The Gap 2009 Annual Report Download - page 68

The Facility and letter of credit agreements contain financial and other covenants, including but not limited to
limitations on liens and subsidiary debt as well as the maintenance of two financial ratios—a fixed charge
coverage ratio and a leverage ratio. Violation of these covenants could result in a default under the Facility and
letter of credit agreements, which would permit the participating banks to terminate our ability to access the
Facility for letters of credit and advances, terminate our ability to request letters of credit under the letter of credit
agreements, require the immediate repayment of any outstanding advances under the Facility, and require the
immediate posting of cash collateral in support of any outstanding letters of credit under the letter of
credit agreements.
Note 7. Fair Value Measurements
Financial Assets and Liabilities
Financial assets and liabilities measured at fair value on a recurring basis are as follows:
Fair Value Measurements at Reporting Date Using
($ in millions) January 30, 2010
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Derivative financial instruments ............ $ 9 $— $ 9 $—
Deferred compensation plan assets ......... 21 21 — —
Total ..................................... $30 $ 21 $ 9 $—
Liabilities:
Derivative financial instruments ............ $27 $— $ 27 $—
Fair Value Measurements at Reporting Date Using
($ in millions) January 31, 2009
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Derivative financial instruments ............ $ 87 $— $ 87 $—
Deferred compensation plan assets ......... 18 18 — —
Total ..................................... $105 $ 18 $ 87 $—
Liabilities:
Derivative financial instruments ............ $ 52 $— $ 52 $—
Derivative financial instruments primarily include foreign exchange forward contracts. The principal currencies
hedged against changes in the U.S. Dollar are Euro, British pounds, Japanese yen, and Canadian dollars. The fair
value of the Company’s derivative financial instruments is determined using pricing models based on current
market rates. Derivative financial instruments in an asset position are recorded in other current assets or other
long-term assets in the Consolidated Balance Sheets. Derivative financial instruments in a liability position are
recorded in accrued expenses and other current liabilities or lease incentives and other long-term liabilities in the
Consolidated Balance Sheets.
We maintain deferred compensation plans which allow eligible employees and non-employee members of the
Board of Directors to defer compensation up to a maximum amount. Plan investments are recorded at market
value and are designated for the deferred compensation plans. The fair value of the Company’s deferred
compensation plan assets is determined based on quoted market prices, and the assets are recorded in other
long-term assets in the Consolidated Balance Sheets.
52 Gap Inc. Form 10-K