The Gap 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
    ...-shops,฀art฀exhibits,฀travel,฀...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฀for฀Spring:฀฀ Banana฀Republic...

  • 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
    ... 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฀Online 10฀years First...

  • Page 5
    ... 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฀week...

  • Page 6
    ...are฀Gap฀Inc. From฀stores฀and฀offices฀around฀the฀globe,฀we฀sent฀our฀signatures฀to฀be฀a฀part฀฀ of฀this฀annual฀report.฀We฀are฀approximately฀150,฀000฀employees฀in฀more฀than฀฀ 3,100฀stores.฀While฀we฀each฀have฀our฀own฀story...

  • Page 7
    ...more฀disciplined฀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...

  • Page 8
    Outlet The฀Outlet฀division,฀comprised฀of฀Gap฀Outlet฀and฀Banana฀Republic฀Factory฀Stores,฀delivered฀solid฀results฀฀ for฀the฀company.฀Displaying฀an฀agile฀and฀innovative฀approach,฀this฀team฀pioneered฀the฀outlet฀business฀ years฀ago.฀Today...

  • Page 9
    ...Street San Francisco, California (Address of principal executive offices) 94105 (Zip code) THE GAP, INC. Registrant's telephone number, including area code: (650) 952-4400 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.05 par value New York Stock Exchange, Inc. (Title...

  • Page 10
    ... 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) capital expenditures (net purchases of property and equipment) in fiscal...

  • Page 11
    ...the size and location of the store. Our stores generally are open seven days per week (where permitted by law) and most holidays. All sales are tendered for cash, personal checks, debit cards, or credit cards. We also issue and redeem gift cards through our brands. Gap, Banana Republic, and Old Navy...

  • Page 12
    .... Trademarks and Service Marks Gap, GapKids, babyGap, GapBody, Banana Republic, Old Navy, and Piperlime trademarks and service marks, and certain other trademarks, have been registered, or are the subject of pending trademark applications with the United States Patent and Trademark Office and...

  • Page 13
    ...market segments; developing innovative, high-quality products in sizes, colors and styles that appeal to consumers of varying age groups and tastes; sourcing merchandise efficiently; competitively pricing our products and achieving customer perception of value; Our business is sensitive to a number...

  • Page 14
    ... vendors might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. Any delays, interruption or increased costs in the manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for...

  • Page 15
    ... office space located in San Francisco, San Bruno and Rocklin, California, of which approximately 184,000 square feet is leased to another company. We lease approximately 1.2 million square feet of headquarters office space located in San Francisco, San Bruno and Rocklin, California; New York, New...

  • Page 16
    ...per square foot ...Working capital ...Total long-term debt and senior convertible 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...

  • Page 17
    .... Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW 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...

  • Page 18
    ... 28, 2006 Gap Old Navy Banana Republic Other (2) Total U.S. (1) ...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...

  • Page 19
    ... the Gap and Old Navy brands which did not perform to our expectations. Our total non-comparable store sales increase was due to the 194 new store openings and the additional week of sales in fiscal 2006. Our overall net square footage increased 2.9 percent over the prior year and sales productivity...

  • Page 20
    ... the adoption of Statement of Financial Accounting Standards No. ("SFAS") 123(R), "Share-Based Payment", in the first quarter of fiscal 2006; $26 million in increased impairment of long-lived assets; offset by 52 Weeks Ended February 2, 2008 53 Weeks Ended February 3, 2007 52 Weeks Ended January 28...

  • Page 21
    ... in fiscal 2006. For fiscal 2008, we expect capital expenditures to be about $500 million. We expect to open about 115 new store locations and to close about 100 store locations. These openings and closings include 15 store repositions. As a result, we expect net square footage to increase less than...

  • Page 22
    ... these Fisher family members. The following discussion should be read in conjunction with Note 5 of Notes to the Consolidated Financial Statements. Trade letters of credit represent a payment undertaking guaranteed by a bank on our behalf to pay the vendor a given amount of money upon presentation...

  • Page 23
    ...The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In...

  • Page 24
    ... the contractual rent obligations and the rate at which we expect to be able to sublease the properties. We estimate the reserve based on the status of our efforts to lease vacant office space and stores, including a review of real estate market conditions, our projections for sublease income and...

  • Page 25
    ... 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 fluctuations. Our risk management policy is...

  • Page 26
    ... Share-Based Payment, on January 29, 2006 and Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No.109, on February 4, 2007. /s/ Deloitte & Touche LLP Report of Independent Registered Public Accounting Firm...

