Company Quick10K Filing
Gap
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 380 $6,817
10-Q 2019-11-27 Quarter: 2019-11-02
10-Q 2019-08-30 Quarter: 2019-08-03
10-Q 2019-05-31 Quarter: 2019-05-04
10-K 2019-03-19 Annual: 2019-02-02
10-Q 2018-11-30 Quarter: 2018-11-03
10-Q 2018-08-31 Quarter: 2018-08-04
10-Q 2018-06-01 Quarter: 2018-05-05
10-K 2018-03-20 Annual: 2018-02-03
10-Q 2017-11-22 Quarter: 2017-10-28
10-Q 2017-08-25 Quarter: 2017-07-29
10-Q 2017-06-05 Quarter: 2017-04-29
10-K 2017-03-20 Annual: 2017-01-28
10-Q 2016-12-05 Quarter: 2016-10-29
10-Q 2016-09-02 Quarter: 2016-07-30
10-Q 2016-06-03 Quarter: 2016-04-30
10-K 2016-03-21 Annual: 2016-01-30
10-Q 2015-12-08 Quarter: 2015-10-31
10-Q 2015-09-08 Quarter: 2015-08-01
10-Q 2015-06-08 Quarter: 2015-05-02
10-K 2015-03-23 Annual: 2015-01-31
10-Q 2014-12-08 Quarter: 2014-11-01
10-Q 2014-09-05 Quarter: 2014-08-02
10-Q 2014-06-10 Quarter: 2014-05-03
10-K 2014-03-24 Annual: 2014-02-01
10-Q 2013-09-06 Quarter: 2013-08-03
10-Q 2013-06-11 Quarter: 2013-05-04
10-K 2013-03-26 Annual: 2013-02-02
10-Q 2012-12-03 Quarter: 2012-10-27
10-Q 2012-08-31 Quarter: 2012-07-28
10-Q 2012-06-06 Quarter: 2012-04-28
10-K 2012-03-26 Annual: 2012-01-28
10-Q 2011-12-07 Quarter: 2011-10-29
10-Q 2011-09-07 Quarter: 2011-07-30
10-Q 2011-06-08 Quarter: 2011-04-30
10-K 2011-03-28 Annual: 2011-01-29
10-Q 2010-12-08 Quarter: 2010-10-30
10-Q 2010-09-09 Quarter: 2010-07-31
10-Q 2010-06-08 Quarter: 2010-05-01
10-K 2010-03-26 Annual: 2010-01-30
8-K 2020-01-13 Earnings, Officers, Regulation FD, Exhibits
8-K 2019-11-21 Earnings, Exhibits
8-K 2019-11-13 Amend Bylaw, Exhibits
8-K 2019-11-04 Earnings, Officers, Exhibits
8-K 2019-09-12 Regulation FD, Exhibits
8-K 2019-08-22 Earnings, Exhibits
8-K 2019-08-20 Officers
8-K 2019-05-30 Earnings, Exhibits
8-K 2019-05-21 Officers, Shareholder Vote
8-K 2019-03-15 Other Events, Exhibits
8-K 2019-02-25 Earnings, Exit Costs, Regulation FD, Exhibits
8-K 2018-11-20 Earnings, Exhibits
8-K 2018-10-02 Officers, Exhibits
8-K 2018-08-23 Earnings, Exhibits
8-K 2018-08-16 Amend Bylaw, Exhibits
8-K 2018-06-13 Regulation FD, Exhibits
8-K 2018-06-01 Officers, Exhibits
8-K 2018-05-31 Enter Agreement
8-K 2018-05-24 Earnings, Exhibits
8-K 2018-05-22 Shareholder Vote
8-K 2018-03-20 Officers
8-K 2018-03-16 Other Events, Exhibits
8-K 2018-03-01 Earnings, Exhibits
8-K 2018-02-19 Officers, Exhibits
GPS 2019-11-02
Part I - Financial Information
Item 1. Financial Statements.
Note 1. Accounting Policies
Note 2. Revenue
Note 3. Debt and Credit Facilities
Note 4. Fair Value Measurements
Note 5. Derivative Financial Instruments
Note 6. Share Repurchases
Note 7. Accumulated Other Comprehensive Income
Note 8. Share-Based Compensation
Note 9. Leases
Note 10. Income Taxes
Note 11. Earnings per Share
Note 12. Commitments and Contingencies
Note 13. Segment Information
Note 14. Acquisition
Note 15. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-31.1 exhibit311q32019.htm
EX-31.2 exhibit312q32019.htm
EX-32.1 exhibit321q32019.htm
EX-32.2 exhibit322q32019.htm

