-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Il9UEANoRUodq9+d/V+Sr7AqefahOyGQDQx3NFqzTPlaMX8ak4RdEOdA3yqaoWVe o+dt+MSMlddaCIkRQ7nUdg== 0000039911-94-000035.txt : 19941214 0000039911-94-000035.hdr.sgml : 19941214 ACCESSION NUMBER: 0000039911-94-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19941029 FILED AS OF DATE: 19941213 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAP INC CENTRAL INDEX KEY: 0000039911 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 941697231 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07562 FILM NUMBER: 94564525 BUSINESS ADDRESS: STREET 1: ONE HARRISON CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159524400 MAIL ADDRESS: STREET 1: ONE HARRISON STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 FORMER COMPANY: FORMER CONFORMED NAME: GAP STORES INC DATE OF NAME CHANGE: 19850617 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended October 29, 1994 or [ ] 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 of Incorporation) (I.R.S. Employer Identification No.) One Harrison San Francisco, California 94105 (Address of principal executive offices) Registrant's telephone number, including area code: (415) 952-4400 _______________________ Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.05 par value New York Stock Exchange, Inc. (Title of class) Pacific Stock Exchange, Inc. (Name of each exchange where registered) Securities registered pursuant to Section 12(g) of the Act: None _______________________ Indicate by check mark whether 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 X No Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, $0.05 par value, 145,071,709 shares as of December 9, 1994
PART 1 THE GAP,INC. AND SUBSIDIARIES ITEM 1 CONSOLIDATED BALANCE SHEETS ($000) October 29, January 29, October 30, 1994 1994 1993 (Unaudited) (See Note 1) (Unaudited) ASSETS Current Assets: Cash and equivalents $ 223,654 $ 460,332 $ 267,441 Short-term investments 159,077 83,497 - Accounts receivable 13,965 15,225 16,700 Merchandise inventory 537,343 331,155 496,647 Prepaid expenses and other 76,661 66,229 77,267 Total Current Assets 1,010,700 956,438 858,055 Property and equipment (net) 801,554 740,422 722,452 Long-term investments 62,418 - - Lease rights and other assets 73,632 66,257 36,182 Total Assets $1,948,304 $1,763,117 $1,616,689 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable $ 2,936 $ 7,603 $ 19,024 Accounts payable 304,703 216,664 231,960 Accrued expenses 169,552 163,350 137,241 Income taxes payable 28,043 70,431 30,575 Deferred lease credits & other 6,681 4,196 3,989 Total Current Liabilities 511,915 462,244 422,789 Long-term Liabilities: Long-term debt - 75,000 75,000 Other liabilities 9,758 11,353 13,018 Deferred lease credits 109,961 88,045 82,235 subtotal 119,719 174,398 170,253 Stockholders' Equity: Common stock $.05 par value Authorized 500,000,000 shares Issued 156,661,757, 155,733,256 and 155,546,473 shares Outstanding 145,927,229, 145,248,728 and 145,061,945 shares 7,834 7,787 7,777 Additional paid-in capital 285,096 240,655 238,367 Retained earnings 1,180,442 1,026,836 931,479 Foreign currency translation adjustment (4,521) (8,314) (9,794) Restricted stock plan deferred compensation (49,695) (48,035) (51,728) Treasury stock, at cost (102,486) (92,454) (92,454) subtotal 1,316,670 1,126,475 1,023,647 Total Liabilities and Stockholders' Equity $1,948,304 $1,763,117 $1,616,689 See accompanying notes to interim consolidated financial statements.
THE GAP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Thirteen Weeks Ended Thirty-nine Weeks Ended Unaudited October 29, October 30, October 29, October 30, ($000 except per share amounts) 1994 1993 1994 1993 Net sales $ 988,346 $ 898,677 $ 2,513,147 $ 2,235,449 Costs and expenses Cost of goods sold and 609,498 558,836 1,579,705 1,475,442 occupancy expenses Operating expenses 227,728 209,084 605,777 514,317 Interest expense (income), net (3,669) 318 (5,355) 1,539 Earnings before income taxes 154,789 130,439 333,020 244,151 Income taxes 61,142 51,524 131,543 95,072 Net earnings $ 93,647 $ 78,915 $ 201,477 $ 149,079 Weighted average number of shares 145,850,581 144,990,026 145,650,754 144,738,922 Earnings per share $ .64 $ .54 $ 1.38 $ 1.03 Cash dividends per share $ .12 $ .10 $ .34 $ .28 See accompanying notes to interim consolidated financial statements.
