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 October 28, 2017May 1, 2021
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)
Delaware94-1697231
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
Two Folsom Street, San Francisco, California94105
(Address of principal executive offices)(Zip code)
Two Folsom Street
San Francisco, California 94105
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (415) 427-0100

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.05 par valueGPSThe 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  ☐
Yes  ☑ No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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  ☑
Yes  ☐    No  ☑
The number of shares of the registrant’s common stock outstanding as of November 15, 2017May 21, 2021 was 388,857,073.

377,602,302.



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 impact of the adoption of newrecent accounting standards;pronouncements;
•recognition of revenue deferrals as revenue;
•our new credit card program with Barclays and Mastercard, as well as our previous program with Synchrony Financial;
•compliance with applicable covenants under the Notes and the ABL Facility (each as defined below);
•unrealized gains and losses from designated cash flow hedges into income;hedges;
the impact of•future share repurchases, including the potential settlement of outstanding tax matters;timing and amounts thereof;
•the impact of losses due to indemnification obligations;
•the outcome of proceedings, lawsuits, disputes, and claims;
claims, including the impact of continuing depreciationsuch actions on our financial results;
•our Power Plan 2023 strategy and our ability to execute against it;
•our omni-channel capabilities;
•our key initiatives and business priorities;
•our Gap Home venture with Walmart.com and other existing and potential future partnerships;
•the impact of certain foreign currencies on gross marginsCOVID-related store closures and supply chain challenges;
•product acceptance by our customers;
•our investments in demand generation;
•targeted closures of North American stores, including the number and timing thereof and costs associated therewith;
•the impact of our expected lease buyouts amounts;
•our ability to reach agreements with our landlords regarding suspended rent payments for our foreign subsidiaries;temporarily closed stores;
current cash balances•the expected timing, cost and cash flows being sufficientscope of the strategic review of our operating model in Europe;
•the impact of the divestiture of the Janie & Jack and Intermix businesses;
•our loyalty programs;
•creating product that offers value to our customers through a combination of fit, quality, brand and price;
•investing in our four purpose-led lifestyle brands to drive relevance and gain market share;
•growing our online business;
•attracting and retaining strong talent in our businesses and functions;
•reducing our fixed cost structure to fuel demand generation investments;
•leveraging our scale to navigate constraints in supply chain;
•managing inventory to support a healthy merchandise margin;
•rationalizing the Gap and Banana Republic brands;
•prioritizing asset-light growth through licensing, online, and franchise partnerships globally;
•continuing to integrate social and environmental sustainability into business practices;
•our business operations,ability to respond to developments in the COVID-19 pandemic situation and guidance from international and domestic authorities;
•our ability to manage through the impacts of COVID-19, including growth initiatives and planned capital expenditures;the impact it has on our liquidity;
•our ability to supplement near-term liquidity, if necessary, with our $500 million revolving credit facilitythe ABL Facility or other available market instruments;
•cash flows from our operations, along with current cash balances, and the Notes and the ABL Facility being sufficient to support our business operations;
•the impact of the seasonality ofand COVID-19 recovery on our operations;
•our dividend payments in fiscal 2017;policy, including the potential timing and amounts of future dividends; 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, including channel preferences;
the highly competitive nature of our business in the United States and internationally;
•the risk that failure to maintain, enhance and protect our brand image could have an adverse effect on our results of operations;
•the highly competitive nature of our business in the United States and internationally;
•engaging in or seeking to engage in strategic transactions that are subject to various risks and uncertainties;
•the risk that our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate;
•the risk that the failure to manage key executive succession and retention and to continue to attract and retain keyqualified personnel or effectively manage succession, could have an adverse impact on our results of operations;
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 changes in the regulatory or administrative landscape could adversely affect our financial condition, strategies, and results of operations;
the risk that our investments in digital and customer 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 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 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 foreign currency exchange rate fluctuations could adversely impact our financial results;
the risksa failure of, or updates or changes to, our business, includinginformation technology systems may disrupt our costs and supply chain, associated with global sourcing and manufacturing;operations;
the risk that changes in global economic conditions or consumer spending patterns could adversely impact our results of operations;
•the risks to our efforts to expand internationally, including our ability to operate under a global brand structure and operating in regions where we have less experience;
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 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 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 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 changes in global economic conditions or consumer spending patterns could adversely impact our results of operations;
•the risk that we will not be successful in defending various proceedings, lawsuits, disputes, and claims;
•the risk that changes in the regulatory or administrative landscape could adversely affect our financial condition and results of operations;
•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 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 updates or changes to our information technology (“IT”) systems may disrupt our operations;
the risk that natural disasters, public health crises, political crises, 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 marketing and servicing arrangement related to our private label and co-branded credit cards could adversely affect our operating results and cash flows;
the risk that adoption of new accounting pronouncements will impact future results; and
•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, claims, and audits.program.
Additional information regarding factors that could cause results to differ can be found in our Annual Report on Form 10-K for the fiscal year ended January 28, 201730, 2021 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 November 22, 2017, and weMay 28, 2021. 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 January 28, 2017.30, 2021.





THE GAP, INC.
TABLE OF CONTENTS
 
Page
PART I - FINANCIAL INFORMATION
Page
Item 1.
Item 1.
Financial Statements
1
Condensed Consolidated Balance Sheets as of October 28, 2017,May 1, 2021, January 28, 2017,30, 2021, and October 29, 2016May 2, 2020
1
Condensed Consolidated Statements of IncomeOperations for the Thirteen and Thirty-Nine Weeks Ended October 28, 2017May 1, 2021 and October 29, 2016May 2, 2020
2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Thirteen and Thirty-Nine Weeks Ended October 28, 2017May 1, 2021 and October 29, 2016May 2, 2020
3
Condensed Consolidated Statements of Stockholders' Equity for the Thirteen Weeks Ended May 1, 2021 and May 2, 2020
4
Condensed Consolidated Statements of Cash Flows for the Thirty-NineThirteen Weeks Ended October 28, 2017May 1, 2021 and October 29, 2016May 2, 2020
45
56
Item 2.
1615
Item 3.
22
Item 4.
22
PART II - OTHER INFORMATION
Item 1.
23
Item 1A.
23
Item 2.
23
Item 6.
24




PART I – FINANCIAL INFORMATION
Item 1.
Item 1.     Financial Statements.

THE GAP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
($ and shares in millions except par value)October 28,
2017		 January 28,
2017		 October 29,
2016		($ and shares in millions except par value)May 1,
2021		January 30,
2021		May 2,
2020
ASSETS     ASSETS
Current assets:     Current assets:
Cash and cash equivalents$1,353
 $1,783
 $1,522
Cash and cash equivalents$2,066 $1,988 $1,028 
Short-term investmentsShort-term investments475 410 51 
Merchandise inventory2,476
 1,830
 2,398
Merchandise inventory2,370 2,451 2,217 
Other current assets654
 702
 751
Other current assets1,091 1,159 920 
Total current assets4,483
 4,315
 4,671
Total current assets6,002 6,008 4,216 
Property and equipment, net of accumulated depreciation of $6,041, $5,813, and $5,9002,686
 2,616
 2,662
Property and equipment, net of accumulated depreciation of $5,616, $5,608 and $5,886Property and equipment, net of accumulated depreciation of $5,616, $5,608 and $5,8862,839 2,841 2,945 
Operating lease assetsOperating lease assets4,060 4,217 4,851 
Other long-term assets726
 679
 674
Other long-term assets703 703 698 
Total assets$7,895
 $7,610
 $8,007
Total assets$13,604 $13,769 $12,710 
LIABILITIES AND STOCKHOLDERS’ EQUITY     LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:     Current liabilities:
Current maturities of debt$—
 $65
 $424
Revolving credit facilityRevolving credit facility$0 $0 $500 
Accounts payable1,330
 1,243
 1,413
Accounts payable1,530 1,743 971 
Accrued expenses and other current liabilities1,132
 1,113
 1,059
Accrued expenses and other current liabilities1,294 1,276 1,051 
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities798 831 886 
Income taxes payable134
 32
 19
Income taxes payable16 34 23 
Total current liabilities2,596
 2,453
 2,915
Total current liabilities3,638 3,884 3,431 
Long-term liabilities:     Long-term liabilities:
Long-term debt1,248
 1,248
 1,320
Long-term debt2,218 2,216 1,250 
Lease incentives and other long-term liabilities1,027
 1,005
 1,046
Long-term operating lease liabilitiesLong-term operating lease liabilities4,449 4,617 5,331 
Other long-term liabilitiesOther long-term liabilities493 438 381 
Total long-term liabilities2,275
 2,253
 2,366
Total long-term liabilities7,160 7,271 6,962 
Commitments and contingencies (see Note 11)
 
