Accounting Policies

9 Months Ended

Nov. 02, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Accounting Policies [Text Block]

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.

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.