THE GAP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited ($000) Thirty-Nine Weeks Ended October 29, October 30, 1994 1993 Cash Flows from Operating Activities: Net earnings $ 201,477 $ 149,079 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 123,574 103,152 Tax benefit from exercise of stock options by employees and from vesting of restricted stock 15,562 7,317 Deferred income taxes (7,331) (1,526) Change in operating assets and liabilities: Merchandise inventory (205,157) (131,799) Prepaid expenses and other (6,712) (7,663) Accounts payable 87,236 34,687 Accrued expenses 5,870 9,108 Income taxes payable (42,137) 19,868 Other long-term liabilities (1,595) (1,007) Deferred lease credits 24,377 19,870 Net cash provided by operating activities 195,164 201,086 Cash Flows from Investing Activities: Purchase of short-term investments, net (75,580) - Purchase of long-term investments, net (62,418) - Net purchases of property and equipment (164,170) (161,612) Acquisition of lease rights and other assets (4,560) (3,594) Net cash used for investing activities (306,728) (165,206) Cash Flows from Financing Activities: Net (decrease) increase in notes payable (5,765) 19,182 Payment on long-term debt (75,000) - Issuance of common stock, net of cancellations 12,770 8,367 Purchase of treasury stock (10,032) - Cash dividends paid (47,870) (39,053) Net cash used for financing activities (125,897) (11,504) Effect of exchange rate changes on cash 783 (237) Net (decrease) increase in cash and equivalents (236,678) 24,139 Cash and equivalents at beginning of year 460,332 243,302 Cash and equivalents at end of quarter $223,654 $ 267,441 See accompanying notes to consolidated financial statements. THE GAP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The consolidated balance sheets as of October 29, 1994 and October 30, 1993, and the interim consolidated statements of earnings for the thirteen and thirty-nine weeks ended October 29, 1994 and October 30, 1993 and the interim consolidated statements of cash flows for the thirty-nine weeks ended October 29, 1994 and October 30, 1993 have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows of the Company at October 29, 1994 and October 30, 1993, and for all periods presented, have been made. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted from these interim financial statements. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended January 29, 1994. The results of operations for the thirty-nine weeks ended October 29, 1994 are not necessarily indicative of the operating results that may be expected for the year ending January 28, 1995. 2. INVESTMENTS The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, as of January 29, 1994. The Company's short and long-term investments consist primarily of debt securities which have been classified as held to maturity and are carried at amortized cost. The adoption of SFAS No. 115 had no material effect on the Company's Interim consolidated financial statements. 3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Year-to-date 1994 and 1993 gross interest payments were $7.4 million and $5.7 million respectively; income tax payments were $155.1 million and $69.8 million respectively. Deloitte & Touche LLP 2101 Webster Street Telephone: (510) 287-2700 Oakland, California 94612-3027 Facsimile: (510) 835-4888 INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors and Stockholders of The Gap, Inc.: We have reviewed the accompanying consolidated balance sheets of The Gap, Inc. and subsidiaries as of October 29, 1994 and October 30, 1993 and the related interim consolidated statements of earnings for the thirteen-week and thirty-nine week periods ended October 29, 1994 and October 30, 1993 and the interim consolidated statements of cash flows for the thirty-nine weeks ended October 29, 1994 and October 30, 1993. These interim consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such interim consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of The Gap, Inc. and subsidiaries as of January 29, 1994, and the related consolidated statements of earnings, stockholder's equity and cash flows for the year then ended (not presented herein); and in our report dated March 3, 1994, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 29, 1994 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it was derived. /S/ Deloitte & Touche LLP November 8, 1994 Deloitte Touche Tohmatsu International Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS Net Sales Thirteen Weeks Ended Thirty-nine Weeks Ended October 29, 1994 October 30, 1993 October 29, 1994 October 30, 1993 Net sales ($000) 988,346 898,677 2,513,147 2,235,449 Total net sales growth percentage 10 9 12 10 Comparable store sales growth percentage <2> <1> 2 0 Sales dollar per average square foot 115 123 310 322 Fifty-two Weeks Ended October 29, 1994 October 30, 1993 Number of: New stores 143 114 Expanded stores 93 121 Closed stores 51 24
The increases in third quarter and year-to-date 1994 net sales over the same periods last year were primarily attributable to the opening of new stores (net of stores closed) and the expansion of existing stores, partially offset by a decrease in third quarter comparable store sales. The decrease in comparable store sales is primarily attributable to negative comparable store sales in the Gap division. The decrease in third quarter and year-to-date sales per average square foot over the same periods last year was partially attributable to the expansion of new and existing stores in connection with the Company's store expansion program. In addition negative third quarter comparable store sales as well as continued store growth in the Old Navy division, with lower priced merchandise and significantly larger stores, contributed to the decrease in sales per average square foot. Cost of Goods Sold and Occupancy Expenses