 
Commitments and contingencies (see Note 9)Commitments and contingencies (see Note 9)000
Stockholders’ equity:     Stockholders’ equity:
Common stock $0.05 par value     Common stock $0.05 par value
Authorized 2,300 shares for all periods presented; Issued and Outstanding 389, 399, and 399 shares19
 20
 20
Authorized 2,300 shares for all periods presented; Issued and Outstanding 377, 374, and 373 sharesAuthorized 2,300 shares for all periods presented; Issued and Outstanding 377, 374, and 373 shares19 19 19 
Additional paid-in capital—
 81
 57
Additional paid-in capital118 85 17 
Retained earnings2,965
 2,749
 2,621
Retained earnings2,667 2,501 2,235 
Accumulated other comprehensive income40
 54
 28
Accumulated other comprehensive income2 9 46 
Total stockholders’ equity3,024
 2,904
 2,726
Total stockholders’ equity2,806 2,614 2,317 
Total liabilities and stockholders’ equity$7,895
 $7,610
 $8,007
Total liabilities and stockholders’ equity$13,604 $13,769 $12,710 
See Accompanying Notes to Condensed Consolidated Financial Statements

1


THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(Unaudited)
 
13 Weeks Ended 39 Weeks Ended 13 Weeks Ended
($ and shares in millions except per share amounts)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016		($ and shares in millions except per share amounts)May 1,
2021		May 2,
2020
Net sales$3,838
 $3,798
 $11,077
 $11,087
Net sales$3,991 $2,107 
Cost of goods sold and occupancy expenses2,313
 2,305
 6,770
 6,948
Cost of goods sold and occupancy expenses2,361 1,839 
Gross profit1,525
 1,493
 4,307
 4,139
Gross profit1,630 268 
Operating expenses1,147
 1,104
 3,224
 3,249
Operating expenses1,390 1,512 
Operating income378
 389
 1,083
 890
Operating income (loss)Operating income (loss)240 (1,244)
Interest expense18
 20
 53
 57
Interest expense54 19 
Interest income(4) (3) (11) (6)Interest income(1)(4)
Income before income taxes364
 372
 1,041
 839
Income (loss) before income taxesIncome (loss) before income taxes187 (1,259)
Income taxes135
 168
 398
 383
Income taxes21 (327)
Net income$229
 $204
 $643
 $456
Net income (loss)Net income (loss)$166 $(932)
Weighted-average number of shares - basic391
 399
 395
 398
Weighted-average number of shares - basic376 372 
Weighted-average number of shares - diluted393
 400
 397
 400
Weighted-average number of shares - diluted385 372 
Earnings per share - basic$0.59
 $0.51
 $1.63
 $1.15
Earnings per share - diluted$0.58
 $0.51
 $1.62
 $1.14
Cash dividends declared and paid per share$0.23
 $0.23
 $0.69
 $0.69
Earnings (loss) per share - basicEarnings (loss) per share - basic$0.44 $(2.51)
Earnings (loss) per share - dilutedEarnings (loss) per share - diluted$0.43 $(2.51)
See Accompanying Notes to Condensed Consolidated Financial Statements

2


THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 13 Weeks Ended 39 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Net income$229
 $204
 $643
 $456
Other comprehensive income (loss)       
Foreign currency translation(5) (10) 12
 (1)
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $2, $4, $(6), and $(5)23
 39
 (20) (57)
Reclassification adjustment for (gains) losses on derivative financial instruments, net of (tax) tax benefit of $6, $-, $4, and $(6)(1) —
 (6) 1
Other comprehensive income (loss), net of tax17
 29
 (14) (57)
Comprehensive income$246
 $233
 $629
 $399
 13 Weeks Ended
($ in millions)May 1,
2021		May 2,
2020
Net income (loss)$166 $(932)
Other comprehensive income (loss), net of tax
Foreign currency translation(3)(9)
Change in fair value of derivative financial instruments, net of tax of $0 and $2(7)19 
Reclassification adjustment for losses (gains) on derivative financial instruments, net of tax of $0 and $03 (4)
Other comprehensive income (loss), net of tax(7)6 
Comprehensive income (loss)$159 $(926)
See Accompanying Notes to Condensed Consolidated Financial Statements

3


THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income		 
($ and shares in millions except per share amounts)SharesAmountTotal
Balance as of January 30, 2021374 $19 $85 $2,501 $9 $2,614 
Net income for the thirteen weeks ended May 1, 2021166 166 
Other comprehensive income (loss), net of tax
Foreign currency translation(3)(3)
Change in fair value of derivative financial instruments(7)(7)
Amounts reclassified from accumulated other comprehensive income3 3 
Issuance of common stock related to stock options and employee stock purchase plans1 0 25 25 
Issuance of common stock and withholding tax payments related to vesting of stock units2 0 (32)(32)
Share-based compensation, net of forfeitures40 40 
Balance as of May 1, 2021377 $19 $118 $2,667 $2 $2,806 
Balance as of February 1, 2020371 $19 $0 $3,257 $40 $3,316 
Net loss for the thirteen weeks ended May 2, 2020(932)(932)
Other comprehensive income (loss), net of tax
Foreign currency translation(9)(9)
Change in fair value of derivative financial instruments19 19 
Amounts reclassified from accumulated other comprehensive income(4)(4)
Issuance of common stock related to stock options and employee stock purchase plans1 0 6 6 
Issuance of common stock and withholding tax payments related to vesting of stock units1 0 (7)(7)
Share-based compensation, net of forfeitures18 18 
Common stock dividends declared ($0.2425 per share) (1)(90)(90)
Balance as of May 2, 2020373 $19 $17 $2,235 $46 $2,317 
__________
(1) On March 4, 2020, the Company declared a first quarter fiscal year 2020 dividend of $0.2425 per share. The dividend payable amount for the first quarter of fiscal 2020 was estimated based upon the shareholders of record as of May 2, 2020. The dividend was paid during the first quarter of fiscal 2021 to shareholders of record at the close of business on April 7, 2021.
See Accompanying Notes to Condensed Consolidated Financial Statements
4

THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 Weeks Ended 13 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		($ in millions)May 1,
2021		May 2,
2020
Cash flows from operating activities:   Cash flows from operating activities:
Net income$643
 $456
Adjustments to reconcile net income to net cash provided by operating activities:   
Net income (loss)Net income (loss)$166 $(932)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization418
 449
Depreciation and amortization120 130 
Amortization of lease incentives(46) (47)
Share-based compensation60
 55
Share-based compensation36 18 
Tax benefit from exercise of stock options and vesting of stock units—
 (4)
Excess tax benefit from exercise of stock options and vesting of stock units—
 (1)
Store asset impairment charges17
 89
Impairment of operating lease assetsImpairment of operating lease assets5 360 
Impairment of store assetsImpairment of store assets0 124 
Amortization of debt issuance costsAmortization of debt issuance costs4 0 
Non-cash and other items9
 12
Non-cash and other items13 3 
Loss on divestiture activityLoss on divestiture activity56 0 
Deferred income taxes(50) (10)Deferred income taxes18 (41)
Changes in operating assets and liabilities:   Changes in operating assets and liabilities:
Merchandise inventory(636) (513)Merchandise inventory69 (79)
Other current assets and other long-term assets(60) (52)Other current assets and other long-term assets10 126 
Accounts payable55
 294
Accounts payable(205)(203)
Accrued expenses and other current liabilities(46) 10
Accrued expenses and other current liabilities40 (86)
Income taxes payable, net of prepaid and other tax-related items188
 80
Lease incentives and other long-term liabilities48
 (18)
Net cash provided by operating activities600
 800
Income taxes payable, net of receivables and other tax-related itemsIncome taxes payable, net of receivables and other tax-related items(18)(322)
Other long-term liabilitiesOther long-term liabilities41 (18)
Operating lease assets and liabilities, netOperating lease assets and liabilities, net(15)(20)
Net cash provided by (used for) operating activitiesNet cash provided by (used for) operating activities340 (940)
Cash flows from investing activities:   Cash flows from investing activities:
Purchases of property and equipment(463) (383)Purchases of property and equipment(124)(122)
Insurance proceeds related to loss on property and equipment60
 —
Other(3) (1)
Net cash used for investing activities(406) (384)
Proceeds from divestiture activityProceeds from divestiture activity28 0 
Purchases of short-term investmentsPurchases of short-term investments(298)(59)
Proceeds from sales and maturities of short-term investmentsProceeds from sales and maturities of short-term investments233 297 
Net cash provided by (used for) investing activitiesNet cash provided by (used for) investing activities(161)116 
Cash flows from financing activities:   Cash flows from financing activities:
Payments of current maturities of debt(67) —
Proceeds from revolving credit facilityProceeds from revolving credit facility0 500 
Proceeds from issuances under share-based compensation plans23
 25
Proceeds from issuances under share-based compensation plans25 6 
Withholding tax payments related to vesting of stock units(15) (18)Withholding tax payments related to vesting of stock units(32)(7)
Repurchases of common stock(300) —
Excess tax benefit from exercise of stock options and vesting of stock units—
 1
Cash dividends paid(272) (275)Cash dividends paid(91)0 
Net cash used for financing activities(631) (267)
Effect of foreign exchange rate fluctuations on cash and cash equivalents7
 3
Net increase (decrease) in cash and cash equivalents(430) 152
Cash and cash equivalents at beginning of period1,783
 1,370
Cash and cash equivalents at end of period$1,353
 $1,522
Net cash provided by (used for) financing activitiesNet cash provided by (used for) financing activities(98)499 
Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cashEffect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash(1)(8)
Net increase (decrease) in cash, cash equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and restricted cash80 (333)
Cash, cash equivalents, and restricted cash at beginning of periodCash, cash equivalents, and restricted cash at beginning of period2,016 1,381 
Cash, cash equivalents, and restricted cash at end of periodCash, cash equivalents, and restricted cash at end of period$2,096 $1,048 
   
Supplemental disclosure of cash flow information:   Supplemental disclosure of cash flow information:
Cash paid for interest during the period$76
 $80
Cash paid for interest during the period$2 $38 
Cash paid for income taxes during the period, net of refunds$260
 $318
Cash paid for income taxes during the period, net of refunds$20 $37 
See Accompanying Notes to Condensed Consolidated Financial Statements

5


THE GAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies
Basis of Presentation
The Condensed Consolidated Balance Sheets asIn the opinion ofOctober 28, 2017 and October 29, 2016, and the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended October 28, 2017 and October 29, 2016, and the Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks endedOctober 28, 2017 and October 29, 2016 have been prepared by The Gap, Inc. (the “Company,” “we,” and “our”). In management, the opinion of management, such statements includeaccompanying unaudited Condensed Consolidated Financial Statements contain all normal and recurring adjustments (which include normal 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 October 28, 2017May 1, 2021 and October 29, 2016May 2, 2020 and for all periods presented. The Condensed Consolidated Balance Sheet as of January 28, 201730, 2021 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 January 28, 2017.30, 2021.
The results of operations for the thirteen and thirty-nine weeks endedOctober 28, 2017 May 1, 2021 are not necessarily indicative of the operating results that may be expected for the 53-week52-week period ending February 3, 2018.January 29, 2022.

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. Fiscal 2020 results were significantly impacted as we temporarily closed our North America retail stores and a large number of our stores globally. During the thirteen weeks ending May 1, 2021, there continued to be residual impacts from store closures in international markets and in our supply chain as a result of COVID-19. We continue to consider the impact of COVID-19 on the assumptions and estimates used when preparing these quarterly financial statements.
Note 2. Recent Restricted Cash
As of May 1, 2021, 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)May 1,
2021		January 30,
2021		May 2,
2020
Cash and cash equivalents, per Condensed Consolidated Balance Sheets$2,066 $1,988 $1,028 
Restricted cash included in other current assets0 4 0 
Restricted cash included in other long-term assets30 24 20 
Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows$2,096 $2,016 $1,048 
Accounting Pronouncements Recently Adopted
ExceptIn April 2020, the Financial Accounting Standards Board ("FASB") provided guidance on accounting for rent concessions resulting from the COVID-19 pandemic. We considered the FASB's guidance regarding lease modifications as noted below,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. The impact of applying the temporary practical expedient was not material to our Condensed Consolidated Financial Statements for the thirteen weeks ending May 1, 2021.
ASU No. 2019-12, Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued accounting standards update ("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 Accounting Standards Codification Topic 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 adopted this ASU on January 31, 2021 on a prospective basis and the adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements.
Accounting Pronouncements Not Yet Adopted
The Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting pronouncements that may have a material impact on itsour Condensed Consolidated Financial Statements, based on current information.
Recent Accounting Pronouncements Related to
Note 2. Revenue Recognition
In May 2014,Disaggregation of Net Sales
We disaggregate our net sales between stores and online and also by brand and region. Net sales by region are allocated based on the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, to clarifylocation of the principles of recognizing revenuestore where the customer paid for and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. ASU No. 2014-09, as amended, is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2017.
While we do not expect the adoption of ASU No. 2014-09 and related ASUs to have a material impact on our Consolidated Financial Statements, we expect the adoption to result in change in the timing of recognizing revenue for breakage income for gift cards, gift certificates, and credit vouchers, credit card reward points and certificate liability, as well as sales where we shipreceived the merchandise toor the customer from a distribution center or store. Additionally, understore from which the new guidance, we expect to recognize allowancesproducts were shipped. The COVID-19 pandemic and resulting temporary closure of our stores negatively affected our net sales for estimated sales returns on a gross basis rather than net basis on the Consolidated Balance Sheets.
We are currently evaluating the classification of income earned in connection with our private label and co-branded credit cards. We are also evaluating expanded disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
We will adopt these ASUs on a modified retrospective basis beginning in the first quarter of fiscal 2018.2020.

Net sales disaggregated for stores and online sales are as follows:

13 Weeks Ended
($ in millions)May 1, 2021May 2, 2020
Store sales (1)$2,384 $1,108 
Online sales (2)1,607 999 
Total net sales$3,991 $2,107 
Other Recent Accounting Pronouncements__________
In February 2016,(1)Store sales primarily include sales made at our Company-operated stores and franchise sales.
(2)Online sales primarily include sales originating from our online channel including those that are picked up or shipped from stores. Additionally, sales from the FASB issued ASU No. 2016-02, Leases. Underbusiness-to-business program are also included during the new guidance, lessees will be required to recognize a lease liabilitythirteen weeks ended May 1, 2021.

