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Currently Payable
follows:
Federal income taxes $125,181 $79,951 $55,236
Less tax credits (6,879) (1,392) (1,282)
118,302 78,559 53,954 Fiscal Year ($000)
State income taxes 24,354 18,011 15,604
1992 $ 143,780
Foreign income taxes 6,733 2,142 1,731
1993 139,434
149,389 98,712 71,289
1994 134,414
Deferred
1995 129,422
Federal (9,920) (5,879) (4,471)
1996 125,761
State 1,421 (433) (1,732)
Thereafter 624,070
(8,499) (6,312) (6,203)
Total minimum lease commitment $1,296,881
Total provision $140,890 $92,400 $65,086


For leases which contain predetermined ¬xed esca-
The foreign component of earnings before income
lations of the minimum rentals, the Company recog-
taxes in ¬scal 1991,1990 and 1989 was
nizes the related rental expense on a straight-line
$31,174,000, $23,377,000 and $11,974,000.
basis and includes the difference between the
Deferred federal and applicable state income taxes,
expense charged to income and amounts payable
net of applicable foreign tax credits, have not been
under the leases in deferred lease credits. At Febru-
provided for the undistributed earnings of foreign
ary 1, 1992 and February 2, 1991, this liability
subsidiaries (approximately $38,791,000 at Febru-
amounted to $27,400,000 and $19,700,000.
ary 1, 1992) because the Company intends to per-
Cash or rent abatements received upon entering
manently reinvest such undistributed earnings
into certain store leases are recognized on a
abroad.
straight-line basis as a reduction to rent expense
The difference between the effective income tax
over the lease term. The unamortized portion is
rate and the United States federal income tax rate is
included in deferred lease credits.
summarized as follows:
Some of the leases relating to stores in operation
at February 1, 1992 contain renewal options for
Fiscal 1991 Fiscal 1990 Fiscal 1989
52 Weeks 52 Weeks 53 Weeks periods ranging up to 20 years. Most leases also
provide for payment of operating expenses, real
Federal tax rate 34.0% 34.0% 34.0%
estate taxes, and for additional rent based on a per-
State income taxes,
less federal bene¬t 4.8 5.1 5.6
centage of sales. No lease directly imposes any
Other (.8) (.1) .4
restrictions relating to leasing in other locations
Effective tax rate 38.0% 39.0% 40.0%
(other than radius clauses).
497
Prospective Analysis: Valuation Implementation




12-37 Part 2 Business Analysis and Valuation Tools




Net rental expense for all operating leases was as
follows:

Fiscal 1991 Fiscal 1990 Fiscal 1989
52 Weeks 52 Weeks 53 Weeks

Minimum rentals $137,721 $106,754 $ 88,386
Contingent rentals 30,473 24,666 20,463
$168,194 $131,420 $108,849




NOTE I: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Fiscal 1991 Quarter Ended
The Gap




($000 except per share amounts) May 4, 1991 Aug. 3, 1991 Nov. 2, 1991 Feb.1, 1992 Fiscal 1991

Net sales $490,300 $523,056 $702,052 $803,485 $2,518,893
Gross pro¬t 183,254 179,413 277,731 309,574 949,972
Net earnings 40,913 34,222 70,796 83,942 229,873
Net earnings per share .29 .24 .50 .59 1.62



Fiscal 1990 Quarter Ended
($000 except per share amounts) May 5, 1990 Aug. 4, 1990 Nov. 3, 1990 Feb. 2, 1991 Fiscal 1990

Net sales $402,368 $404,996 $501,690 $624,726 $1,933,780
Gross pro¬t 132,575 131,127 196,283 232,552 692,537
Net earnings 21,154 19,162 47,726 56,480 144,522
Net earnings per share .15 .14 .33 .40 1.02
498 Prospective Analysis: Valuation Implementation




12-38
Prospective Analysis: Valuation Implementation




EXHIBIT 2
Comparative Five-Year Financial Summaries for The Gap, The Limited, and
Specialty Retailers
THE GAP, INC.
INCOME STATEMENT

($ millions) Jan. 1992 Jan. 1991 Jan. 1990 Jan. 1989 Jan. 1988
..................................................................................................................................................

Sales $2,519 $1,934 $1,587 $1,252 $1,062
Cost of Goods Sold 1,499 1,190 1,008 814 654
Gross Pro¬t 1,020 744 578 438 408
Selling, General, and Administrative
Expense 576 454 364 271 254




The Gap
Operating Income Before
Depreciation 444 290 214 167 154
Depreciation & Amortization 70 51 38 31 25
Operating Pro¬t 374 238 176 136 129
Interest Expense 4 1 3 3 4
Shut-down and Restructuring Costs 0 0 “11 “7 0
Pretax Income 371 237 163 126 125
Total Income Taxes 141 92 65 52 55
Net Income $ 230 $ 145 $ 98 $ 74 $ 70

Earnings per Share $1.62 $1.02 $0.69 $0.51 $0.49
Dividends per Share $0.30 $0.22 $0.17 $0.13 $0.13
..................................................................................................................................................
Note: Depreciation and amortization above is less than that disclosed in The Gap™s cash flow statement because it
excludes amortization of deferred compensation.
499
Prospective Analysis: Valuation Implementation




12-39 Part 2 Business Analysis and Valuation Tools




BALANCE SHEET

($ millions) Jan. 1992 Jan. 1991 Jan. 1990 Jan. 1989 Jan. 1988
..................................................................................................................................................