Gap Earnings 2019-11-02

GPS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
GPS 6,817 14,043 10,418 16,423 6,168 937 1,941 6,871 38% 3.5 7%
HBI 6,086 7,877 6,742 6,966 2,713 566 659 9,855 39% 15.0 7%
JWN 5,425 9,935 9,176 15,546 1,540 493 1,411 6,647 10% 4.7 5%
LB 5,246 10,618 11,551 13,158 4,813 575 1,208 9,868 37% 8.2 5%
FL 4,537 6,720 4,208 7,984 2,546 520 841 3,699 32% 4.4 8%
AEO 3,111 3,359 2,131 4,175 1,538 267 536 2,794 37% 5.2 8%
URBN 2,740 3,138 1,777 3,929 1,295 257 464 2,578 33% 5.6 8%
DSW 1,731 2,557 1,828 3,461 715 52 174 1,914 21% 11.0 2%
PLCE 1,497 1,304 1,054 1,886 659 68 147 1,432 35% 9.8 5%
ANF 1,065 3,407 2,404 3,592 2,153 75 290 795 60% 2.7 2%

Document
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2019-11-02 0000039911 gps:GapMember srt:AsiaMember 2019-02-03 2019-11-02 0000039911 gps:GapMember 2018-02-04 2018-11-03 0000039911 gps:Other1Member 2018-08-05 2018-11-03 0000039911 gps:GapMember country:CA 2019-02-03 2019-11-02 0000039911 gps:GapMember country:CA 2019-08-04 2019-11-02 0000039911 gps:BananaRepublicMember srt:AsiaMember 2019-08-04 2019-11-02 0000039911 gps:OldNavyMember gps:OtherRegionsMember 2019-08-04 2019-11-02 0000039911 gps:BananaRepublicMember country:CA 2019-08-04 2019-11-02 0000039911 gps:BananaRepublicMember gps:OtherRegionsMember 2018-08-05 2018-11-03 0000039911 gps:Other1Member srt:EuropeMember 2018-02-04 2018-11-03 0000039911 gps:Other1Member gps:OtherRegionsMember 2019-02-03 2019-11-02 0000039911 gps:GapMember country:CA 2018-02-04 2018-11-03 0000039911 gps:GapMember srt:EuropeMember 2018-08-05 2018-11-03 0000039911 gps:Other1Member srt:AsiaMember 2019-08-04 2019-11-02 0000039911 gps:Other1Member gps:OtherRegionsMember 2018-08-05 2018-11-03 0000039911 gps:GapMember country:US 2018-08-05 2018-11-03 0000039911 gps:OldNavyMember gps:OtherRegionsMember 2018-02-04 2018-11-03 0000039911 gps:GapMember srt:EuropeMember 2019-02-03 2019-11-02 0000039911 gps:OldNavyMember country:CA 2018-08-05 2018-11-03 0000039911 country:CA 2018-02-04 2018-11-03 0000039911 gps:BananaRepublicMember gps:OtherRegionsMember 2019-02-03 2019-11-02 0000039911 gps:OldNavyMember srt:AsiaMember 2018-02-04 2018-11-03 0000039911 gps:OldNavyMember srt:AsiaMember 2019-08-04 2019-11-02 0000039911 gps:Other1Member country:CA 2018-02-04 2018-11-03 0000039911 gps:OldNavyMember srt:AsiaMember 2018-08-05 2018-11-03 0000039911 gps:OldNavyMember srt:AsiaMember 2019-02-03 2019-11-02 0000039911 gps:GapMember srt:AsiaMember 2018-02-04 2018-11-03 0000039911 gps:BananaRepublicMember gps:OtherRegionsMember 2019-08-04 2019-11-02 0000039911 gps:BananaRepublicMember country:CA 2018-08-05 2018-11-03 0000039911 gps:BananaRepublicMember srt:EuropeMember 2018-02-04 2018-11-03 0000039911 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-7562
THE GAP, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
94-1697231
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
Two Folsom Street
San Francisco, California 94105
(Address of principal executive offices)
Registrant’s telephone number, including area code: (415427-0100

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.05 par value
 
GPS
 
The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
 Non-accelerated filer
 Smaller reporting company
 
 
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The number of shares of the registrant’s common stock outstanding as of November 20, 2019 was 373,299,389.




FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 the following:
the impact of recent accounting pronouncements;
recognition of revenue deferrals as revenue;
unrealized gains and losses from designated cash flow hedges;
total gross unrecognized tax benefits;
the impact of losses due to indemnification obligations;
the outcome of proceedings, lawsuits, disputes, and claims;
structure and timing of completion of the planned separation transaction;
process of completing the separation transaction, including estimated costs;
anticipated strategic, financial, operational or other benefits of the separation transaction, including future financial performance of the independent companies following the proposed separation transaction;
plans to restructure the Gap brand specialty fleet, including anticipated benefits, store closures and timing, impact to annualized sales, associated costs, and effect on annualized savings;
offering product that is consistently brand-appropriate and on-trend with high customer acceptance;
improving inventory productivity by leveraging responsive capabilities;
investing in digital and customer capabilities, as well as store experience;
increasing productivity by leveraging our scale and streamlining operations and processes;
attracting and retaining strong talent in our businesses and functions;
continuing to integrate social and environmental sustainability into business practices;
investing strategically in the business while maintaining operating discipline and driving efficiency;
continuing to transform our product to market processes;
continuing our investment in customer experience to drive higher customer engagement and loyalty;
continuing to invest in strengthening brand awareness, customer acquisition, and digital capabilities;
utilizing data, analytics, and technology to respond faster while making decisions;
current cash balances and cash flows being sufficient to support our business operations, including separation related costs and planned capital expenditures, as well as Gap brand specialty fleet restructuring costs and growth initiatives;
ability to supplement near-term liquidity, if necessary, with our $500 million revolving credit facility or other available market instruments;
the impact of the seasonality of our operations;
dividend payments in fiscal 2019;
closure of Old Navy stores in China; and
the impact of changes in internal control over financial reporting.
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 risks associated with our plan to separate into two independent publicly-traded companies, including that the separation may not be completed in accordance with the expected plans or anticipated timeframe, or at all;
the risk that our plan to separate into two publicly-traded companies may not achieve some or all of the anticipated benefits;
the risk that we or our franchisees will be unsuccessful in gauging apparel trends and changing consumer preferences;
the highly competitive nature of our business in the United States and internationally;
the risk that failure to maintain, enhance and protect our brand image could have an adverse effect on our results of operations;
the risk that the failure to attract and retain key personnel, or effectively manage succession, could have an adverse impact on our results of operations;




the risk that our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate;
the risk that if we are unable to manage our inventory effectively, our gross margins will be adversely affected;
the risk that we are subject to data or other security breaches that may result in increased costs, violations of law, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation;
the risk that a failure of, or updates or changes to, our information technology (“IT”) systems may disrupt our operations;
the risks to our business, including our costs and supply chain, associated with global sourcing and manufacturing;
the risk that changes in global economic conditions or consumer spending patterns could adversely impact our results of operations;
the risks to our efforts to expand internationally, including our ability to operate in regions where we have less experience;
the risks to our reputation or operations associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct;
the risk that our franchisees’ operation of franchise stores is not directly within our control and could impair the value of our brands;
the risk that we or our franchisees will be unsuccessful in identifying, negotiating, and securing new store locations and renewing, modifying, or terminating leases for existing store locations effectively;
the risk that foreign currency exchange rate fluctuations could adversely impact our financial results;
the risk that comparable sales and margins will experience fluctuations;
the risk that changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our financial results or our business initiatives;
the risk that trade matters could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations;
the risk that changes in the regulatory or administrative landscape could adversely affect our financial condition and results of operations;
the risk that natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events could adversely affect our operations and financial results, or those of our franchisees or vendors;
the risk that reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards could adversely affect our operating results and cash flows;
the risk that the adoption of new accounting pronouncements will impact future results;
the risk that we do not repurchase some or all of the shares we anticipate purchasing pursuant to our repurchase program; and
the risk that we will not be successful in defending various proceedings, lawsuits, disputes, and claims.
Additional information regarding factors that could cause results to differ can be found in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019 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 November 27, 2019, 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.
We suggest that this document be read in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019.




THE GAP, INC.
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.




PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements.
THE GAP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
($ and shares in millions except par value)
November 2,
2019
 
February 2,
2019
 
November 3,
2018
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
788

 
$
1,081

 
$
958

Short-term investments
294

 
288

 
296

Merchandise inventory
2,720

 
2,131

 
2,668

Other current assets
770

 
751

 
792

Total current assets
4,572

 
4,251

 
4,714

Property and equipment, net of accumulated depreciation of $5,999, $5,755, and $6,112
3,225

 
2,912

 
2,887

Operating lease assets
5,796

 

 

Other long-term assets
525

 
886

 
572

Total assets
$
14,118

 
$
8,049

 
$
8,173

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
1,241

 
$
1,126

 
$
1,299

Accrued expenses and other current liabilities
974

 
1,024

 
1,070

Current portion of operating lease liabilities
934

 

 

Income taxes payable
43

 
24

 
24

Total current liabilities
3,192

 
2,174

 
2,393

Long-term liabilities:
 
 
 
 
 
Long-term debt
1,249

 
1,249

 
1,249

Long-term operating lease liabilities
5,650

 

 

Lease incentives and other long-term liabilities
393

 
1,073

 
1,091

Total long-term liabilities
7,292

 
2,322

 
2,340

Commitments and contingencies (see Note 12)

 

 

Stockholders’ equity:
 
 
 
 
 
Common stock $0.05 par value
 
 
 
 
 
Authorized 2,300 shares for all periods presented; Issued and Outstanding 373, 378, and 382 shares
19

 
19

 
19

Additional paid-in capital

 

 

Retained earnings
3,573

 
3,481

 
3,368

Accumulated other comprehensive income
42

 
53

 
53

Total stockholders’ equity
3,634

 
3,553

 
3,440

Total liabilities and stockholders’ equity
$
14,118

 
$
8,049

 
$
8,173

See Accompanying Notes to Condensed Consolidated Financial Statements

1



THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
13 Weeks Ended
 
39 Weeks Ended
($ and shares in millions except per share amounts)
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net sales
$
3,998

 
$
4,089

 
$
11,709

 
$
11,957

Cost of goods sold and occupancy expenses
2,439

 
2,466

 
7,250

 
7,280

Gross profit
1,559

 
1,623

 
4,459

 
4,677

Operating expenses
1,338

 
1,260

 
3,640

 
3,687

Operating income
221

 
363

 
819

 
990

Interest expense
19

 
21

 
58

 
54

Interest income
(7
)
 
(8
)
 
(21
)
 
(21
)
Income before income taxes
209

 
350

 
782

 
957

Income taxes
69

 
84

 
247

 
230

Net income
$
140

 
$
266

 
$
535

 
$
727

Weighted-average number of shares - basic
375

 
384

 
377

 
387

Weighted-average number of shares - diluted
376

 
387

 
379

 
390

Earnings per share - basic
$
0.37

 
$
0.69

 
$
1.42

 
$
1.88

Earnings per share - diluted
$
0.37

 
$
0.69

 
$
1.41

 
$
1.86

Cash dividends declared and paid per share
$
0.2425

 
$
0.2425

 
$
0.7275

 
$
0.7275

See Accompanying Notes to Condensed Consolidated Financial Statements

2



THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
13 Weeks Ended
 
39 Weeks Ended
($ in millions)
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net income
$
140

 
$
266

 
$
535

 
$
727

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation
(4
)
 
(4
)
 
(5
)
 
(27
)
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $-, $1, $5, and $(2)

 
11

 
10

 
57

Reclassification adjustment for gains on derivative financial instruments, net of (tax) tax benefit of $-, $(1), $(5), and $8
(9
)
 
(7
)
 
(16
)
 
(13
)
Other comprehensive income (loss), net of tax
(13
)
 

 
(11
)
 
17

Comprehensive income
$
127

 
$
266

 
$
524

 
$
744

See Accompanying Notes to Condensed Consolidated Financial Statements

3



THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
 
($ and shares in millions except per share amounts)
 
Shares
 
Amount
 
Total
Balance as of August 4, 2018
 
385

 
$
19

 
$

 
$
3,268

 
$
53

 
$
3,340

Net income for the thirteen weeks ended November 3, 2018
 
 
 
 
 
 
 
266

 
 
 
266

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 

 

Repurchases and retirement of common stock
 
(4
)
 

 
(27
)
 
(73
)
 
 
 
(100
)
Issuance of common stock related to stock options and employee stock purchase plans
 
1

 

 
7

 
 
 
 
 
7

Issuance of common stock and withholding tax payments related to vesting of stock units
 

 

 
(2
)
 
 
 
 
 
(2
)
Share-based compensation, net of forfeitures
 
 
 
 
 
22

 
 
 
 
 
22

Common stock dividends ($0.2425 per share)
 
 
 
 
 
 
 
(93
)
 
 
 
(93
)
Balance as of November 3, 2018
 
382

 
$
19

 
$

 
$
3,368

 
$
53

 
$
3,440

Balance as of February 3, 2018
 
389

 
$
19

 
$
8

 
$
3,081

 
$
36

 
$
3,144

Cumulative effect of a change in accounting principle related to revenue recognition
 