Net sales disaggregated by brand and a right-of-use assetregion are as follows:
6

($ in millions)Old Navy GlobalGap GlobalBanana Republic GlobalAthleta (2)Other (3)Total
13 Weeks Ended May 1, 2021
U.S. (1)$2,099 $556 $333 $347 $89 $3,424 
Canada159 68 34 0 0 261 
Europe0 69 3 0 0 72 
Asia1 163 16 0 0 180 
Other regions21 30 3 0 0 54 
Total$2,280 $886 $389 $347 $89 $3,991 
($ in millions)Old Navy GlobalGap GlobalBanana Republic GlobalAthleta (2)Other (4)Total
13 Weeks Ended May 2, 2020
U.S. (1)$949 $311 $245 $205 $51 $1,761 
Canada77 34 24 0 0 135 
Europe0 54 3 0 0 57 
Asia1 108 12 0 0 121 
Other regions11 17 5 0 0 33 
Total$1,038 $524 $289 $205 $51 $2,107 
__________
(1)U.S. includes the United States, Puerto Rico, and Guam.
(2)Previously, net sales for all leases (with the exception of short-term leases) atAthleta brand were grouped within the commencement date. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. We are still assessing the impact of this ASU on our Consolidated Financial Statements, but it will result in a substantial increase in our long-term assets and liabilities. We will adopt the ASU beginning in the first quarter of fiscal 2019.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. We adopted the provisions of this ASU in the first quarter of fiscal 2017."Other" column. Beginning in the first quarter of fiscal 2017,2021, we have made a change for all periods presented to break out Athleta net sales into its own column.
(3)Primarily consists of net sales for the policy electionIntermix brand. Also includes net sales for the Janie and Jack brand through April 7, 2021.
(4)Primarily consists of net sales for the Intermix, Janie and Jack, and Hill City brands.

Deferred Revenue
We defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to accountour gift cards, credit vouchers, licensing agreements, outstanding loyalty points, and reimbursements of loyalty program discounts associated with our credit card agreement. For the thirteen weeks ended May 1, 2021, the opening balance of deferred revenue for forfeitures when they occur, rather than estimating expected forfeitures, when recognizing share-based compensation cost. these obligations was $231 million, of which $89 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $222 million as of May 1, 2021.
We adopted this provisionexpect that the majority of the ASU using a modified retrospective transition method, which resulted in the cumulative-effect adjustment of a $3 million increase to retained earningsour revenue deferrals as of the beginning of the first quarter of fiscal 2017. Also, all excess tax benefits and tax deficiencies related to share-based payment awards are now reflectedended May 1, 2021, will be recognized as revenue in the Consolidated Statementnext twelve months as our performance obligations are satisfied.
For the thirteen weeks ended May 2, 2020, the opening balance of Incomedeferred revenue for these obligations was $226 million, of which $79 million was recognized as a componentrevenue during the period. The closing balance of deferred revenue for these obligations was $198 million as of May 2, 2020.
During the provision for income taxes on a prospective basis, whereas they were recognized in equity underthirteen weeks ended May 1, 2021, the previous guidance. Additionally, excess tax benefits related to share-based payment awards are now reflected in operating activities, alongCompany entered into new long-term credit card program agreements with other income tax related cash flows, in our Consolidated StatementBarclays and Mastercard. Barclays will become the exclusive issuer of Cash Flows on a prospective basis.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - GoodwillGap Inc.’s co-branded and Other: Simplifying the Test for Goodwill Impairment. The amendments simplify the subsequent measurement of goodwill and eliminate the two-step goodwill impairment test. The ASU is effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this ASU for the interim goodwill impairment testprivate label credit card program in the first quarter of fiscal 2017. The adoption of this ASU did not have any impact onU.S. beginning in May 2022. Accordingly, our previous private label credit card program with Synchrony Financial will be discontinued in April 2022. During the Consolidated Financial Statements.
In August 2017,thirteen weeks ended May 1, 2021, 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 changesCompany received a $45 million payment relating to the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. We are currently assessing the potential impact of this ASUnew agreement, which was recorded in other long-term liabilities on our Condensed Consolidated Financial Statements.Balance Sheet as of May 1, 2021.

7

Note 3. Debt and Credit Facilities
Long-term debt recorded on the Condensed Consolidated Balance Sheets consists of the following:
($ in millions)May 1,
2021		January 30,
2021		May 2,
2020
2021 Notes$0 $0 $1,250 
2023 Notes500 500 0 
2025 Notes750 750 0 
2027 Notes1,000 1,000 0 
Less: Unamortized debt issuance costs(32)(34)0 
Total long-term debt$2,218 $2,216 $1,250 
($ in millions)October 28,
2017		 January 28,
2017		 October 29,
2016
Notes$1,248
 $1,248
 $1,248
Japan Term Loan—
 65
 96
Total debt1,248
 1,313
 1,344
Less: Current portion of Japan Term Loan—
 (65) (24)
Total long-term debt$1,248
 $1,248
 $1,320
The scheduled maturity of the Notes is as follows:
Scheduled Maturity ($ in millions)PrincipalInterest RateInterest Payments
Senior Secured Notes (1)
May 15, 2023$500 8.375 %Semi-Annual
May 15, 2025750 8.625 %Semi-Annual
May 15, 20271,000 8.875 %Semi-Annual
Total issuance$2,250 
__________
(1)Includes an option to call the Notes in whole or in part at any time, subject to a make-whole premium.
As of October 28, 2017, January 28, 2017, and October 29, 2016,May 1, 2021, the aggregate estimated fair value of our $1.25 billion aggregate principal amount of 5.95 percentthe notes (thedue 2023 ("2023 Notes), 2025 (“2025 Notes”), and 2027 (“2027 Notes”) (collectively, the “Notes”) due April 2021was $1.35$2.57 billion, $1.32 billion, and $1.34 billion, respectively, and was based on the quoted market price for each of the Notes (level 1 inputs) as of the last business day of the respective fiscal quarter. The aggregate principal amount of the Notes is recorded in long-term debt in the Condensed Consolidated Balance Sheets, net of the unamortized discount.
As of January 28, 2017 and October 29, 2016, the carrying amount of our 15 billion Japanese yen, four-year, unsecured term loan (“Japan Term Loan”) approximated its fair value, as the interest rate varied depending on quoted market rates (level 1 inputs). Repayments of 2.5 billion Japanese yen were paid on January 15 of each year, and a final repayment of 7.5 billion Japanese yen which was due on January 15, 2018 was paid in full in June 2017. Interest was payable at least quarterly based on an interest rate equal to the Tokyo Interbank Offered Rate plus a fixed margin.
In October 2015, we entered into a $400 million unsecured term loan (the “Term Loan”), which was included in current maturities of debt in the Condensed Consolidated Balance Sheet, asnet of October 29, 2016. The Term Loan was repaid in full in January 2017. Interest was payablethe unamortized debt issuance cost.
In May 2020, we entered into the senior secured asset-based revolving credit agreement (the "ABL Facility"), which has a $1.8675 billion borrowing capacity and bears interest at least quarterly based on an interesta base rate equal to the London Interbank Offered Rate(typically LIBOR) plus a fixed margin.
We have a $500 million, five-year, unsecured revolving credit facility (the “Facility”), whichmargin depending on borrowing base availability. The ABL Facility is scheduled to expire in May 2020.2023. We also have the ability to issue letters of credit on our ABL Facility. As of May 1, 2021, we had $52 million in standby letters of credit issued under the ABL Facility. There were no0 borrowings under the ABL Facility as of May 1, 2021.
As of May 1, 2021, we were in compliance with theapplicable financial covenants and noexpect to maintain compliance for the next twelve months.
We also had a $500 million, five-year, revolving credit facility, which was scheduled to expire in May 2023. On March 25, 2020, we drew down the entire amount under the revolving credit facility resulting in a total of $500 million outstanding as of May 2, 2020, which was repaid in full on May 7, 2020. The borrowings accrued interest at a base rate (typically LIBOR) plus a margin based on our long-term senior unsecured credit ratings and our leverage ratio. The draw-down proceeds were recorded in revolving credit facility on the Condensed Consolidated Balance Sheet. There were 0 material outstanding standby letters of credit under the Facilityrevolving credit facility as of October 28, 2017.


