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Gap Inc. Reports Third Quarter Earnings Per Share Of $0.63 – Up From $0.38 Last Year

These forward-looking statements are based on information as of November 15, 2012. The company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

About Gap Inc.

Gap Inc. is a leading global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Banana Republic, Old Navy, Piperlime, and Athleta brands. Fiscal 2011 net sales were $14.5 billion. Gap Inc. products are available for purchase in about 90 countries worldwide through about 3,000 company-operated stores, about 250 franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
The Gap, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
   
($ in millions)

October 27, 2012

October 29, 2011
ASSETS
Current assets:
Cash, cash equivalents, and short-term investments $ 1,770 $ 1,417
Merchandise inventory 2,269 2,322
Other current assets   794   815
Total current assets 4,833 4,554
Property and equipment, net 2,559 2,550
Other long-term assets   615   553
Total assets $ 8,007 $ 7,657
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 2 $ 52
Accounts payable 1,584 1,472
Accrued expenses and other current liabilities 1,041 957
Income taxes payable   1   1
Total current liabilities   2,628   2,482
Long-term liabilities:
Long-term debt 1,246 1,606
Lease incentives and other long-term liabilities   972   910
Total long-term liabilities   2,218   2,516
Total stockholders' equity   3,161   2,659
Total liabilities and stockholders' equity $ 8,007 $ 7,657

The Gap, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED
       
13 Weeks Ended 39 Weeks Ended
($ and shares in millions except per share amounts) October 27,

2012
October 29,

2011
October 27,

2012
October 29,

2011
Net sales $ 3,864 $ 3,585 $ 10,926 $ 10,266
Cost of goods sold and occupancy expenses   2,271   2,271   6,531   6,397
Gross profit 1,593 1,314 4,395 3,869
Operating expenses   1,073   968   3,055   2,803
Operating income 520 346 1,340 1,066
Interest, net   21   21   63   47
Income before income taxes 499 325 1,277 1,019
Income taxes   191   132   493   404
Net income $ 308 $ 193 $ 784 $ 615
 
Weighted-average number of shares - basic 481 503 485 542
Weighted-average number of shares - diluted 488 505 491 547
 
Earnings per share - basic $ 0.64 $ 0.38 $ 1.62 $ 1.13
Earnings per share - diluted $ 0.63 $ 0.38 $ 1.60 $ 1.12
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
   
39 Weeks Ended
($ in millions) October 27,

2012
October 29,

2011
Cash flows from operating activities:
Net income $ 784 $ 615
Depreciation and amortization (a) 363 382
Change in merchandise inventory (655 ) (694 )
Other, net   733     335  
Net cash provided by operating activities   1,225     638  
 
Cash flows from investing activities:
Purchases of property and equipment (449 ) (416 )
Purchases of short-term investments (175 ) (50 )
Maturities of short-term investments 125 125
Change in other assets   (12 )   (4 )
Net cash used for investing activities   (511 )   (345 )
 
Cash flows from financing activities:
Proceeds from issuance of short-term debt - 9
Payments of short-term debt (17 ) -
Proceeds from issuance of long-term debt - 1,646
Payments of long-term debt issuance costs - (11 )
Payments of long-term debt (400 ) -
Proceeds from issuances under share-based compensation plans, net of withholding tax payments 159 55
Repurchases of common stock (467 ) (2,013 )
Excess tax benefit from exercise of stock options and vesting of stock units 32 11
Cash dividends paid   (182 )   (181 )
Net cash used for financing activities   (875 )   (484 )
 
Effect of foreign exchange rate fluctuations on cash   (4 )   22  
Net decrease in cash and cash equivalents (165 ) (169 )
Cash and cash equivalents at beginning of period   1,885     1,561  
Cash and cash equivalents at end of period $ 1,720   $ 1,392  
 
 
 
(a) Depreciation and amortization is net of amortization of lease incentives.
The Gap, Inc.
SEC REGULATION G
UNAUDITED
   
 
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
 
39 Weeks Ended
($ in millions) October 27,

2012
October 29,

2011
Net cash provided by operating activities $ 1,225 $ 638
Less: purchases of property and equipment   (449 )   (416 )
Free cash flow (a) $ 776   $ 222  
_________
(a) Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures, as we require regular capital expenditures to build and maintain stores and purchase new equipment to improve our business. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results.

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