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occupancy expenses 1,568,921 62.3% 1,241,243 64.2% 1,046,236 65.9%
Operating expenses 575,686 22.9% 454,180 23.4% 364,101 22.9%
Interest expense (net) 3,523 .1% 1,435 .1% 2,760 .2%
Hemisphere closure ” ” ” ” 10,785 .7%
Earnings before income
taxes 370,763 14.7% 236,922 12.3% 162,714 10.3%
Income taxes 140,890 5.6% 92,400 4.8% 65,086 4.1%
Net earnings $ 229,873 9.1% $ 144,522 7.5% $ 97,628 6.2%




The Gap
Weighted average number
of shares 142,139,577 141,500,888 141,080,200
Earnings per share $ 1.62 $ 1.02 $ .69

See notes to consolidated ¬nancial statements.
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CONSOLIDATED BALANCE SHEETS

($000) February 1, 1992 February 2, 1991

ASSETS
Current Assets
Cash and equivalents $192,585 $66,716
Accounts receivable 7,962 9,609
Merchandise inventory 313,899 247,462
Prepaid expenses and other 51,402 41,268
Total Current Assets 565,848 365,055

Property and Equipment
Leasehold improvements 394,835 289,266
Furniture and equipment 255,665 178,109
Construction-in-progress 86,967 60,992
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737,467 528,367
Accumulated depreciation and amortization (189,727) (144,819)
547,740 385,548
Lease rights and other assets 33,826 28,297
Total Assets $1,147,414 $776,900

LIABILITIES AND STOCKHOLDERS™ EQUITY
Current Liabilities
Accounts payable $ 158,317 $115,282
Accrued expenses 135,333 102,341
Income taxes payable 32,104 32,725
Current installments on long-term debt 2,500 12,500
Other current liabilities 2,057 689
Total Current Liabilities 330,311 263,537

Long-Term Liabilities
Long-term debt 77,500 5,000
Other liabilities 16,773 18,945
Deferred lease credits 45,042 23,685
139,315 47,630
Stockholders™ Equity
Common stock $.05 par value
Authorized 240,000,000 shares; issued 153,007,862 and 151,708,098
shares; outstanding 142,523,334 and 141,264,030 shares 7,650 7,585
Additional paid-in capital 124,683 91,185
Retained earnings 654,858 466,111
Foreign currency translation adjustment 575 5,667
Restricted stock plan deferred compensation (17,524) (13,365)
Treasury stock, at cost (92,454) (91,450)
677,788 465,733
Total Liabilities and Stockholders™ Equity $1,147,414 $776,900

See notes to consolidated ¬nancial statements.
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Prospective Analysis: Valuation Implementation




CONSOLIDATED STATEMENTS OF CASH FLOWS


Fiscal 1991 Fiscal 1990 Fiscal 1989
($000) 52 Weeks 52 Weeks 53 Weeks

Cash Flows from Operating Activities
Net earnings $229,873 $144,522 $ 97,628
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization 82,133 61,473 43,769
Hemisphere closure ” ” 6,522
Deferred income taxes (7,045) (5,637) (4,134)
Change in operating assets and liabilities
Accounts receivable 1,643 (3,807) 108
Merchandise inventory (66,559) (3,980) (50,214)
Prepaid expenses and other (5,557) (2,969) (15,953)




The Gap
Accounts payable 43,220 20,481 12,897
Accrued expenses 33,417 26,910 19,393
Income taxes payable (574) 18,022 (27)
Other current liabilities 1,368 (26) 13
Other long-term liabilities 420 (2,802) 3,910
Deferred lease credits 21,357 4,705 4,181
Net cash provided by operating activities 333,696 256,892 118,093

Cash Flows from Investing Activities
Net purchases of property and equipment (236,521) (193,734) (88,398)
Net lease rights (7,802) (5,883) (5,868)
Other assets (1,382) 1,423 10,628
Net cash used for investing activities (245,705) (198,194) (83,638)

Cash Flows from Financing Activities
Issuance of long-term debt 75,000 ” ”
Payments on long-term debt (12,500) (2,500) (2,000)
Issuance of common stock 20,036 10,189 4,262
Repurchase of common stock ” ” (213)
Purchase of treasury stock (1,004) (10,076) (21,446)
Cash dividends paid (41,126) (29,625) (22,857)
Net cash provided by (used for) ¬nancing activities 40,406 (32,012) (42,254)
Effect of exchange rate changes on cash (2,528) 1,245 219
Net increase (decrease) in cash and equivalents 125,869 27,931 (7,580)
Cash and equivalents at beginning of year 66,716 38,785 46,365
Cash and equivalents at end of year $192,585 $ 66,716 $ 38,785

