1. Gap, Banana Republic, Old Navy Sarah Bass ACG2021 SECTION 80 Gap, Banana Republic, Old Navy Sarah Bass ACG2021 SECTION 80 Annual Report

2. Executive Summary The Gap Inc. Corporation is an old company that has come a long way. Since opening in 1969, they have started from a single chain of stores, Gap, and have now included both Banana Republic and Old Navy. This company is continually growing. Gap Inc. has stores worldwide. They are a strong company, and in the past few years have become even stronger. Gap Inc. 2004 Annual Report Gap Inc. 2004 Annual Report

3. Part A. Introduction Name of chief executive officer: Paul S. Pressler Name of chief executive officer: Paul S. Pressler Location of home office: Two Folsom Street Location of home office: Two Folsom Street San Francisco, CA 94105 San Francisco, CA 94105 Ending date of latest fiscal year: Jan 31, 2005 Ending date of latest fiscal year: Jan 31, 2005 Description of the principal products : clothing, personal care products, accessories for men, women, children and babies Description of the principal products : clothing, personal care products, accessories for men, women, children and babies Main geographic area of activity: Throughout the us as well as Canada, France, Japan, and the U.K. Main geographic area of activity: Throughout the us as well as Canada, France, Japan, and the U.K.

4. Part A. Audit Report The auditors are: Deloitte & Touche LLP The auditors are: Deloitte & Touche LLP San Francisco, CA San Francisco, CA The auditors did not have a statement on the site.

5. Part A. Stock Market Information Most recent price of the company’s stock: 17.42 Most recent price of the company’s stock: 17.42 Twelve month trading range of the company’s stock: 16.70- 23.75 Twelve month trading range of the company’s stock: 16.70- 23.75 Dividend per share: $1.29/share Dividend per share: $1.29/share Date of the above information: 9/29/05 Date of the above information: 9/29/05 Your opinion about the company stock as an investment? Right now the stock in the lower range. The company has a lot of potential, chances are that the stock prices will not drop. It’s a stable company. I would hold what I have and possibly even buy more, but I would not sell. Your opinion about the company stock as an investment? Right now the stock in the lower range. The company has a lot of potential, chances are that the stock prices will not drop. It’s a stable company. I would hold what I have and possibly even buy more, but I would not sell.

6. Part B. Industry Situation and Company Plans Gap Inc. is a company with a good outlook. Gap Inc. runs three different chains of stores-each profiting very well. They have just celebrated their 35 th anniversary. In 2004 Gap Inc. restored financial health to their company, as well as being able to pay dividends. As shown in the letter from the Chairman, Robert J. Fisher, on page 5 of the annual report, the future of Gap Inc. looks quite optimistic. Later this year the company is adding stores that target women over 35. In order to improve what they have, over the past two years, Gap Inc. has stopped opening more stores, has closed unproductive stores, and has been getting itself out of debt, as described by the C.E.O. of the company, Paul Pressler, in his letter to shareholders on page 7.

8. Part C. Income Statement The company probably uses a single-step format. The statement is simplified-not broken down into the components that derived the net income. The company probably uses a single-step format. The statement is simplified-not broken down into the components that derived the net income. All of these numbers increase from 2003-2004. This is because the sales of Gap Inc. get larger every year. The company must constantly be keeping up with new styles and inflation. To grow as a company they must increase profits each year. All of these numbers increase from 2003-2004. This is because the sales of Gap Inc. get larger every year. The company must constantly be keeping up with new styles and inflation. To grow as a company they must increase profits each year. Year Gross Profit Income from Operations Net Income 20035,96915,8541,031 20046,38116,2671,150 *In millions of dollars.

9. Part C. Balance Sheet The liability account changed the most. They increased $953 million. The SHE and asset accounts changed some, but not as much as the liabilities. The liability account changed the most. They increased $953 million. The SHE and asset accounts changed some, but not as much as the liabilities. Assets=Liabilities+ Stock Holders' Equity current 6304 current 2242 total 4936 P,P&E 3376 long term 2870 other 368 10,048=5112+4936 Assets=Liabilities+ Stock Holders' Equity current 6703 current 2547 total 4648 P,P&E 3626 long term 3518 other 384 10,713=6065+4648 2003 2004

10. Part C. Statement of Cash Flows The cash flows are less than net income for the past two years. The figured have decreased from 1.9 to 1.2 billion. The net income, however, is significantly less-in the million rather than billion range. This is because of the company’s investing activities and repaying its debt. The company is also opening a new chain of stores. The cash flows are less than net income for the past two years. The figured have decreased from 1.9 to 1.2 billion. The net income, however, is significantly less-in the million rather than billion range. This is because of the company’s investing activities and repaying its debt. The company is also opening a new chain of stores. The company’s primary source of financing is payment of long-term debt, issuance of common stock, purchase/reissuance of treasury stock and paying dividends. The company’s primary source of financing is payment of long-term debt, issuance of common stock, purchase/reissuance of treasury stock and paying dividends. Overall,over the past two years cash has decreased because of increased investing. Overall,over the past two years cash has decreased because of increased investing.