Cost of goods sold and occupancy expenses as a percentage of net sales decreased to 61.7 percent for the third quarter of 1994 from 62.2 percent for the same period in 1993. The corresponding .5 percentage point increase in gross margin net of occupancy expenses was attributable to a 1.1 percentage point increase in merchandise margin as a percentage of net sales partially offset by a .6 percentage point increase in occupancy expenses as a percentage of net sales. Cost of goods sold and occupancy expenses as a percentage of net sales decreased to 62.9 percent for the year-to-date period from 66.0 percent for the same period in 1993. The corresponding 3.1 percentage point increase in gross margin net of occupancy expenses was attributable to a 3.6 percentage point increase in merchandise margin as a percentage of net sales partially offset by a .5 percentage point increase in occupancy expenses as a percentage of net sales. During the third quarter, higher initial merchandise margins were achieved when compared to the same period last year. This was partially offset by a larger percentage of merchandise sold at markdown. Merchandise margins achieved on markdown goods were higher than last year. For the year-to-date period, higher initial merchandise margins were achieved and a larger percentage of merchandise was sold at regular prices when compared to the same period last year. Over the past five quarters, the Company has operated at near record levels of merchandise margin when compared to the same periods of previous years, making future comparisons more challenging. The Company expects fourth quarter merchandise margins to be lower than the same period last year. The Company reviews its inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes) and uses markdowns to clear merchandise. Such markdowns may have an adverse impact on earnings, depending upon the extent of the markdown and the amount of inventory affected. For the third quarter and year-to-date periods, occupancy expenses increased as a percentage of net sales when compared to the same periods in 1993. The increases in occupancy expenses are primarily due to the opening of new stores and the expansion of existing stores. Based upon the Company's current expansion plans, occupancy expenses are expected to remain higher as a percentage of net sales than last year for the remainder of 1994. Operating Expenses Operating expenses decreased as a percentage of net sales to 23.0 percent for the third quarter of 1994 compared to 23.3 percent for the same period last year. The decrease was primarily attributable to a beneficial comparison from last year's third quarter when $10 million of expense was recognized to support a store refixturing program. This was partially offset by an increase in 1994 third quarter payroll expense as investments were made to support the Old Navy and International divisions. Operating expenses increased as a percentage of net sales to 24.1 percent year-to-date compared to 23.0 percent for the same period last year. The 1.1 percentage point increase is primarily attributable to a .5 percentage point increase in store payroll costs as a percentage of net sales and a .4 percentage point increase for incentive bonus as a percentage of net sales. These increases were offset by a .3 percentage point decrease in a provision for the write-off of certain store fixtures. Net Interest Income/Expense Net interest income was approximately $3.7 million for the third quarter compared to net interest expense of $318,000 for the same period last year. The change is primarily attributable to an increase in gross average investments and a reduction in interest expense from lower average borrowings compared to the same period last year. For the thirty-nine weeks ended October 29, 1994, net interest income was approximately $5.4 million compared to net interest expense of $1.5 million last year. The change is primarily attributable to earnings from an increase in gross average investments which were partially offset by a $1.7 million interest payment in connection with the early repayment of long-term debt obligations during the second quarter of 1994. Income Taxes For the third quarter and year-to-date periods, the effective income tax rate was 39.5 percent compared to 39.5 and 38.9 percent for the same periods last year. At the end of the second quarter last year the Company increased its estimated annual effective income tax rate to 39.5 percent to reflect changes in federal income tax law. The Company expects the effective income tax rate to remain at 39.5 percent for the fourth quarter of 1994. LIQUIDITY AND CAPITAL RESOURCES The following sets forth certain measures of the Company's liquidity: Thirty-nine weeks ended October 29, 1994 October 30, 1993 Cash provided by operating activities ($000) $195,164 $201,086 Working capital ($000) $498,785 $435,266 Current ratio 1.97:1 2.03:1 For the thirty-nine weeks ended October 29, 1994, the decrease in cash provided by operating activities resulted primarily from increases in inventory purchases and income tax payments which more than offset an increase in net earnings exclusive of depreciation expense. The Company funds inventory expenditures during normal and peak periods through a combination of cash flows provided by operating activities and normal trade credit arrangements. The Company's business follows a seasonal pattern, peaking over a total of about ten weeks during the late summer and holiday periods. For the thirty-nine weeks ended October 29, 1994, capital expenditures, net of construction allowances and dispositions, totalled approximately $154 million. These expenditures included the addition of 125 new stores, the expansion of 65 stores and the remodeling of certain stores resulting in a net increase in store space of approximately 1.1 million square feet or 15 