Company Quick10K Filing
Gap
Price17.18 EPS2
Shares379 P/E8
MCap6,511 P/FCF12
Net Debt443 EBIT1,134
TEV6,954 TEV/EBIT6
TTM 2019-11-02, in MM, except price, ratios
10-Q 2020-08-01 Filed 2020-08-31
10-Q 2020-05-02 Filed 2020-06-09
10-K 2020-02-01 Filed 2020-03-17
10-Q 2019-11-02 Filed 2019-11-27
10-Q 2019-08-03 Filed 2019-08-30
10-Q 2019-05-04 Filed 2019-05-31
10-K 2019-02-02 Filed 2019-03-19
10-Q 2018-11-03 Filed 2018-11-30
10-Q 2018-08-04 Filed 2018-08-31
10-Q 2018-05-05 Filed 2018-06-01
10-K 2018-02-03 Filed 2018-03-20
10-Q 2017-10-28 Filed 2017-11-22
10-Q 2017-07-29 Filed 2017-08-25
10-Q 2017-04-29 Filed 2017-06-05
10-K 2017-01-28 Filed 2017-03-20
10-Q 2016-10-29 Filed 2016-12-05
10-Q 2016-07-30 Filed 2016-09-02
10-Q 2016-04-30 Filed 2016-06-03
10-K 2016-01-30 Filed 2016-03-21
10-Q 2015-10-31 Filed 2015-12-08
10-Q 2015-08-01 Filed 2015-09-08
10-Q 2015-05-02 Filed 2015-06-08
10-K 2015-01-31 Filed 2015-03-23
10-Q 2014-11-01 Filed 2014-12-08
10-Q 2014-08-02 Filed 2014-09-05
10-Q 2014-05-03 Filed 2014-06-10
10-K 2014-02-01 Filed 2014-03-24
10-Q 2013-08-03 Filed 2013-09-06
10-Q 2013-05-04 Filed 2013-06-11
10-K 2013-02-02 Filed 2013-03-26
10-Q 2012-10-27 Filed 2012-12-03
10-Q 2012-07-28 Filed 2012-08-31
10-Q 2012-04-28 Filed 2012-06-06
10-K 2012-01-28 Filed 2012-03-26
10-Q 2011-10-29 Filed 2011-12-07
10-Q 2011-07-30 Filed 2011-09-07
10-Q 2011-04-30 Filed 2011-06-08
10-K 2011-01-29 Filed 2011-03-28
10-Q 2010-10-30 Filed 2010-12-08
10-Q 2010-07-31 Filed 2010-09-09
10-Q 2010-05-01 Filed 2010-06-08
10-K 2010-01-30 Filed 2010-03-26
8-K 2020-08-31 Officers
8-K 2020-08-27 Earnings, Exhibits
8-K 2020-08-10 Officers
8-K 2020-06-25 Sale of Shares
8-K 2020-06-04
8-K 2020-05-19
8-K 2020-05-07
8-K 2020-04-23
8-K 2020-04-23
8-K 2020-03-30
8-K 2020-03-25
8-K 2020-03-13
8-K 2020-03-04
8-K 2020-03-04
8-K 2020-01-13
8-K 2019-11-21
8-K 2019-11-13
8-K 2019-11-04
8-K 2019-09-12
8-K 2019-08-22
8-K 2019-08-20
8-K 2019-05-30
8-K 2019-05-21
8-K 2019-03-15
8-K 2019-02-25
8-K 2018-11-20
8-K 2018-10-02
8-K 2018-08-23
8-K 2018-08-16
8-K 2018-06-13
8-K 2018-06-01
8-K 2018-05-31
8-K 2018-05-24
8-K 2018-05-22
8-K 2018-03-20
8-K 2018-03-16
8-K 2018-03-01
8-K 2018-02-19

GPS 10Q Quarterly Report

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. Income Taxes
Note 8. Earnings (Loss) per Share
Note 9. Commitments and Contingencies
Note 10. Segment Information
Note 11. Store Closing and Other Operating Cost
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-10.2 exhibit102tlsagreement.htm
EX-31.1 exhibit311q22020.htm
EX-31.2 exhibit312q22020.htm
EX-32.1 exhibit321q22020.htm
EX-32.2 exhibit322q22020.htm

Gap Earnings 2020-08-01

Balance SheetIncome StatementCash Flow
151296302012201420172020
Assets, Equity
4.83.82.91.91.00.02012201420172020
Rev, G Profit, Net Income
1.10.70.3-0.1-0.5-0.92012201420172020
Ops, Inv, Fin

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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 August 1, 2020
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 August 24, 2020 was 373,593,071.