 
 
 
 
 
 
36

 
 
 
36

Net income for the thirty-nine weeks ended November 3, 2018
 
 
 
 
 
 
 
727

 
 
 
727

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
17

 
17

Repurchases and retirement of common stock
 
(10
)
 

 
(105
)
 
(195
)
 
 
 
(300
)
Issuance of common stock related to stock options and employee stock purchase plans
 
2

 

 
40

 
 
 
 
 
40

Issuance of common stock and withholding tax payments related to vesting of stock units
 
1

 

 
(22
)
 
 
 
 
 
(22
)
Share-based compensation, net of forfeitures
 
 
 
 
 
79

 
 
 
 
 
79

Common stock dividends ($0.7275 per share)
 
 
 
 
 
 
 
(281
)
 
 
 
(281
)
Balance as of November 3, 2018
 
382

 
$
19

 
$

 
$
3,368

 
$
53

 
$
3,440

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of August 3, 2019
 
376

 
$
19

 
$

 
$
3,551

 
$
55

 
$
3,625

Net income for the thirteen weeks ended November 2, 2019
 
 
 
 
 
 
 
140

 
 
 
140

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
(13
)
 
(13
)
Repurchases and retirement of common stock
 
(3
)
 

 
(23
)
 
(27
)
 
 
 
(50
)
Issuance of common stock related to stock options and employee stock purchase plans
 

 

 
5

 
 
 
 
 
5

Issuance of common stock and withholding tax payments related to vesting of stock units
 

 

 
(1
)
 
 
 
 
 
(1
)
Share-based compensation, net of forfeitures
 
 
 
 
 
19

 
 
 
 
 
19

Common stock dividends ($0.2425 per share)
 
 
 
 
 
 
 
(91
)
 
 
 
(91
)
Balance as of November 2, 2019
 
373

 
$
19

 
$

 
$
3,573

 
$
42

 
$
3,634

Balance as of February 2, 2019
 
378

 
$
19

 
$

 
$
3,481

 
$
53

 
$
3,553

Cumulative effect of a change in accounting principle related to leases
 
 
 
 
 
 
 
(86
)
 
 
 
(86
)
Net income for the thirty-nine weeks ended November 2, 2019
 
 
 
 
 
 
 
535

 
 
 
535

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
(11
)
 
(11
)
Repurchases and retirement of common stock
 
(8
)
 

 
(67
)
 
(83
)
 
 
 
(150
)
Issuance of common stock related to stock options and employee stock purchase plans
 
1

 

 
22

 
 
 
 
 
22

Issuance of common stock and withholding tax payments related to vesting of stock units
 
2

 

 
(21
)
 
 
 
 
 
(21
)
Share-based compensation, net of forfeitures
 
 
 
 
 
66

 
 
 
 
 
66

Common stock dividends ($0.7275 per share)
 
 
 
 
 
 
 
(274
)
 
 
 
(274
)
Balance as of November 2, 2019
 
373

 
$
19

 
$

 
$
3,573

 
$
42

 
$
3,634


See Accompanying Notes to Condensed Consolidated Financial Statements

4



THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
39 Weeks Ended
($ in millions)
November 2,
2019
 
November 3,
2018
Cash flows from operating activities:
 
 
 
Net income
$
535

 
$
727

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
417

 
425

Amortization of lease incentives

 
(45
)
Share-based compensation
64

 
72

Non-cash and other items
7

 
10

Gain on sale of building
(191
)
 

Deferred income taxes
42

 
33

Changes in operating assets and liabilities:
 
 
 
Merchandise inventory
(559
)
 
(696
)
Other current assets and other long-term assets
8

 
(64
)
Accounts payable
129

 
90

Accrued expenses and other current liabilities
28

 
(148
)
Income taxes payable, net of prepaid and other tax-related items
89

 
127

Lease incentives and other long-term liabilities
19

 
36

Operating lease assets and liabilities, net
(60
)
 

Net cash provided by operating activities
528

 
567

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(523
)
 
(510
)
Purchase of building
(343
)
 

Proceeds from sale of building
220

 

Purchases of short-term investments
(235
)
 
(408
)
Proceeds from sales and maturities of short-term investments
231

 
112

Purchase of Janie and Jack
(69
)
 

Other

 
(7
)
Net cash used for investing activities
(719
)
 
(813
)
Cash flows from financing activities:
 
 
 
Proceeds from issuances under share-based compensation plans
22

 
40

Withholding tax payments related to vesting of stock units
(21
)
 
