94105 gapinc.com