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 potential impact of COVID-19 on the assumptions and estimates used when preparing the quarterly financial statements, and on our results of operations, financial position, and liquidity;
the potential impact if economic conditions caused by COVID-19 were to worsen beyond what is currently estimated by management;
the impact of recent accounting pronouncements;
recognition of revenue deferrals as revenue;
compliance with applicable financial covenants under the 2023 Notes, 2025 Notes, 2027 Notes, and the ABL Facility;
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, including the impact of such actions on our financial results;
the ability of our new capital structure to provide sufficient liquidity to continue to navigate the COVID-19 pandemic;
the ability to supplement near-term liquidity, if necessary, with our $1.8675 billion asset-based revolving credit facility or other available market instruments;
current cash balances and cash flows from our operations and from issuance of the 2023 Notes, 2025 Notes, 2027 Notes being sufficient to support our business operations;
the impact of the seasonality of our operations;
offering product that is consistently brand-appropriate and on-trend with high customer acceptance;
growing and operating our global online business;
realigning inventory with customer demand;
increasing focus on improving operational discipline and efficiency by streamlining operations and processes and leveraging scale;
managing inventory to support a healthy merchandise margin;
the expectation that we will reach additional agreements with our landlords regarding suspended rent payments for our temporarily closed stores in the next several months;
rationalizing the Gap and Banana Republic brands, with emphasis on the specialty fleet globally, to create a healthier business;
continuing to integrate social and environmental sustainability into business practices;
increased interest expense on future borrowings caused by any future reductions in our credit ratings; 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 overall global economic environment and risks associated with the COVID-19 pandemic;
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 changes in global economic conditions or consumer spending patterns could adversely impact our results of operations;
engaging in or seeking to engage in strategic transactions that are subject to various risks and uncertainties;
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 manage key executive succession and retention and to continue to attract qualified personnel 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 risks to our business, including our costs and supply chain, associated with global sourcing and manufacturing;
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 efforts to expand internationally, including our ability to operate in regions where we have less experience;
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 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 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 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 position or our business initiatives;
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 (similar to and including the ongoing COVID-19 pandemic), 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 this Quarterly Report on Form 10-Q 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 August 31, 2020, 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 1, 2020.




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)
August 1,
2020
 
February 1,
2020
 
August 3,
2019
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
2,188

 
$
1,364

 
$
1,177

Short-term investments
25

 
290

 
294

Merchandise inventory
2,242

 
2,156

 
2,326

Other current assets
882

 
706

 
770

Total current assets
5,337

 
4,516

 
4,567

Property and equipment, net of accumulated depreciation of $5,933, $5,839 and $5,926
2,895

 
3,122

 
3,141

Operating lease assets
4,689

 
5,402

 
5,807

Other long-term assets
795

 
639

 
528

Total assets
$
13,716

 
$
13,679

 
$
14,043

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
1,629

 
$
1,174

 
$
1,246

Accrued expenses and other current liabilities
1,124

 
1,067

 
908

Current portion of operating lease liabilities
856

 
920

 
946

Income taxes payable
40

 
48

 
34

Total current liabilities
3,649

 
3,209

 
3,134

Long-term liabilities:
 
 
 
 
 
Long-term debt
2,212

 
1,249

 
1,249

Long-term operating lease liabilities
5,179

 
5,508

 
5,644

Lease incentives and other long-term liabilities
423

 
397

 
391

Total long-term liabilities
7,814

 
7,154

 
7,284

Commitments and contingencies (see Note 9)

 

 

Stockholders’ equity:
 
 
 
 
 
Common stock $0.05 par value
 
 
 
 
 
Authorized 2,300 shares for all periods presented; Issued and Outstanding 374, 371, and 376 shares
19

 
19

 
19

Additional paid-in capital
39

 

 