May 2, 2020.
We also maintain multiple agreements with third parties that make unsecured revolving credit facilities available for our operations in foreign locations (the “Foreign Facilities”). TheseThe Foreign Facilities are uncommitted and are generally available for borrowings, overdraft borrowings, and the issuance of bank guarantees. Thehad a total capacity of the Foreign Facilities was $47$49 million as of October 28, 2017.May 1, 2021. As of October 28, 2017,May 1, 2021, there were no0 borrowings under the Foreign Facilities. There were $14$11 million in bank guarantees issued and outstanding primarily related to store leases under the Foreign Facilities as of October 28, 2017.May 1, 2021.
We have bilateral unsecured standby letter of credit agreements that are uncommitted and do not have expiration dates. As of October 28, 2017, we had $15 million inThere were 0 material standby letters of credit issued under these agreements.agreements as of May 1, 2021.

Note 4. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives and available-for-sale debt securities. The Company categorizes financial assets and liabilities recorded at fair value based upon a three-level hierarchy that considers the related valuation techniques.
There were no0 material purchases, sales, issuances, or settlements related to recurring level 3 measurements during the thirteen and thirty-nine weeks endedOctober 28, 2017 May 1, 2021 or October 29, 2016.May 2, 2020. There were no0 transfers of financial assets or liabilities into or out of level 1, level 2, and level 23 during the thirteen and thirty-nine weeks endedOctober 28, 2017 May 1, 2021 or October 29, 2016.May 2, 2020.

8


Financial Assets and Liabilities
Financial assets and liabilities measured at fair value on a recurring basis and cash equivalents are as follows:
  Fair Value Measurements at Reporting Date Using  Fair Value Measurements at Reporting Date Using
($ in millions)October 28, 2017 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
($ in millions)May 1, 2021Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets:       Assets:
Cash equivalents$389
 $28
 $361
 $—
Cash equivalents$143 $— $143 $0 
Short-term investmentsShort-term investments475 365 110 0 
Derivative financial instruments31
 —
 31
 —
Derivative financial instruments6 0 6 0 
Deferred compensation plan assets46
 46
 —
 —
Deferred compensation plan assets49 49 0 0 
Other assetsOther assets4 0 0 4 
Total$466
 $74
 $392
 $—
Total$677 $414 $259 $4 
Liabilities:       Liabilities:
Derivative financial instruments$20
 $—
 $20
 $—
Derivative financial instruments$30 $0 $30 $0 
  Fair Value Measurements at Reporting Date Using  Fair Value Measurements at Reporting Date Using
($ in millions)January 28, 2017 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
($ in millions)January 30, 2021Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets:       Assets:
Cash equivalents$697
 $256
 $441
 $—
Cash equivalents$375 $25 $350 $0 
Short-term investmentsShort-term investments410 342 68 0 
Derivative financial instruments58
 —
 58
 —
Derivative financial instruments5 0 5 0 
Deferred compensation plan assets40
 40
 —
 —
Deferred compensation plan assets43 43 0 0 
Other assetsOther assets2 0 0 2 
Total$795
 $296
 $499
 $—
Total$835 $410 $423 $2 
Liabilities:       Liabilities:
Derivative financial instruments$21
 $—
 $21
 $—
Derivative financial instruments$21 $0 $21 $0 
  Fair Value Measurements at Reporting Date Using  Fair Value Measurements at Reporting Date Using
($ in millions)October 29, 2016 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant  Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
($ in millions)May 2, 2020Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets:       Assets:
Cash equivalents$596
 $106
 $490
 $—
Cash equivalents$139 $— $139 $0 
Short-term investmentsShort-term investments51 0 51 0 
Derivative financial instruments62
 —
 62
 —
Derivative financial instruments36 0 36 0 
Deferred compensation plan assets41
 41
 —
 —
Deferred compensation plan assets47 47 0 0 
Other assetsOther assets2 0 0 2 
Total$699
 $147
 $552
 $—
Total$275 $47 $226 $2 
Liabilities:       Liabilities:
Derivative financial instruments$49
 $—
 $49
 $—
Derivative financial instruments$5 $0 $5 $0 
We have highly liquid fixed and variable income investments classified as cash equivalents, which are placed primarily in time deposits and money market funds. Weequivalents. With the exception of our available-for-sale investments noted below, we value these investments at their original purchase prices plus interest that has accrued at the stated rate. Our investments in cash equivalents are placed primarily in time deposits, money market funds, and debt securities.

9


Our available-for-sale securities are comprised of investments in debt securities and are recorded in both short-term investments and cash and cash equivalents on the Condensed Consolidated Balance Sheets. These securities are recorded at fair value using market prices. As of May 1, 2021, January 30, 2021, and May 2, 2020, the Company held $475 million, $410 million, and $51 million, respectively, of available-for-sale debt securities with maturity dates greater than three months and less than two years within short-term investments on the Condensed Consolidated Balance Sheets. In addition, as of May 1, 2021, January 30, 2021, and May 2, 2020, the Company held $25 million, $90 million and $1 million, respectively, of available-for-sale debt securities with maturities of three months or less at the time of purchase within cash and cash equivalents on the Condensed Consolidated Balance Sheet. Unrealized gains and losses on available-for-sale debt securities included within accumulated other comprehensive income were not material as of May 1, 2021 and May 2, 2020.
The Company regularly reviews its available-for-sale debt securities for other-than-temporary impairment. For the thirteen weeks ended May 1, 2021 or May 2, 2020, the Company did not consider any of its securities to be other-than-temporarily impaired and, accordingly, did not recognize any impairment loss.
Derivative financial instruments primarily include foreign exchange forward contracts. The currencies hedged against changes in the U.S. dollar are Canadian dollars, Japanese yen, British pounds, Euro, Mexican pesos, Chinese yuan, and Taiwan dollars. The fair value of the Company’s derivative financial instruments is determined using pricing models based on current market rates. Derivative financial instruments in an asset position are recorded in other current assets or other long-term assets in theSee Note 6 of Notes to Condensed Consolidated Balance Sheets. Derivative financial instruments in a liability position are recorded in accrued expenses and other current liabilities or lease incentives and other long-term liabilities inFinancial Statements for information regarding currencies hedged against the Condensed Consolidated Balance Sheets.U.S. dollar.
We maintain the Gap, Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees to defer base compensation and bonus up to a maximum percentage, and non-employee directors to defer compensation up toreceipt of a maximum amount.portion of their Board fees. Plan investments are directed by participants and are recorded at market value and designated for the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices, and the assets are recorded in other long-term assets inon the Condensed Consolidated Balance Sheets.

