The Gap 2011 Annual Report Download - page 83

In January 2006, we entered into a non-exclusive services agreement with IBM under which IBM operates certain
significant aspects of our IT infrastructure. The services agreement expires in March 2016, and we have the right to
renew it for up to three additional years. We have various options to terminate the agreement, and we pay IBM a
combination of fixed and variable charges, with the variable charges fluctuating based on our actual consumption
of services. IBM also has certain termination rights in the event of our material breach of the agreement and
failure to cure. We paid $107 million, $118 million, and $120 million to IBM for fixed charges in fiscal 2011, 2010, and
2009, respectively. Based on the current projection of service needs, we expect to pay approximately $388 million
to IBM over the remaining term of the contract.
We have assigned certain store and corporate facility leases to third parties as of January 28, 2012. Under these
arrangements, we are secondarily liable and have guaranteed the lease payments of the new lessees for the
remaining portion of our original lease obligations at various dates through 2017. The maximum potential amount
of future lease payments we could be required to make under these guarantees is approximately $5 million as of
January 28, 2012. We recognize a liability for such guarantees when events or changes in circumstances indicate
that the loss is probable and the amount of such loss can be reasonably estimated. There was no liability recorded
for the guarantees as of January 28, 2012 or January 29, 2011.
We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other
party for certain matters. These contracts primarily relate to our commercial contracts, operating leases,
trademarks, intellectual property, financial agreements, and various other agreements. Under these contracts, we
may provide certain routine indemnifications relating to representations and warranties (e.g., ownership of assets,
environmental or tax indemnifications), or personal injury matters. The terms of these indemnifications range in
duration and may not be explicitly defined. Generally, the maximum obligation under such indemnifications is not
explicitly stated, and as a result, the overall amount of these obligations cannot be reasonably estimated.
Historically, we have not made significant payments for these indemnifications. We believe that if we were to
incur a loss in any of these matters, the loss would not have a material effect on our financial position, results of
operations, or cash flows taken as a whole.
In January 2012, we were released from our reinsurance pool for workers’ compensation, general liability, and
automobile liability and no longer have any obligations as of January 28, 2012.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims (“Actions”)
arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are
subject to uncertainties. As of January 28, 2012, actions filed against us included commercial, intellectual property,
customer, employment, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek
unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in
part by insurance. As of January 28, 2012 and January 29, 2011, we recorded a liability for the estimated loss if the
outcome of an Action is expected to result in a loss that is considered probable and reasonably estimable. The
amount of liability as of January 28, 2012 and January 29, 2011 was not material for any individual Action or in
total. Subsequent to January 28, 2012 and through our filing date of March 26, 2012, no information has become
available that indicates a material change to our estimate is required.
We cannot predict with assurance the outcome of Actions brought against us. Accordingly, developments,
settlements, or resolutions may occur and impact income in the quarter of such development, settlement, or
resolution. However, we do not believe that the outcome of any current Action would have a material effect on our
financial position, results of operations, or cash flows taken as a whole.
Note 15. Segment Information
We identify our operating segments according to how our business activities are managed and evaluated. All of
our operating segments sell a group of similar products – apparel, accessories, and personal care products. We
have two reportable segments:
• Stores – The Stores reportable segment includes the results of the retail stores for Gap, Old Navy, and
Banana Republic. We have aggregated the results of all Stores operating segments into one reportable segment
because the operating segments have similar economic characteristics.
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