Retained earnings
2,173

 
3,257

 
3,551

Accumulated other comprehensive income
22

 
40

 
55

Total stockholders’ equity
2,253

 
3,316

 
3,625

Total liabilities and stockholders’ equity
$
13,716

 
$
13,679

 
$
14,043

See Accompanying Notes to Condensed Consolidated Financial Statements

1



THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
13 Weeks Ended
 
26 Weeks Ended
($ and shares in millions except per share amounts)
August 1,
2020
 
August 3,
2019
 
August 1,
2020
 
August 3,
2019
Net sales
$
3,275

 
$
4,005

 
$
5,382

 
$
7,711

Cost of goods sold and occupancy expenses
2,126

 
2,449

 
3,965

 
4,811

Gross profit
1,149

 
1,556

 
1,417

 
2,900

Operating expenses
1,076

 
1,274

 
2,588

 
2,302

Operating income (loss)
73

 
282

 
(1,171
)
 
598

Loss on extinguishment of debt
58

 

 
58

 

Interest expense
58

 
19

 
77

 
39

Interest income
(2
)
 
(8
)
 
(6
)
 
(14
)
Income (loss) before income taxes
(41
)
 
271

 
(1,300
)

573

Income taxes
21

 
103

 
(306
)
 
178

Net income (loss)
$
(62
)
 
$
168

 
$
(994
)
 
$
395

Weighted-average number of shares - basic
374

 
378

 
373

 
378

Weighted-average number of shares - diluted
374

 
379

 
373

 
380

Earnings (loss) per share - basic
$
(0.17
)
 
$
0.44

 
$
(2.66
)
 
$
1.04

Earnings (loss) per share - diluted
$
(0.17
)
 
$
0.44

 
$
(2.66
)
 
$
1.04

See Accompanying Notes to Condensed Consolidated Financial Statements

2



THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
13 Weeks Ended
 
26 Weeks Ended
($ in millions)
August 1,
2020
 
August 3,
2019
 
August 1,
2020
 
August 3,
2019
Net income (loss)
$
(62
)
 
$
168

 
$
(994
)
 
$
395

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation
(10
)
 

 
(19
)
 
(1
)
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(1), $1, $1, and $5
(8
)
 
1

 
11

 
10

Reclassification adjustment for gains on derivative financial instruments, net of tax of $(1), $(3), $(1), and $(5)
(6
)
 
(3
)
 
(10
)
 
(7
)
Other comprehensive income (loss), net of tax
(24
)
 
(2
)
 
(18
)
 
2

Comprehensive income (loss)
$
(86
)
 
$
166

 
$
(1,012
)
 
$
397

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 May 2, 2020
 
373

 
$
19

 
$
17

 
$
2,235

 
$
46

 
$
2,317

Net loss for the thirteen weeks ended August 1, 2020
 
 
 
 
 
 
 
(62
)
 
 
 
(62
)
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 
 
 
 
 
 
 
 
(10
)
 
(10
)
Change in fair value of derivative financial instruments
 
 
 
 
 
 
 
 
 
(8
)
 
(8
)
Amounts reclassified from accumulated other comprehensive income
 
 
 
 
 
 
 
 
 
(6
)
 
(6
)
Issuance of common stock related to stock options and employee stock purchase plans
 

 

 
6

 
 
 
 
 
6

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

 

 
(1
)
 
 
 
 
 
(1
)
Share-based compensation, net of forfeitures
 
 
 
 
 
17

 
 
 
 
 
17

Common stock dividends (1)
 
 
 
 
 
 
 

 
 
 

Balance as of August 1, 2020
 
374

 
$
19

 
$
39

 
$
2,173

 
$
22

 
$
2,253

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of May 4, 2019
 
378

 
$
19

 
$

 
$
3,495

 
$
57

 
$
3,571

Net income for the thirteen weeks ended August 3, 2019
 
 
 
 
 
 
 
168

 
 
 
168

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 
 
 
 
 
 
 
 

 

Change in fair value of derivative financial instruments
 
 
 
 
 
 
 
 
 
1

 
1

Amounts reclassified from accumulated other comprehensive income
 
 
 
 
 
 
 
 
 
(3
)
 
(3
)
Repurchases and retirement of common stock
 
(3
)
 

 
(29
)
 
(21
)
 
 
 
(50
)
Issuance of common stock related to stock options and employee stock purchase plans
 

 

 
7

 
 
 
 
 
7

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

 

 
(1
)
 
 
 
 
 
(1
)
Share-based compensation, net of forfeitures
 
 
 
 
 
23

 
 
 
 
 
23

Common stock dividends declared and paid ($0.2425 per share)
 
