The Gap 2007 Annual Report Download - page 10

THE GAP, INC.
2007 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business ......................................................................... 4
Item 1A. Risk Factors ...................................................................... 8
Item1B. UnresolvedStaffComments......................................................... 12
Item2. Properties........................................................................ 12
Item3. LegalProceedings................................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ................................................................ 13
Item 6. Selected Financial Data ............................................................ 15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . 68
Item 9A. Controls and Procedures ........................................................... 68
Item 9B. Other Information ................................................................. 69
PART III
Item 10. Directors, Executive Officers and Corporate Governance ................................. 70
Item 11. Executive Compensation ........................................................... 70
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ........................................................................ 70
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . 70
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
PART IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the “safe harbor” provisions of the
Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are
forward-looking statements. Words such as “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “project,”
and similar expressions also identify forward-looking statements. Forward-looking statements include, but are not
limited to, statements regarding: (i) our plan to continue our investments in advertising and marketing; (ii) our
plans to expand internationally through franchising and similar arrangements; (iii) the expected payments and the
expected benefits, including cost savings, resulting from our services agreement with IBM; (iv) the maximum
potential amount of future lease payments; (v) the outcome of proceedings, lawsuits, disputes and claims;
(vi) future charges related to the closure of Forth & Towne; (vii) driving earnings through inventory discipline which
supports improved gross margins; (viii) continuing cost management; (ix) improving return on invested capital;
(x) continuing to focus on product across all brands; (xi) our commitment to returning excess cash to our
stockholders; (xii) our plan to increase our dividend in fiscal 2008; (xiii) operating margin in fiscal 2008;
(xiv) interest 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) capital expenditures (net
purchases of property and equipment) in fiscal 2008; (xx) net cash provided by operating activities in fiscal 2008;
(xxi) free cash flow in fiscal 2008; (xxii) share repurchases, including repurchases from members of the Fisher
family; (xxiii) the impact of losses due to indemnification obligations; (xxiv) maximum exposure and cash
collateralized balance for reinsurance pool in future periods; (xxv) future lease payments and sublease income;
(xxvi) the assumptions used to value share-based compensation expense; and (xxvii) our intent to use earnings in
foreign operations for an indefinite period or repatriate them only when tax-effective to do so.
Because these forward-looking statements involve risks and uncertainties, there are important factors that could
cause our actual results to differ materially from those in the forward-looking statements. These factors include,
without limitation, the following: the risk that the adoption of new accounting pronouncements will impact future
results; the risk that we will be unsuccessful in gauging fashion trends and changing consumer preferences; the
highly competitive nature of our business in the United States and internationally and our dependence on
consumer spending patterns, which are influenced by numerous other factors; the risk that comparable store
sales and margins will experience fluctuations; the risk that we will be unsuccessful in implementing our strategic,
operating and people initiatives; the risk that adverse changes in our credit ratings may have a negative impact on
our financing costs, structure and access to capital in future periods; the risk that changes to our IT systems may
disrupt our operations; the risk that trade matters, events causing disruptions in product shipments from China
and other foreign countries, or an inability to secure sufficient manufacturing capacity may disrupt our supply
chain or operations; the risk that acts or omissions by the company’s third party vendors could have a negative
impact on the company’s reputation or operations; the risk that we do not repurchase some or all of the shares we
anticipate purchasing pursuant to our repurchase program; the risk that either the company or members of the
Fisher family terminate the repurchase agreements; and the risk that we will not be successful in defending
various proceedings, lawsuits, disputes, claims, and audits; any of which could impact net sales, costs and
expenses, and/or planned strategies. Additional information regarding factors that could cause results to differ can
be found in this Annual Report on Form 10-K and our other filings with the U.S. Securities and Exchange
Commission.
Future economic and industry trends that could potentially impact net sales and profitability are difficult to predict.
These forward-looking statements are based on information as of March 28, 2008 and we assume no obligation
to publicly update or revise our forward-looking statements even if experience or future changes make it clear that
any projected results expressed or implied therein will not be realized.
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