ASSETS
Cash & Equivalents $ 193 $ 67 $ 38 $ 46 $ 32
Net Receivables 8 10 6 6 9
Inventories 314 248 244 193 195
Other Current Assets 51 41 29 13 23
Total Current Assets 566 365 317 258 259
Gross Plant, Property & Equipment 738 528 352 286 234
Accumulated Depreciation 190 145 114 95 77
Net Plant, Property & Equipment 548 384 238 191 157
Other Assets 34 29 25 32 19
The Gap




TOTAL ASSETS 1,147 777 580 481 434

LIABILITIES
Long-Term Debt Due in One Year 3 13 3 2 2
Notes Payable 0 0 0 0 5
Accounts Payable 158 115 94 81 68
Taxes Payable 32 33 15 15 6
Accrued Expenses 135 102 75 53 47
Other Current Liabilities 2 1 1 1 1
Total Current Liabilities 330 264 187 152 129
Long-Term Debt 78 5 18 20 12
Other Liabilities 62 43 37 33 21
TOTAL LIABILITIES 470 311 242 205 161

EQUITY
Common Stock 8 4 2 2 2
Capital Surplus 125 95 73 57 51
Retained Earnings 638 458 345 277 221
Less: Treasury Stock 93 92 81 60 0
TOTAL EQUITY 678 466 338 276 273
TOTAL LIABILITIES & EQUITY $1,147 $777 $580 $481 $434
..................................................................................................................................................
500 Prospective Analysis: Valuation Implementation




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Prospective Analysis: Valuation Implementation




THE LIMITED, INC.
COMMON SIZE INCOME STATEMENT
Jan. 1992 Jan. 1991 Jan. 1990 Jan. 1989 Jan. 1988
..................................................................................................................................................
Sales 1.000 1.000 1.000 1.000 1.000
CGS 0.658 0.640 0.640 0.654 0.671
Gross Pro¬t 0.342 0.360 0.360 0.346 0.329
SGA 0.193 0.196 0.194 0.200 0.186
Operating Income Before Depreciation 0.149 0.164 0.165 0.146 0.143
Depreciation and Amortization 0.035 0.034 0.034 0.033 0.030
Operating Pro¬t 0.113 0.130 0.132 0.112 0.113
Interest Expense 0.010 0.011 0.012 0.015 0.011
Non-op. and Special Items 0.002 0.002 0.001 “0.002 0.003
Pretax Income 0.105 0.122 0.121 0.095 0.105




The Gap
Income Taxes 0.041 0.047 0.048 0.036 0.040
Minority Interest 0.000 0.000 0.000 0.000 0.000
Income Before Extra Items 0.064 0.074 0.073 0.059 0.065
Extra Items and Discontinued Operations 0.000 0.000 0.000 0.000 0.000
Net Income 0.064 0.074 0.073 0.059 0.065
EBI/Sales 0.070 0.080 0.080 0.068
Asset Turnover 1.997 2.032 2.081 2.226
Leverage = assets/equity (average) 1.830 1.889 2.087 2.228
Net Income/EBI 0.913 0.921 0.909 0.866
ROE = product of above 0.235 0.285 0.317 0.293
ROA = EBI/Assets 0.140 0.163 0.167 0.152
Sustainable Growth 0.175 0.222 0.264 0.241
..................................................................................................................................................
EBI = earnings before interest, net of assumed 40% tax effect.
Sustainable growth rate is equal to ROE, multiplied by earnings retention rate.




SELECTED FINANCIAL STATEMENT DATA
(millions of $) Jan. 1992 Jan. 1991 Jan. 1990 Jan. 1989 Jan. 1988
..................................................................................................................................................
Net Receivables 736 670 596 532 95
Inventory 730 585 482 407 354
Net Property and Equipment 1,657 1,395 1,173 1,067 889
Total Assets 3,419 2,872 2,419 2,146 1,588
Total Equity 1,877 1,560 1,241 946 729
Sales 6,281 5,376 4,750 4,155 3,616
Cost of Goods Sold 4,133 3,440 3,041 2,717 2,426
Selling, General, & Admin. Expense 1,212 1,056 923 832 672
Operating Income Before Depreciation 935 880 785 606 518
Net Income 403 398 347 245 235

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