 
 
 
 
 
 
(91
)
 
 
 
(91
)
Balance as of August 3, 2019
 
376

 
$
19

 
$

 
$
3,551

 
$
55

 
$
3,625



4





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 February 1, 2020
 
371

 
$
19

 
$

 
$
3,257

 
$
40

 
$
3,316

Net loss for the twenty-six weeks ended August 1, 2020
 
 
 
 
 
 
 
(994
)
 
 
 
(994
)
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 
 
 
 
 
 
 
 
(19
)
 
(19
)
Change in fair value of derivative financial instruments
 
 
 
 
 
 
 
 
 
11

 
11

Amounts reclassified from accumulated other comprehensive income
 
 
 
 
 
 
 
 
 
(10
)
 
(10
)
Issuance of common stock related to stock options and employee stock purchase plans
 
1

 

 
12

 
 
 
 
 
12

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

 

 
(8
)
 
 
 
 
 
(8
)
Share-based compensation, net of forfeitures
 
 
 
 
 
35

 
 
 
 
 
35

Common stock dividends ($0.2425 per share) (1)
 
 
 
 
 
 
 
(90
)
 
 
 
(90
)
Balance as of August 1, 2020
 
374

 
$
19

 
$
39

 
$
2,173

 
$
22

 
$
2,253

 
 
 
 
 
 
 
 
 
 
 
 
 
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 twenty-six weeks ended August 3, 2019
 
 
 
 
 
 
 
395

 
 
 
395

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
Change in fair value of derivative financial instruments
 
 
 
 
 
 
 
 
 
10

 
10

Amounts reclassified from accumulated other comprehensive income
 
 
 
 
 
 
 
 
 
(7
)
 
(7
)
Repurchases and retirement of common stock
 
(5
)
 

 
(44
)
 
(56
)
 
 
 
(100
)
Issuance of common stock related to stock options and employee stock purchase plans
 
1

 

 
17

 
 
 
 
 
17

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

 

 
(20
)
 
 
 
 
 
(20
)
Share-based compensation, net of forfeitures
 
 
 
 
 
47

 
 
 
 
 
47

Common stock dividends declared and paid ($0.485 per share)
 
 
 
 
 
 
 
(183
)
 
 
 
(183
)
Balance as of August 3, 2019
 
376

 
$
19

 
$

 
$
3,551

 
$
55

 
$
3,625

__________
(1) On March 4, 2020, the Company declared a first quarter fiscal year 2020 dividend of $0.2425 per share. On March 26, 2020, the Company announced that the dividend will be payable on or after April 28, 2021 to shareholders of record at the close of business on April 7, 2021. The dividend payable amount was estimated based upon the shareholders of record as of August 1, 2020.
See Accompanying Notes to Condensed Consolidated Financial Statements

5



THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
26 Weeks Ended
($ in millions)
August 1,
2020
 
August 3,
2019
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(994
)
 
$
395

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
256

 
277

Share-based compensation
35

 
47

Impairment of operating lease assets
361

 

Impairment of store assets
127

 
3

Loss on extinguishment of debt
58

 

Amortization of debt issuance costs
4

 
1

Non-cash and other items

 
6

Gain on sale of building

 
(191
)
Deferred income taxes
(125
)
 
46

Changes in operating assets and liabilities:
 
 
 
Merchandise inventory
(91
)
 
(166
)
Other current assets and other long-term assets
134

 
29

Accounts payable
467

 
147

Accrued expenses and other current liabilities
(40
)
 
(14
)
Income taxes payable, net of receivables and other tax-related items
(232
)
 
43

Lease incentives and other long-term liabilities
1

 
24

Operating lease assets and liabilities, net
(48
)
 
(64
)
Net cash provided by (used for) operating activities
(87
)
 
583

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(208
)
 
(324
)
Purchase of building

 
(343
)
Proceeds from sale of building

 
220

Purchases of short-term investments
(59
)
 
(150
)
Proceeds from sales and maturities of short-term investments
325

 
146

Purchase of Janie and Jack

 
(69
)
Other
2

 

Net cash provided by (used for) investing activities
60

 
(520
)
Cash flows from financing activities:
 
 
 
Proceeds from revolving credit facility
500

 

Payments for revolving credit facility
(500
)
 

Proceeds from issuance of long-term debt
2,250

 

Payments to extinguish debt
(1,307
)
 