  • Page 27
    ... per share amounts) 52 Weeks Ended February 2, 2008 53 Weeks Ended February 3, 2007 52 Weeks Ended January 28, 2006 ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Restricted cash ...Merchandise inventory ...Other current assets ...Total current assets ...Property and...

  • 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
    ...Inc. (the "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...

  • Page 30
    ...; production costs; insurance costs related to merchandise; and occupancy, rent, common area maintenance, real estate taxes, utilities, and depreciation for our stores and distribution centers. Operating expenses include payroll and related benefits (for our store operations, field management...

  • Page 31
    ... the contractual rent obligations and the rate at which we expect to be able to sublease the properties. We estimate the reserve based on the status of our efforts to lease vacant office space and stores, including a review of real estate market conditions, our projections for sublease income and...

  • Page 32
    ... and an increase of $89 million to short-term and long-term income tax liabilities as of February 4, 2007. At the beginning of fiscal year 2007, the Company had approximately $135 million of total gross unrecognized tax benefits. Of this total, $50 million (net of the federal benefit on state issues...

  • Page 33
    ... 2, 2008 ... $ 63 84 $147 $ 14 (36) $(22) $ 77 48 $125 Accrued compensation and benefits ...Unredeemed gift cards ...Deferred rent and tenant allowances ...Workers' compensation ...Accrued advertising ...General liability insurance ...Sales return allowance ...Credit card rewards ...Other current...

  • Page 34
    ... vacant office space and stores, including a review of real estate market conditions, our projections for sublease income and sublease commencement assumptions. Sublease losses (reversals) are included in operating expenses in our Consolidated Statements of Earnings. In each of fiscal 2007 and 2006...

  • 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
    ... January 26, 2006, we accelerated the vesting of all stock options with an exercise price equal to or greater than $21 per share except options held by non-employee directors and performance-based options to purchase 1 million shares granted to our former Chief Executive Officer. Options to purchase...

  • Page 37
    ...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 target will be achieved. The weighted-average fair value of stock options granted during fiscal 2007...

  • Page 38
    ... 1, 2006, eligible U.S. employees are able to purchase our common stock at 85 percent of 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...

  • 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
    ... Statements of Earnings was $2 million. As of February 2, 2008, the Company had total accrued interest related to the unrecognized tax benefits of $32 million. The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state...

  • Page 41
    ... Fisher, Director, and Donald G. Fisher a total of approximately 26,000 square feet of space in our One Harrison and Two Folsom San Francisco headquarter locations to display portions of their personal art collection. The agreements provide for base rent ranging from $30.00 to $42.35 per square foot...

  • Page 42
    ... engaged in selling retail apparel through stores in North America, Europe and Asia. We identify our operating segments according to how operations are managed. Our operating segments include Gap North America, Banana Republic North America, Old Navy North America, Europe, Asia, Outlet and Direct...

  • Page 43
    ...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 (a): Earnings from continuing...

  • Page 44
    ..." in the 2008 Proxy Statement. See also Part I, Item 1 above in the section entitled "Executive Officers of the Registrant." The Company has adopted a code of ethics, our Code of Business Conduct, that applies to all employees including our principal executive officer, principal financial officer...

  • Page 45
    ... 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 on behalf of the registrant and in the capacities and on the dates indicated. Date: March 28, 2008 By...

  • Page 46
    ..., 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, the...

  • Page 47
    ... 3, 2001, 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...

  • Page 48
    ...November 3, 2007, Commission File No. 1-7562. Form of Performance Share Agreement under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.3 to Registrant's Form 10-Q for the quarter ended November 3, 2007, Commission File No. 1-7562. Form of Director Stock Unit Agreement and Stock Unit Deferral...

  • Page 49
    ... Business Conduct, filed as Exhibit 14 to Registrant's Form 10-K for the year ended January 28, 2005, Commission File No. 1-7562. Subsidiaries of Registrant Consent of Independent Registered Public Accounting Firm Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc...

  • Page 50
    ...Carter Gap฀Inc.฀Real฀Estate฀Project฀Coordinator 3฀ V฀ years Brent฀Kawahara Banana฀Republic฀Senior฀Director฀ Product฀Management฀for฀Men,฀฀ Global฀&฀Japan 14฀ years Alicia฀Peat Gap฀Store฀Customer฀Experience฀Manager,฀฀ San฀Francisco฀ 9฀ years...

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