percent since January 29, 1994. For fiscal year 1994, the Company expects capital expenditures to total approximately $250 million, net of construction allowances, representing the addition of approximately 170 to 180 new stores, the expansion of approximately 90 stores, and the remodeling of certain stores. Square footage growth is expected to be approximately 20 percent after accounting for store closings. The Company expects to fund such capital expenditures with cash flow from operations. New stores are generally expected to be leased. For fiscal year 1995, the Company currently expects capital expenditures to total approximately $300 to $350 million, net of construction allowances. These expenditures include the addition of approximately 250 to 275 new stores, and the expansion of approximately 75 stores. Square footage growth is expected to be approximately 25 percent before accounting for store closings. The Company continues to explore alternatives for headquarters facilities growth in San Francisco and San Bruno, California. The amounts above do not include any expenditures related to headquarters facilities. The Company has a credit agreement which provides for a $250 million revolving credit facility until March 1997. In addition, the credit agreement provides for the issuance of letters of credit up to $350 million at any one time. The Company had outstanding letters of credit of approximately $289 million at October 29, 1994. During the first quarter of 1994, the Company repurchased 250,000 shares of its common stock for $10,032,000 from a senior executive of the Company. In June 1994, the Company repaid $75 million of long-term debt which had been outstanding since February 1991, with an original maturity date of February 1995. As part of this transaction, the Company also paid $1.7 million of additional interest expense. On October 25, 1994, the Board of Directors approved a program, under which the Company may repurchase up to 9 million shares of its outstanding common stock in the open market over a two year period. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits (10) Employee Stock Purchase Plan (11) Computation of Earnings per Share (15) Letter re: Unaudited Interim Financial Information (27) Financial Data Schedule b) The Company did not file any reports on Form 8-K during the three months ended October 29, 1994. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GAP, INC. Date: December 9, 1994 By /s/ Robert J. Fisher Robert J. Fisher Executive Vice President and Chief Financial Officer (Principal financial officer of the registrant) Date: December 9, 1994 By /s/ Donald G. Fisher Donald G. Fisher Chairman and Chief Executive Officer EXHIBIT INDEX Exhibit Number (10) Employee Stock Purchase Plan, filed as Exhibit 4.1 to Registrants's Registration Statement on Form S-8, Commission File No. 33-56021. (11) Computation of Earnings per Share (15) Letter re: Unaudited Interim Financial Information (27) Financial Data Schedule EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
THE GAP, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Thirteen Weeks Ended Thirty-Nine Weeks Ended October 29, October 30, October 29, October 30, 1994 1993 1994 1993 Net earnings ($000) $ 93,647 $ 78,915 $ 201,477 $ 149,079 Weighted average shares of common stock outstanding during the period 145,850,581 144,990,026 145,650,754 144,738,922 Add incremental shares from assumed exercise of stock options (primary) 440,092 499,380 701,118 617,519 subtotal 146,290,673 145,489,406 146,351,872 145,356,441 Primary earnings per share $ .64 $ .54 $ 1.38 $ 1.03 Weighted average shares of common stock outstanding during the period 145,850,581 144,990,026 145,650,754 144,738,922 Add incremental shares from assumed exercise of stock options (fully-diluted) 440,870 770,394 721,658 707,354 subtotal 146,291,451 145,760,420 146,372,412 145,446,276 Fully-diluted earnings per share $ .64 $ .54 $ 1.38 $ 1.02 NOTE: The information provided in this exhibit is presented in accordance with Regulation S-K, Item 601(b)(11). Net earnings per share on the Consolidated Statements of Earnings is presented in accordance with APB Option 15 as the difference between primary and fully-diluted earnings per share and earnings per share calculated on a weighted average shares basis is less than 3%.
EX-15 3 LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION Deloitte & Touche LLP 2101 Webster Street Telephone: (510) 287-2700 Oakland, California 94612-3027 Facsimile: (510) 835-4888 To the Board of Directors and Stockholders of The Gap, Inc.: We have made reviews, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim consolidated financial statements of The Gap, Inc. and subsidiaries for the thirty-nine week periods ended October 29, 1994 and October 30, 1993, as indicated in our report dated November 8, 1994; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the period ended October 29, 1994, is incorporated by reference in Post Effective Amendment No. 1 to Registration Statement No. 2-72586, Registration Statement No. 2-60029, Registration Statement No. 33-39089, Registration Statement No. 33-40505, Registration Statement No. 33-54686, Registration Statement No. 33-54688, Registration Statement No. 33-54690 and Registration Statement No. 33-56021. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /S/ Deloitte & Touche LLP November 8, 1994 Deloitte Touche Tohmatsu International EX-27 4
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GAP, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER 29, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JAN-28-1995 OCT-29-1994 223,654 159,077 0 0 537,343 1,010,700 1,237,175 435,621 1,948,304 511,915 0 7,834 0 0 1,308,836 1,948,304 988,346 988,346 609,498 227,728 (3,669) 0 0 154,789 61,142 93,647 0 0 0 93,647 .64 .64
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