Payments for debt issuance costs
(61
)
 

Proceeds from issuances under share-based compensation plans
12

 
17

Withholding tax payments related to vesting of stock units
(8
)
 
(20
)
Repurchases of common stock

 
(100
)
Cash dividends paid

 
(183
)
Net cash provided by (used for) financing activities
886

 
(286
)
Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash
1

 
(2
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
860

 
(225
)
Cash, cash equivalents, and restricted cash at beginning of period
1,381

 
1,420

Cash, cash equivalents, and restricted cash at end of period
$
2,241

 
$
1,195

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest during the period
$
39

 
$
38

Cash paid for income taxes during the period, net of refunds
$
53

 
$
90

See Accompanying Notes to Condensed Consolidated Financial Statements

6



THE GAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies
Basis of Presentation
The Condensed Consolidated Balance Sheets as of August 1, 2020 and August 3, 2019, and the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Comprehensive Income (Loss), and the Condensed Consolidated Statements of Stockholders' Equity for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019, and the Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended August 1, 2020 and August 3, 2019, have been prepared by The Gap, Inc. (the “Company,” “we,” and “our”). In the opinion of management, such statements contain all normal and recurring adjustments (except as otherwise disclosed) considered necessary to present fairly our financial position, results of operations, comprehensive income (loss), stockholders' equity, and cash flows as of August 1, 2020 and August 3, 2019 and for all periods presented. The Condensed Consolidated Balance Sheet as of February 1, 2020 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 1, 2020.
The results of operations for the thirteen and twenty-six weeks ended August 1, 2020 are not necessarily indicative of the operating results that may be expected for the 52-week period ending January 30, 2021.
COVID-19
In March 2020, the World Health Organization declared the coronavirus disease ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. As a result, we temporarily closed our North America retail stores and a significant number of our stores globally. In May 2020, we began to safely reopen our temporarily closed stores in accordance with local government guidelines. The Company also implemented several actions during the thirteen weeks ended August 1, 2020, to enhance our liquidity position such as completing the issuance of our Senior Secured Notes for $2.25 billion and entering into a third amended and restated senior secured asset-based revolving credit agreement (the "ABL Facility"), with an initial aggregate principal amount of up to $1.8675 billion. There were no borrowings under the ABL Facility as of August 1, 2020. See Note 3 of Notes to Condensed Consolidated Financial Statements for further details. During the twenty-six weeks ended August 1, 2020, we also suspended share repurchases and dividends, and deferred the first quarter of fiscal 2020 dividend.
We suspended rent payments under the leases for our temporarily closed stores beginning in April 2020 and are now working through negotiations with our landlords relating to those leases. We considered the Financial Accounting Standards Board's ("FASB") recent guidance regarding lease modifications as a result of the effects of COVID-19 and elected to apply the temporary practical expedient to account for lease changes as variable rent unless an amendment results in a substantial change in the Company's lease obligations. As of August 1, 2020, the impact of applying the temporary practical expedient was not material to our Condensed Consolidated Financial Statements.
In response to COVID-19, various governments worldwide have enacted, or are in the process of enacting, measures to provide relief to businesses negatively affected by the pandemic. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law in the United States. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain payroll and income tax provisions. The Company is also considering certain beneficial provisions of the CARES Act, including the net operating loss carryback provision. See Note 7 of Notes to Condensed Consolidated Financial Statements for more information on the estimated income tax impact of the CARES Act.
We continue to consider the impact of COVID-19 on the assumptions and estimates used when preparing these quarterly financial statements including inventory valuation, lease accounting impacts, income taxes, and the impairment of long-lived store assets and operating lease assets. These assumptions and estimates may change as the current situation evolves or new events occur and additional information is obtained. If the economic conditions caused by COVID-19 worsen beyond what is currently estimated by management, such future changes may have an adverse impact on the Company's results of operations, financial position, and liquidity.