Nonfinancial Assets
We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of the long-lived assets is determined using level 3 inputs and based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores is primarily at the store level.
During the thirteen weeks ended October 28, 2017, weMay 1, 2021, the Company recorded a charge for the impairment of long-livedoperating lease assets of $4 million, which$5 million. The impairment of the operating lease assets reduced the then carrying amount of the applicable long-lived assets of $5$15 million to their fair value of $1$10 million. The impairment charge wascharges were recorded in operating expenses inon the Condensed Consolidated Statement of Income.Operations. There were no material impairment charges recorded for store long-lived assets during the thirteen weeks ended May 1, 2021.
During fiscal 2020, the thirty-nineimpact of COVID-19 resulted in a qualitative indication of impairment related to our store long-lived assets. For store locations, we analyzed our store asset recoverability. During the thirteen weeks ended October 28, 2017, weMay 2, 2020, the Company recorded a charge for the impairment of long-livedstore assets of $17$124 million whichand impairment of operating lease assets of $360 million. The impairment of the store assets reduced the then carrying amount of the applicable long-lived assets of $18$127 million to their fair value of $1$3 million. The impairment charge was recorded inof the operating expenses inlease assets reduced the Condensed Consolidated Statementcarrying amount of Income.
In May 2016, the Company announced measures to close its fleet of 53 Old Navy stores in Japan and select Banana Republic stores, primarily internationally. During the thirteen weeks ended October 29, 2016, we recorded charges for impairment ofapplicable long-lived assets of $2$1,358 million related to the announced store closures, and an additional $31 million for long-lived assets that were unrelated to the announced measures.their fair value of $998 million. The impairment charges were recorded in operating expenses inon the Condensed Consolidated Statement of Income and reduced the then carrying amount of the applicable long-lived assets of $34 million to their fair value of $1 million.
During the thirty-nine weeks ended October 29, 2016, we recorded charges for impairment of long-lived assets of $54 million related to the announced store closures, primarily related to Old Navy Japan, and an additional $35 million for long-lived assets that were unrelated to the announced measures. The impairment charges were recorded in operating expenses in the Condensed Consolidated Statement of Income and reduced the then carrying amount of the applicable long-lived assets of $102 million to their fair value of $13 million.Operations.
We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.
There were no0 impairment charges recorded for goodwill or other indefinite-lived intangible assets for the thirteen and thirty-nine weeks ended October 28, 2017May 1, 2021 or October 29, 2016.May 2, 2020.

Note 5. Income Taxes
The effective income tax rate was 11.2 percent for the thirteen weeks ended May 1, 2021, compared with 26.0 percent for the thirteen weeks ended May 2, 2020. The decrease in the effective tax rate is primarily due to a tax benefit resulting from divestiture activity during the first quarter of fiscal 2021.
10

Note 6. Derivative Financial Instruments
We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. We use derivative financial instruments to manage our exposure to foreign currency exchange rate risk and do not enter into derivative financial contracts for trading purposes. Consistent with our risk management guidelines, we hedge a portion of our transactions related to merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange forward contracts. These contracts are entered into with large, reputable, financial institutions that are monitored for counterparty risk. The currencies hedged against changes in the U.S. dollar are Canadian dollars,dollar, British pound, Japanese yen, British pounds, Euro, Mexican pesos,peso, Taiwan dollar, and Chinese yuan, and Taiwan dollars.yuan. Cash flows from derivative financial instruments are classified as cash flows from operating activities inon the Condensed Consolidated Statements of Cash Flows.




Cash Flow Hedges
We designate the following foreign exchange forward contracts as cash flow hedges: (1) forward contracts used to hedge forecasted merchandise purchases and related costs denominated in U.S. dollars made by our international subsidiaries whose functional currencies are their local currencies; (2) forward contracts used to hedge forecasted intercompany royalty payments denominated in foreign currencies received by entities whose functional currencies are U.S. dollars; and (3)(2) forward contracts used to hedge forecasted intercompany revenue transactions related to merchandise sold from our regional purchasing entity, whose functional currency is the U.S. dollar, to certain international subsidiaries in their local currencies. The foreign exchange forward contracts entered into to hedge forecasted merchandise purchases and related costs, intercompany royalty payments, and intercompany revenue transactions generally have terms of up to 24 months. The effective portion of the gain or loss on the derivative financial instruments is reported as a component of other comprehensive income and is recognized ininto net income in(loss) during the period in which the underlying transaction impacts the income statement.Condensed Consolidated Statements of Operations.

Net Investment Hedges
We also use foreign exchange forward contracts to hedge the net assets of international subsidiaries to offset the foreign currency translation and economic exposures related to our investment in the subsidiaries.


Other Derivatives Not Designated as Hedging Instruments
We enter intouse foreign exchange forward contracts to hedge our market risk exposure associated with foreign currency exchange rate fluctuations for certain intercompany balances denominated in currencies other than the functional currency of the entity with the intercompany balance. The gain or loss on the derivative financial instruments that represent economic hedges, as well as the remeasurement impact of the underlying intercompany balances, is recorded in operating expenses inon the Condensed Consolidated Statements of IncomeOperations in the same period and generally offset.offset each other.




Outstanding Notional Amounts
We had foreign exchange forward contracts outstanding in the following notional amounts:
($ in millions)May 1,
2021		January 30,
2021		May 2,
2020
Derivatives designated as cash flow hedges$343 $508 $319 
Derivatives not designated as hedging instruments683 811 785 
Total$1,026 $1,319 $1,104 
($ in millions)October 28,
2017		 January 28,
2017		 October 29,
2016
Derivatives designated as cash flow hedges$873
 $1,101
 $1,201
Derivatives designated as net investment hedges30
 31
 31
Derivatives not designated as hedging instruments581
 618
 664
Total$1,484
 $1,750
 $1,896


Quantitative Disclosures about Derivative Financial Instruments
The fair values of foreign exchange forward contracts are as follows:
($ in millions)October 28,
2017		 January 28,
2017		 October 29,
2016		($ in millions)May 1,
2021		January 30,
2021		May 2,
2020
Derivatives designated as cash flow hedges:     Derivatives designated as cash flow hedges:
Other current assets$16
 $28
 $35
Other current assets$4 $0 $16 
Other long-term assets$4
 $16
 $13
Accrued expenses and other current liabilities$11
 $10
 $26
Accrued expenses and other current liabilities19 12 0 
Lease incentives and other long-term liabilities$2
 $1
 $8
     
Derivatives designated as net investment hedges:     
Other current assets$—
 $—
 $1
Other long-term assets$—
 $—
 $—
Accrued expenses and other current liabilities$2
 $—
 $—
Lease incentives and other long-term liabilities$—
 $—
 $—
     
Derivatives not designated as hedging instruments:     Derivatives not designated as hedging instruments:
Other current assets$11
 $13
 $13
Other current assets2 5 20 
Other long-term assets$—
 $1
 $—
Accrued expenses and other current liabilities$5
 $10
 $14
Accrued expenses and other current liabilities11 9 5 
Lease incentives and other long-term liabilities$—
 $—
 $1
     
Total derivatives in an asset position$31
 $58
 $62
Total derivatives in an asset position$6 $5 $36 
Total derivatives in a liability position$20
 $21
 $49
Total derivatives in a liability position$30 $21 $5 
The majorityAll of the unrealized gains and losses from designated cash flow hedges as of October 28, 2017May 1, 2021 will be recognized ininto net income within the next 12twelve months at the then-current values, which may differ from the fair values as of October 28, 2017May 1, 2021 shown above.
11

Our foreign exchange forward contracts are subject to master netting arrangements with each of our counterparties and such arrangements are enforceable in the event of default or early termination of the contract. We do not elect to offset the fair values of our derivative financial instruments inon the Condensed Consolidated Balance Sheets, and as such, the fair values shown above represent gross amounts. The amounts subject to enforceable master netting arrangements are $8 million, $18 million, and $9 million as of October 28, 2017, January 28, 2017, and October 29, 2016, respectively. If we did elect to offset, the net amounts of our derivative financial instruments in an asset position would be $23 million, $40 million, and $53 million and the net amounts of the derivative financial instruments in a liability position would be $12 million, $3 million, and $40 million as of October 28, 2017, January 28, 2017 and October 29, 2016, respectively.were not material for all periods presented.
See Note 4 of Notes to Condensed Consolidated Financial Statements for disclosures on the fair value measurements of our derivative financial instruments.