11. Part D. Accounting Policies Letter from the Chairman....... 3 Letter to Shareholders......... 5 Gap........................ 8 Banana Republic............. 10 Old Navy................... 12 Social Responsibility........... 14 Key Financial Statistics.......... 16 Financial Highlights.............. 17 Financials...................... 19 Five-Year Selected Financial Data.......................................... 20 Management’s Discussion and Analysis.................................... 21 Quantitative and Qualitative Disclosures about Market Risk..................... 37 Management’s Responsibility for Financial Statements........................ 39 Management’s Report on Internal Control over Financial Reporting............... 39 Report of Independent Registered Public Accounting Firm......................40 Consolidated Statements of Operations (as restated).......................... 41 Consolidated Balance Sheets (as restated).................................. 42 Consolidated Statements of Cash Flows (as restated).........................43 Consolidated Statements of Shareholders’ Equity (as restated)..................44 Notes to Consolidated Financial Statements.................................46 Quarterly Information (Unaudited).........................................64 Executive Leadership Team.............................................. 65 Board of Directors...................................................... 67 Corporate Information...................................................68 Shareholder Information.................................................69

12. Accounting Policies Revenue Recognition: Gap Inc. Recognizes transactions when they are received by the customer. This relates to revenues and cost of goods sold. Allowances for estimated returns are based upon historical patterns that the management of Gap Inc. believes to be reasonable. Revenue Recognition: Gap Inc. Recognizes transactions when they are received by the customer. This relates to revenues and cost of goods sold. Allowances for estimated returns are based upon historical patterns that the management of Gap Inc. believes to be reasonable. Cash: Cash: Cash and equivalents represent cash and short-term, highly liquid investments with original maturities up to three months or less. Short Term investments: Investments that are classified as short term, have maturities from three months to one year’s time. Short Term investments: Investments that are classified as short term, have maturities from three months to one year’s time. Inventory: The inventory at Gap Inc. is valued using the cost method. They use FIFO method to determine Costs. Market is determined based on the estimated net realizable value, which generally is the merchandise selling price. They estimate and accrue shortage for the period between the last physical count and the balance sheet date. Their shortage estimate can be affected by changes in merchandise mix and changes in actual shortage trends. Property and Equipment: Depreciation and amortization are computed using the straight-line method. Property and Equipment are stated at cost.

13. Part E. Financial Analysis Liquidity Ratios \ 2003 2004 Working Capital 4156 4062 Working Capital 4156 4062 Current Ratio 2.63 2.61 Current Ratio 2.63 2.61 Inventory Turnover 5.61 5.62 Inventory Turnover 5.61 5.62 Average Days’ Inventory on Hand 65.06 64.95 Average Days’ Inventory on Hand 65.06 64.95 The numbers on this chart stay relatively stable. This shows the company’s stability The Receivable Turnover and Average Days sales could not be computed because Gap Inc. does not have its own credit card company. *Computed in millions of dollars

14. Part E. Financial Analysis Profitability Ratios Profit margin: 2003: 6% 2004: 7% Profit margin: 2003: 6% 2004: 7% The profit margin increasing shows an increase in net income. Asset turnover: 2003: 1.53 times 2004 1.57 times Asset turnover: 2003: 1.53 times 2004 1.57 times Asset turnover has increased, showing that the company is turning their assets to produce sales at a faster rate. Asset turnover has increased, showing that the company is turning their assets to produce sales at a faster rate. Return on assets: 2003: 9.8% 2004: 11.1% Return on assets: 2003: 9.8% 2004: 11.1% has increased significantly over the past two years due to lots of attention increasing operating efficiency. has increased significantly over the past two years due to lots of attention increasing operating efficiency. Return on equity: 2003: 25.2% 2004: 24% Return on equity: 2003: 25.2% 2004: 24% Overall, these figures show that the company is doing better each year.

15. Part E. Financial Analysis Solvency Ratio Debt to equity: Debt to equity: 2003:.5 times 2004: 1.3 times The debt to equity has increased, but the numbers are still low. This shows that the Gap Inc. has long-term solvency.

16. Part E. Financial Analysis Market Strength Ratios Price/earnings per share: 2003: 1.09 2004: 1.21 Price/earnings per share: 2003: 1.09 2004: 1.21 Dividend yield: Dividend yield: 2003: 0.53% 2004: 0.4% The price per share has gone up but the dividend yield has decreased. That means that the cost of the shares has increased but the amount of dividends paid to shareholders has decreased.