7



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 August 1, 2020, restricted cash primarily included consideration that serves as collateral for certain obligations and fees occurring in the normal course of business and 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)
August 1,
2020
 
February 1,
2020
 
August 3,
2019
Cash and cash equivalents, per Condensed Consolidated Balance Sheets
$
2,188

 
$
1,364

 
$
1,177

Restricted cash included in other current assets
33

 

 

Restricted cash included in other long-term assets
20

 
17

 
18

Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows
$
2,241

 
$
1,381

 
$
1,195


Accounting Pronouncements Recently Adopted
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 accounting standards update ("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. We adopted this ASU on a prospective basis on February 2, 2020. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements or related disclosures.
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 Condensed Consolidated Financial Statements, based on current information.
ASU No. 2019-12, Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The ASU is intended to enhance and simplify aspects of the income tax accounting guidance in ASC 740 as part of the FASB's simplification initiative. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact this guidance may have on our Condensed Consolidated Financial Statements.
Note 2. Revenue
The Company’s revenues include merchandise sales at stores, online, and through franchise agreements, as well as the newly introduced business-to-business ("B2B") program. 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, 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 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 Operations.

8



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 August 1, 2020 and August 3, 2019, there were no material contract liabilities related to our franchise agreements.
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 August 1, 2020, the opening balance of deferred revenue for these obligations was $198 million, of which $63 million was recognized as revenue during the period. For the twenty-six weeks ended August 1, 2020, the opening balance of deferred revenue for these obligations was $226 million, of which $118 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $189 million as of August 1, 2020.
We expect that the majority of our revenue deferrals as of the quarter ended August 1, 2020, will be recognized as revenue in the next twelve months as our performance obligations are satisfied.
For the thirteen weeks ended August 3, 2019, the opening balance of deferred revenue for these obligations was $206 million, of which $71 million was recognized as revenue during the period. For the twenty-six weeks ended August 3, 2019, the opening balance of deferred revenue for these obligations was $227 million, of which $134 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $195 million as of August 3, 2019.
Net sales disaggregated for stores and online sales for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 was as follows:
 
13 Weeks Ended
 
26 Weeks Ended
($ in millions)
August 1, 2020
 
August 3, 2019
 
August 1, 2020
 
August 3, 2019
Store sales (1)
$
1,642

 
$
3,166

 
$
2,750

 
$
5,989

Online sales (2)
1,633

 
839

 
2,632

 
1,722

Total net sales
$
3,275

 
$
4,005

 
$
5,382

 
$
7,711

__________
(1)
Store sales primarily include sales made at our Company-operated stores and franchise sales. Fiscal 2020 store sales were negatively impacted by COVID-19. See Note 1 of Notes to Condensed Consolidated Financial Statements for further details.
(2)
Online sales primarily include sales made through our online channels including curbside pick-up, ship-from-store sales, buy online pick-up in store sales, and order-in-store sales. Additionally, beginning in the second quarter of fiscal 2020, sales from the B2B program are also included.
See Note 10 of Notes to Condensed Consolidated Financial Statements for further disaggregation of revenue by brand and by region.
Note 3. Debt and Credit Facilities
Long-term debt recorded on the Condensed Consolidated Balance Sheets consists of the following:
($ in millions)
August 1,
2020
 
February 1,
2020
 
August 3,
2019
2021 Notes
$

 
$
1,249

 
$
1,249

2023 Notes
500

 

 

2025 Notes
750

 

 

2027 Notes
1,000

 

 

Less: Unamortized debt issuance costs
(38
)
 

 

Total long-term debt
$
2,212

 
$
1,249

 
$
1,249


On June 6, 2020, we redeemed our $1.25 billion aggregate principal amount of 5.95 percent notes due April 2021 (the "2021 Notes"). We incurred a loss on extinguishment of debt of $58 million, which primarily includes the make-whole premium, which was recorded on the Condensed Consolidated Statement of Operations. Prior to redeeming our 2021 Notes, the aggregate principal amount of the 2021 Notes was recorded in long-term debt on the Condensed Consolidated Balance Sheets, net of the unamortized discount. Following the redemption, our obligations under the 2021 Notes were discharged.

9



On May 7, 2020, we completed the issuance of our Senior Secured Notes due 2023 (“2023 Notes”), 2025 (“2025 Notes”), and 2027 (“2027 Notes”) (collectively, the “Notes”) in a private placement to qualified buyers and received gross proceeds of $2.25 billion. Concurrently with the issuance of the Notes, the Company amended the existing unsecured revolving credit facility with the ABL Facility which is scheduled to expire in May 2023. We recorded approximately $61 million of debt issuance costs related to the Notes and ABL Facility within long-term debt and other long-term assets on the Condensed Consolidated Balance Sheet, which will be amortized through interest expense over the life of the related instrument.