The effective portion of gains and losses on foreign exchange forward contractspre-tax amounts recognized in cash flow hedging and net investment hedging relationships recorded in other comprehensive income and the Condensed Consolidated Statements of Income, on a pre-tax basis,(loss) related to derivative instruments are as follows:
Location and Amount of (Gain) Loss
Recognized in Net Income (Loss)
13 Weeks Ended
May 1, 2021		13 Weeks Ended
May 2, 2020
($ in millions)Cost of goods sold and occupancy expensesOperating expensesCost of goods sold and occupancy expensesOperating expenses
Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded$2,361 $1,390 $1,839 $1,512 
(Gain) loss recognized in net income (loss)
Derivatives designated as cash flow hedges3 0 (4)0 
Derivatives not designated as hedging instruments0 11 0 (43)
Total (gain) loss recognized in net income (loss)$3 $11 $(4)$(43)

13 Weeks Ended
39 Weeks Ended
($ in millions)October 28,
2017
October 29,
2016
October 28,
2017
October 29,
2016
Derivatives in cash flow hedging relationships:       
Gain (loss) recognized in other comprehensive income$25
 $43
 $(26) $(62)
Gain (loss) reclassified into cost of goods sold and occupancy expenses$(5) $2
 $2
 $15
Loss reclassified into operating expenses$—
 $(2) $—
 $(10)
        
Derivatives in net investment hedging relationships:       
Gain (loss) recognized in other comprehensive income$1
 $1
 $(1) $(1)
For the thirteen and thirty-nine weeks endedOctober 28, 2017 and October 29, 2016, there were no amounts of gains or losses reclassified from accumulated other comprehensive income into net income for derivative financial instruments in net investment hedging relationships, as we did not sell or liquidate (or substantially liquidate) any of our hedged subsidiaries during the periods.
Gains and losses on foreign exchange forward contracts not designated as hedging instruments recorded in the Condensed Consolidated Statements of Income, on a pre-tax basis, are as follows:
 13 Weeks Ended 39 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Gain (loss) recognized in operating expenses$10
 $12
 $(13) $(5)

Note 6.7. Share Repurchases
Share repurchase activity is as follows:
 13 Weeks Ended 39 Weeks Ended
($ and shares in millions except average per share cost)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Number of shares repurchased (1)3.8
 —
 12.5
 —
Total cost$100
 $—
 $300
 $—
Average per share cost including commissions$26.64
 $—
 $24.21
 $—
__________
(1)Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units.
In February 2016, we announced that2019, the Board of Directors approved a $1.0 billion share repurchase authorization of which $700(the "February 2019 repurchase program"). The February 2019 repurchase program had $800 million was remaining as of October 28, 2017.May 1, 2021. There were 0 shares repurchased during the thirteen weeks ended May 1, 2021 or May 2, 2020.
All of the share repurchases were paid for as of October 28, 2017. All common stock repurchased is immediately retired.



Note 7. Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income by component, net of tax, are as follows:
($ in millions)Foreign Currency Translation Cash Flow Hedges Total
Balance at January 28, 2017$29
 $25
 $54
13 Weeks Ended April 29, 2017:     
Foreign currency translation(4) —
 (4)
Change in fair value of derivative financial instruments—
 —
 —
Amounts reclassified from accumulated other comprehensive income—
 (4) (4)
Other comprehensive loss, net of tax(4) (4) (8)
Balance at April 29, 201725
 21
 46
13 Weeks Ended July 29, 2017:     
Foreign currency translation21
 —
 21
Change in fair value of derivative financial instruments—
 (43) (43)
Amounts reclassified from accumulated other comprehensive income—
 (1) (1)
Other comprehensive income (loss), net of tax21
 (44) (23)
Balance at July 29, 201746
 (23) 23
13 Weeks Ended October 28, 2017:     
Foreign currency translation(5) —
 (5)
Change in fair value of derivative financial instruments—
 23
 23
Amounts reclassified from accumulated other comprehensive income—
 (1) (1)
Other comprehensive income (loss), net of tax(5) 22
 17
Balance at October 28, 2017$41
 $(1) $40
      
($ in millions)Foreign Currency Translation Cash Flow Hedges Total
Balance at January 30, 2016$22
 $63
 $85
13 Weeks Ended April 30, 2016:     
Foreign currency translation31
 —
 31
Change in fair value of derivative financial instruments—
 (89) (89)
Amounts reclassified from accumulated other comprehensive income—
 (7) (7)
Other comprehensive income (loss), net of tax31
 (96) (65)
Balance at April 30, 201653
 (33) 20
13 Weeks Ended July 30, 2016:     
Foreign currency translation(22) —
 (22)
Change in fair value of derivative financial instruments—
 (7) (7)
Amounts reclassified from accumulated other comprehensive income—
 8
 8
Other comprehensive income (loss), net of tax(22) 1
 (21)
Balance at July 30, 201631
 (32) (1)
13 Weeks Ended October 29, 2016:     
Foreign currency translation(10) —
 (10)
Change in fair value of derivative financial instruments—
 39
 39
Amounts reclassified from accumulated other comprehensive income—
 —
 —
Other comprehensive income (loss), net of tax(10) 39
 29
Balance at October 29, 2016$21
 $7
 $28
See Note 5 of Notes to Condensed Consolidated Financial Statements for additional disclosures about reclassifications out of accumulated other comprehensive income and their corresponding effects on the respective line items in the Condensed Consolidated Statements of Income.



Note 8. Share-Based Compensation
Share-based compensation expense recognized in the Condensed Consolidated Statements of Income, primarily in operating expenses, is as follows:
 13 Weeks Ended 39 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Stock units$14
 $14
 $47
 $43
Stock options3
 4
 10
 9
Employee stock purchase plan1
 1
 3
 3
Share-based compensation expense18
 19
 60
 55
Less: Income tax benefit(7) (8) (23) (25)
Share-based compensation expense, net of tax$11
 $11
 $37
 $30

Note 9. Income Taxes
The Company conducts business globally, and as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Canada, France, the United Kingdom, China, Hong Kong, Japan, and India. We are no longer subject to U.S. federal income tax examinations for fiscal years before 2009, and with few exceptions, we are also no longer subject to U.S. state, local, or non-U.S. income tax examinations for fiscal years before 2008.
The Company is in continual discussions with taxing authorities regarding tax matters in the various U.S. and foreign jurisdictions in the normal course of business. As of October 28, 2017, it is reasonably possible that we will recognize a decrease in gross unrecognized tax benefits within the next 12 months of up to $6 million, primarily due to the closing of audits. If we do recognize such a decrease, the net impact on the Condensed Consolidated Statement of Income would not be material.

Note 10. Earnings (Loss) Per Share
Weighted-average number of shares used for earnings (loss) per share is as follows:
 13 Weeks Ended
(shares in millions)May 1,
2021		May 2,
2020
Weighted-average number of shares - basic376 372 
Common stock equivalents (1)9 0 
Weighted-average number of shares - diluted385 372 
 13 Weeks Ended 39 Weeks Ended
(shares in millions)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Weighted-average number of shares - basic391
 399
 395
 398
Common stock equivalents2
 1
 2
 2
Weighted-average number of shares - diluted393
 400
 397
 400
__________
(1)For the thirteen weeks ended May 2, 2020, the dilutive impact of outstanding options and awards was excluded from dilutive shares as a result of the Company’s net loss for the respective period.
The above computations of weighted-average number of shares – diluted exclude 9 million and 8 millionanti-dilutive shares related to stock options and other stock awards excluded from the computation of weighted-average number of shares – diluted were 7 million and 15 million for the thirteen weeks ended October 28, 2017 May 1, 2021 and October 29, 2016, respectively, and 9 million and 7 million shares related to stock options and other stock awards for the thirty-nine weeks ended October 28, 2017 and October 29, 2016,May 2, 2020, respectively, as their inclusion would have an anti-dilutive effect on earnings (loss) per share.

Note 11.9. Commitments and Contingencies
We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters. These contracts primarily relate to our commercial contracts, operating leases, trademarks, intellectual property, financial agreements, and various other agreements. Under these contracts, we may provide certain routine indemnifications relating to representations and warranties (e.g., ownership of assets, environmental or tax indemnifications), or personal injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. Generally, the maximum obligation under such indemnifications is not explicitly stated, and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our Condensed Consolidated Financial Statements taken as a whole.