(22
)
Repurchases of common stock
(150
)
 
(300
)
Cash dividends paid
(274
)
 
(281
)
Other

 
(1
)
Net cash used for financing activities
(423
)
 
(564
)
Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash

 
(13
)
Net decrease in cash, cash equivalents, and restricted cash
(614
)
 
(823
)
Cash, cash equivalents, and restricted cash at beginning of period
1,420

 
1,799

Cash, cash equivalents, and restricted cash at end of period
$
806

 
$
976

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest during the period
$
75

 
$
77

Cash paid for income taxes during the period, net of refunds
$
117

 
$
73

Cash paid for operating lease liabilities
$
916

 
$

See Accompanying Notes to Condensed Consolidated Financial Statements

5



THE GAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies
Basis of Presentation
The Condensed Consolidated Balance Sheets as of November 2, 2019 and November 3, 2018, and the Condensed Consolidated Statements of Income, the Condensed Consolidated Statements of Comprehensive Income, and the Condensed Consolidated Statements of Stockholders' Equity for the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018, and the Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended November 2, 2019 and November 3, 2018 have been prepared by The Gap, Inc. (the “Company,” “we,” and “our”). In the opinion of management, such statements include all adjustments (which include normal recurring adjustments) considered necessary to present fairly our financial position, results of operations, stockholders' equity, and cash flows as of November 2, 2019 and November 3, 2018 and for all periods presented. The Condensed Consolidated Balance Sheet as of February 2, 2019 has been derived from our audited financial statements.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted from these interim financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading. We suggest that you read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019.
The results of operations for the thirteen and thirty-nine weeks ended November 2, 2019 are not necessarily indicative of the operating results that may be expected for the 52-week period ending February 1, 2020.

Accounting Pronouncements Recently Adopted
ASU No. 2016-02, Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2016-02, Leases. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for leases at the commencement date. We adopted ASU No. 2016-02 and related amendments (collectively "ASC 842") on February 3, 2019 using the optional transition method, which allows for the prospective application of the standard. As of the effective date, we recorded a decrease to opening retained earnings of $86 million, net of tax, which consisted primarily of impairments for certain store and operating lease assets. In addition, we elected the package of practical expedients permitted under the transition guidance within the standard, which allowed us to carry forward our historical lease classification, to not reassess prior conclusions related to initial direct costs, and to not reassess whether any expired or existing contracts are or contain leases. We also elected the lessee practical expedient to combine lease and nonlease components for new leases and modified leases. The adoption of ASC 842 resulted in the recording of operating lease assets and operating lease liabilities of $5.7 billion and $6.6 billion, respectively, on our Consolidated Balance Sheet as of February 3, 2019.
See Note 9 of Notes to Condensed Consolidated Financial Statements for information regarding required disclosures related to our leases.
ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The amendments are intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. In addition, this guidance amends and expands disclosure requirements. We adopted this ASU on a prospective basis on February 3, 2019. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.
See Note 5 of Notes to Condensed Consolidated Financial Statements for information regarding derivative financial instruments.

6



Accounting Pronouncements Not Yet Adopted
Except as noted below, the Company has considered all recent accounting pronouncements and concluded that there are no recent accounting pronouncements that may have a material impact on our Consolidated Financial Statements, based on current information.
ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU is intended to align the requirements for capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract with the existing guidance for internal-use software. This guidance is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The guidance provides flexibility in adoption, allowing for either retrospective adjustment or prospective adjustment for all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact this guidance may have on our Consolidated Financial Statements and related disclosures.

Restricted Cash
Any cash that is legally restricted from use is classified as restricted cash. If the purpose of restricted cash is related to acquiring a long-term asset, liquidating a long-term liability, or is otherwise unavailable for a period longer than one year from the balance sheet date, the restricted cash is included within other long-term assets on our Condensed Consolidated Balance Sheets. Otherwise, restricted cash is included within other current assets on our Condensed Consolidated Balance Sheets.
As of November 2, 2019, restricted cash primarily included consideration that serves as collateral for our insurance obligations. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our Condensed Consolidated Balance Sheets to the total shown on our Condensed Consolidated Statements of Cash Flows:
($ in millions)
November 2,
2019
 
February 2,
2019
 
November 3,
2018
Cash and cash equivalents, per Condensed Consolidated Balance Sheets
$
788