See notes to consolidated ¬nancial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Fifty-Two Weeks ended February 1, 1992 Earnings per share are based upon the weighted
(Fiscal 1991), the Fifty-Two Weeks ended February 2, average number of shares of common stock out-
1991 (Fiscal 1990) and the Fifty-Three Weeks ended standing during the period.
February 3, 1990 (Fiscal 1989). Certain reclassi¬cations have been made to the
1990 and 1989 ¬nancial statements to conform
NOTE A: SUMMARY OF SIGNIFICANT with the classi¬cations used in the 1991 ¬nancial
ACCOUNTING POLICIES statements.
The Company is an international specialty retailer
NOTE B: LONG-TERM DEBT AND OTHER
selling casual and contemporary apparel. The con-
CREDIT ARRANGEMENTS
solidated ¬nancial statements include the accounts
of the Company and its subsidiaries. Intercompany Long-Term Debt
accounts and transactions have been eliminated.
Cash and equivalents represent cash and short- ($000) Feb. 1, 1992 Feb. 2, 1991
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term, highly liquid investments with maturities of 8.87% Senior Notes, due February
three months or less. 1995 $75,000 $ ”
Term Loan Agreement, unsecured,
Merchandise inventory is stated at the lower of
due in equal annual installments
FIF0 (¬rst-in, ¬rst-out) cost or market. through July 1993 5,000 7,500
Property and equipment are stated at cost. Depre- 9.46% unsecured Term Loan due
August 1991 ” 10,000
ciation and amortization are computed using the
80,000 17,500
straight-line method over the estimated useful lives
Less current installments (2,500) (12,500)
of the related assets or lease terms, whichever is $77,500 $ 5,000
less.
Lease rights are recorded at cost and are amor-
Interest on the Senior Notes is payable quarterly.
tized over 12 years or the lives of the respective
The Senior Notes are redeemable, in whole or in
leases, whichever is less.
part, at anytime after February 22, 1993, at the
Costs associated with the opening of new stores
option of the Company.
are charged against earnings as incurred.
Interest on the Term Loan Agreement is at prime
Deferred taxes are provided for those items
plus one-quarter of 1% or at LIBOR plus three-quar-
reported in different periods for income tax and
ters of 1%, at the Company™s option.
¬nancial statement purposes. Tax credits reduce the
current provision for income taxes in the year they
Other Credit Arrangements
are realized. The Company is required to adopt
The Company has a credit agreement with a syndi-
Statement of Financial Accounting Standards No.
cated bank group which provides for a $250 million
109, Accounting for Income Taxes, during ¬scal
revolving credit facility until March 2, 1995 at which
1993. The impact on the current ¬nancial state-
time any outstanding borrowings can be converted
ments would have been immaterial if early adoption
to a four-year term loan. The revolving credit facility
had been elected.
contains both auction and ¬xed spread borrowing
Foreign currency translation adjustments result
options and serves as a back-up for the issuance of
from translating foreign subsidiaries™ assets and lia-
commercial paper. In addition, the credit agreement
bilities to U.S. dollars using the exchange rates in
provides for the issuance of letters of credit during
effect at the balance sheet date. Resulting transla-
the three-year revolving period of up to $300 mil-
tion adjustments are included in stockholders™
lion at any one time.
equity. Results of foreign operations are translated
At February 1,1992, the Company had outstand-
using the average exchange rates during the period.
ing letters of credit totaling $148,634,000.
Restricted stock awards represent deferred com-
pensation and are shown as a reduction of stock- Borrowings under the Company™s loan and credit
holders™ equity. agreements are subject to the Company maintain-
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ing certain levels of tangible net worth and ¬nancial In ¬scal 1990 and 1989, accelerated depreciation
ratios. Under the most restrictive covenant of these decreased deferred tax assets by $4,719,000 and
agreements, $376,918,000 of retained earnings $2,797,000. In ¬scal 1989, deferred compensation
were available for the payment of cash dividends at increased deferred tax assets by $4,547,000.
February 1, 1992. Income tax payments were $135,370,000,
Gross interest payments were $7,593,000, $74,790,000 and $73,682,000 in ¬scal
$4,477,000 and $4,501,000 in ¬scal 1991,1990 1991,1990 and 1989.
and 1989.
NOTE D: LEASES
NOTE C: INCOME TAXES
The Company leases substantially all of its store pre-
Income taxes consisted of the following: mises, distribution and of¬ce facilities.
Leases relating to store premises, distribution and
Fiscal 1991 Fiscal 1990 Fiscal 1989 of¬ce facilities expire at various dates through 2025.
($000) 52 Weeks 52 Weeks 53 Weeks
The aggregate minimum annual lease payments
under leases in effect on February 1, 1992 are as




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