 
$
1,081

 
$
958

Restricted cash included in other current assets

 
1

 
1

Restricted cash included in other long-term assets (a)
18

 
338

 
17

Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows
$
806

 
$
1,420

 
$
976

__________
(a)
As of February 2, 2019, restricted cash included in other long-term assets included $320 million of consideration held by a third party in connection with the purchase of a building that was completed in fiscal 2019.
Note 2. Revenue
The Company’s revenues include merchandise sales at stores, online, and through franchise agreements. We also receive revenue sharing from our credit card agreement for private label and co-branded credit cards, and breakage revenue related to our gift cards, credit vouchers, and outstanding loyalty points. Breakage revenue is recognized based upon historical redemption patterns. For online sales and catalog sales, the Company has elected to treat shipping and handling as fulfillment activities and not as a separate performance obligation. Accordingly, we recognize revenue for our single performance obligation related to online sales and catalog sales at the time control of the merchandise passes to the customer, which is generally at the time of shipment. We also record an allowance for estimated returns based on our historical return patterns and various other assumptions that management believes to be reasonable. Revenues are presented net of any taxes collected from customers and remitted to governmental authorities.
Our credit card agreement provides for certain payments to be made to us, including a share of revenue from the performance of the credit card portfolios and reimbursements of loyalty program discounts. We have identified separate performance obligations related to our credit card agreement that include both providing a license and an obligation to redeem loyalty points issued under the loyalty rewards program. Our obligation to provide a license is satisfied when the subsequent sale or usage occurs and our obligation to redeem loyalty points is deferred until those loyalty points are redeemed. Income related to our credit card agreement is classified within net sales on our Condensed Consolidated Statements of Income.
We also have franchise agreements with unaffiliated franchisees to operate Gap, Banana Republic, and Old Navy stores in a number of countries throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores that sell apparel and related products under our brand names. We have identified separate performance obligations related to our franchise agreements that include both providing our franchise partners with a license and an obligation to supply franchise partners with our merchandise. Our obligation to provide a license is satisfied when the subsequent sale or usage occurs and our obligation to supply franchise partners with our merchandise is satisfied when control of the merchandise transfers. As of the quarter ended November 2, 2019 and November 3, 2018, there were no material contract liabilities related to our franchise agreements.

7



We defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards, credit vouchers, outstanding loyalty points, and reimbursements of loyalty program discounts associated with our credit card agreement. For the thirteen weeks ended November 2, 2019, the opening balance of deferred revenue for these obligations was $195 million, of which $78 million was recognized as revenue during the period. For the thirty-nine weeks ended November 2, 2019, the opening balance of deferred revenue for these obligations was $227 million, of which $161 million was recognized as revenue during the period. The closing balance of deferred revenue related to gift cards, credit vouchers, outstanding loyalty points, and reimbursements of loyalty program discounts was $189 million as of November 2, 2019.
We expect that the majority of our revenue deferrals as of the quarter ended November 2, 2019, will be recognized as revenue in the next 12 months as our performance obligations are satisfied.
For the thirteen weeks ended November 3, 2018, the opening balance of deferred revenue for these obligations was $194 million, of which $84 million was recognized as revenue during the period. For the thirty-nine weeks ended November 3, 2018, the opening balance of deferred revenue for these obligations was $232 million, of which $170 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $193 million as of November 3, 2018.
See Note 13 of Notes to Condensed Consolidated Financial Statements for disaggregation of revenue by brand and by region.
Note 3. Debt and Credit Facilities
As of November 2, 2019February 2, 2019, and November 3, 2018, the estimated fair value of our $1.25 billion aggregate principal amount of 5.95 percent notes (the “Notes”) due April 2021 was $1.30 billion, $1.30 billion, and $1.29 billion, respectively, and was based on the quoted market price of the Notes (level 1 inputs) as of the last business day of the respective fiscal quarter. The aggregate principal amount of the Notes is recorded in long-term debt on the Condensed Consolidated Balance Sheets, net of the unamortized discount.
We have a $500 million, five-year, unsecured revolving credit facility (the “Facility”), which is scheduled to expire in May 2023. There were no borrowings and no material outstanding standby letters of credit under the Facility as of November 2, 2019.
We maintain multiple agreements with third parties that make unsecured revolving credit facilities available for our operations in foreign locations (the “Foreign Facilities”). These Foreign Facilities are uncommitted and are generally available for borrowings, overdraft borrowings, and the issuance of bank guarantees. The total capacity of the Foreign Facilities was $55 million as of November 2, 2019. As of November 2, 2019, there were no borrowings under the Foreign Facilities. There were $17 million in bank guarantees issued and outstanding primarily related to store leases under the Foreign Facilities as of November 2, 2019.
We have bilateral unsecured standby letter of credit agreements that are uncommitted and do not have expiration dates. As of November 2, 2019, we had $22 million in standby letters of credit issued under these agreements.
Note 4. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives and available-for-sale debt securities. The Company categorizes financial assets and liabilities recorded at fair value based upon a three-level hierarchy that considers the related valuation techniques.
There were no purchases, sales, issuances, or settlements related to recurring level 3 measurements during the thirteen and thirty-nine weeks ended November 2, 2019 or November 3, 2018. There were no transfers of financial assets or liabilities into or out of level 1, level 2, and level 3 during the thirteen and thirty-nine weeks ended November 2, 2019 or November 3, 2018.


8



Financial Assets and Liabilities
Financial assets and liabilities measured at fair value on a recurring basis and cash equivalents are as follows:
 
 
 
Fair Value Measurements at Reporting Date Using
($ in millions)
November 2, 2019
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
238

 
$
3

 
$
235

 
$

Short-term investments
294

 
131

 
163

 

Derivative financial instruments
12

 

 
12

 

Deferred compensation plan assets
53

 
53

 

 

Other assets
2

 

 

 
2

Total
$
599

 
$
187

 
$
410

 
$
2

Liabilities:
 
 
 
 
 
 
 
Derivative financial instruments
$
10

 
$

 
$
10

 
$

 
 
 
Fair Value Measurements at Reporting Date Using
($ in millions)
February 2, 2019
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
373

 
$
26

 
$
347

 
$

Short-term investments
288

 
125

 
163

 

Derivative financial instruments
20

 

 
20

 

Deferred compensation plan assets
48

 
48

 

 

Other assets
2

 

 

 
2

Total
$
731

 
$
199

 
$
530

 
$
2

Liabilities:
 
 
 
 
 
 
 
Derivative financial instruments
$
11

 
$

 
$
11

 
$

 
 
 
Fair Value Measurements at Reporting Date Using
($ in millions)
November 3, 2018
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
438

 
$
30

 
$
408

 
$

Short-term investments
296

 
124

 
172

 

Derivative financial instruments
46

 

 
46

 

Deferred compensation plan assets
49

 
49

 

 

Total
$
829

 
$
203

 
$
626

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative financial instruments
$
1

 
$

 
$
1

 
$


We have highly liquid investments classified as cash equivalents, which are placed primarily in time deposits, money market funds, and commercial paper. With the exception of our available-for-sale investments noted below, we value these investments at their original purchase prices plus interest that has accrued at the stated rate.
Our available-for-sale securities are comprised of investments in debt securities. These securities are recorded at fair value using market prices. As of November 2, 2019 and November 3, 2018, the Company held $294 million and $296 million, respectively, of available-for-sale debt securities with maturity dates greater than three months and less than two years within short-term investments on the Condensed Consolidated Balance Sheets. In addition, as of November 2, 2019 and November 3, 2018, the Company held $17 million and $6 million of available-for-sale debt securities with maturities of less than three months at the time of purchase within cash and cash equivalents on the Condensed Consolidated Balance Sheets. Unrealized gains and losses on available-for-sale debt securities included within accumulated other comprehensive income were immaterial as of November 2, 2019 and November 3, 2018.

9



The Company regularly reviews its available-for-sale debt securities for other-than-temporary impairment. For the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018, the Company did not consider any of its securities to be other-than-temporarily impaired and, accordingly, did not recognize any impairment loss.
Derivative financial instruments primarily include foreign exchange forward contracts. The fair value of the Company’s derivative financial instruments is determined using pricing models based on current market rates. See Note 5 of Notes to Condensed Consolidated Financial Statements for information regarding currencies hedged against the U.S. dollar.
We maintain the Gap Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees and non-employee directors to defer base compensation up to a maximum percentage. Plan investments are directed by participants and are recorded at market value and designated for the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices, and the assets are recorded in other long-term assets on the Condensed Consolidated Balance Sheets.

Nonfinancial Assets
We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of the long-lived assets is determined using level 3 inputs and based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores is primarily at the store level.
There were no material impairment charges recorded for long-lived assets for the thirteen and thirty-nine weeks ended November 2, 2019 or November 3, 2018.
As discussed in Note 1, we recorded a decrease to fiscal 2019 opening retained earnings due to the adoption of ASC 842 related to impairments as of the effective date.
We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.
There were no material impairment charges recorded for goodwill or other indefinite-lived intangible assets for the thirteen and thirty-nine weeks ended November 2, 2019 or November 3, 2018.