12


As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims (“Actions”("Actions") arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. As of October 28, 2017,May 1, 2021, Actions filed against us included commercial, intellectual property, customer, employment, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages and some are covered in part by insurance. As of October 28, 2017, May 1, 2021, January 28, 2017,30, 2021, and October 29, 2016,May 2, 2020, we recorded a liability for an estimated loss if the outcome of an Action is expected to result in a loss that is considered probable and reasonably estimable. The liability recorded as of October 28, 2017, January 28, 2017, and October 29, 2016was not material for any individual Action or in total.total for all periods presented. Subsequent to October 28, 2017May 1, 2021, and through the filing date of this Quarterly Report on Form 10-Q, no information has become available that indicates a change is required that would be material to our Condensed Consolidated Financial Statements taken as a whole.
We cannot predict with assurance the outcome of Actions brought against us. Accordingly, developments, settlements, or resolutions may occur and impact income in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material effect on our Condensed Consolidated Financial Statements taken as a whole.
Fire at the Fishkill Distribution Center
On August 29, 2016, a fire occurred in one of the buildings at a Company-owned distribution center campus in Fishkill, New York. The impacted building primarily held Gap and Banana Republic products for distribution to stores and fulfilled online orders for Gap and Old Navy in the Northeast region of the United States.
The Company maintains property and business interruption insurance coverage. Based on the provisions of the Company’s insurance policies, the Company recorded insurance recoveries based on the determination that recovery of certain fire-related costs is probable. During fiscal 2016, the Company incurred a total of $133 million in certain fire-related costs. In January of fiscal 2016, the Company agreed upon a partial settlement of $159 million related to the loss on inventory and recorded a gain of $73 million, representing the excess over the loss on inventory, which was recorded in operating expenses in the Consolidated Statement of Income. During fiscal 2016, the Company received $174 million of insurance proceeds. As a result, the insurance receivable balance was $32 million as of January 28, 2017 and was recorded in other current assets in the Consolidated Balance Sheet.

During the thirteen and thirty-nine weeks ended October 28, 2017, the Company incurred immaterial costs and $15 million, respectively, in certain fire-related costs for which the Company recorded insurance recoveries based on the determination that recovery of these fire-related costs is probable. In June 2017, the Company also agreed upon a partial settlement and recorded a gain of $64 million, primarily related to property and equipment, representing the excess over the loss on fire-related recoverable costs, which was recorded in operating expenses in the Condensed Consolidated Statement of Income.

The Company received $29 million and $131 million of insurance proceeds during the thirteen and thirty-nine weeks ended October 28, 2017, respectively. Included in the $29 million was $20 million in insurance proceeds related to business interruption, which were recorded as a reduction to cost of goods sold and occupancy expenses in the Condensed Consolidated Statement of Income. The remaining $9 million and $111 million of insurance proceeds received during the thirteen and thirty-nine weeks ended October 28, 2017, respectively, were recorded as a reduction to the insurance receivable balance. As a result, the insurance proceeds received in excess of expected recoveries was less than $1 million as of October 28, 2017.

We will continue to incur additional logistics costs related to the disruption to our North American supply chain network. As settlements are reached, any recoveries related to business interruption insurance will be recognized as a reduction to cost of goods sold and occupancy expenses in the Condensed Consolidated Statements of Income.
During the thirty-nine weeks ended October 28, 2017, we allocated $60 million of insurance proceeds to the loss on property and equipment based on the partial settlement of claims reported as insurance proceeds related to loss on property and equipment, a component of cash flows from investing activities, in the Condensed Consolidated Statement of Cash Flows.

Note 12.10. Segment Information
The Gap, Inc. is a global retailer that sells apparel, accessories, and personal care products under the Gap, Old Navy, Banana Republic, Athleta, Intermix, and Weddington Way brands. We identify our operating segments according to how our business activities are managed and evaluated. As of October 28, 2017,May 1, 2021, our operating segments included Gap Global,included: Old Navy Global, Gap Global, Banana Republic Global, Athleta, and Intermix.Athleta. Each operating segment has a brand president who is responsible for various geographies and channels. Each of our brands serves customer demand through well-located stores and digital advantaged online channels, leveraging our omni-channel capabilities that allow customers to shop seamlessly across all of our brands. We have determined that each of our operating segments share similar economic and other qualitative characteristics, and therefore the results of our operating segments are aggregated into one1 reportable segment as of October 28, 2017.May 1, 2021. We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.


Net salesSee Note 2 of Notes to Condensed Consolidated Financial Statements for disaggregation of revenue for stores and online and by brand and region areregion.
Note 11. Divestitures
As part of a strategic review of the Company's brands and businesses, the Company entered into agreements to sell its Janie and Jack and Intermix brands. The sale of Janie and Jack was completed on April 8, 2021. The sale of Intermix was completed on May 21, 2021. The Company reclassified $109 million of assets and $112 million of liabilities for the Intermix brand as follows:
($ in millions) Gap Global Old Navy Global 
Banana
Republic Global
 Other (2) Total Percentage of Net Sales
13 Weeks Ended October 28, 2017      
U.S. (1) $750
 $1,587
 $467
 $200
 $3,004
 79%
Canada 109
 143
 57
 1
 310
 8
Europe 154
 —
 4
 —
 158
 4
Asia 278
 13
 21
 —
 312
 8
Other regions 31
 15
 8
 —
 54
 1
Total $1,322
 $1,758
 $557
 $201
 $3,838
 100%
             
($ in millions) Gap Global Old Navy Global 
Banana
Republic Global
 Other (3) Total Percentage of Net Sales
13 Weeks Ended October 29, 2016      
U.S. (1) $756
 $1,507
 $479
 $172
 $2,914
 77%
Canada 102
 131
 55
 1
 289
 8
Europe 150
 —
 14
 —
 164
 4
Asia 296
 55
 25
 —
 376
 10
Other regions 36
 12
 7
 —
 55
 1
Total $1,340
 $1,705
 $580
 $173
 $3,798
 100%
             
($ in millions) Gap Global Old Navy Global 
Banana
Republic Global
 Other (2) Total Percentage of Net Sales
39 Weeks Ended October 28, 2017      
U.S. (1) $2,137
 $4,609
 $1,396
 $633
 $8,775
 79%
Canada 277
 387
 156
 2
 822
 8
Europe 435
 —
 11
 —
 446
 4
Asia 780
 34
 69
 —
 883
 8
Other regions 83
 47
 21
 —
 151
 1
Total $3,712
 $5,077
 $1,653
 $635
 $11,077
 100%
             
($ in millions) Gap Global Old Navy Global 
Banana
Republic Global
 Other (3) Total Percentage of Net Sales
39 Weeks Ended October 29, 2016      
U.S. (1) $2,203
 $4,335
 $1,456
 $550
 $8,544
 77%
Canada 264
 358
 159
 2
 783
 7
Europe 453
 —
 45
 —
 498
 5
Asia 856
 171
 80
 —
 1,107
 10
Other regions 100
 32
 23
 —
 155
 1
Total $3,876
 $4,896
 $1,763
 $552
 $11,087
 100%
__________
(1)U.S. includes the United States, Puerto Rico, and Guam.
(2)Includes Athleta, Intermix, and Weddington Way.
(3)Includes Athleta and Intermix.
Net sales by region are allocated basedheld for sale within other current assets and accrued expenses and other current liabilities, respectively, on the locationCondensed Consolidated Balance Sheet as of May 1, 2021 and measured the store wheredisposal group at its estimated fair value less costs to sell. The aggregate carrying amount of assets and liabilities for amounts classified as held for sale primarily consist of $61 million of net operating lease assets, $19 million of inventory, and $97 million of operating lease liabilities.
As a result of these transactions, the customer paid forCompany recognized a pre-tax loss of $56 million within operating expenses on the Condensed Consolidated Statements of Operations during the thirteen weeks ended May 1, 2021.
13

Item 2.     Management's Discussion and received the merchandise or the distribution center or store from which the products were shipped.

Analysis of Financial Condition and Results of Operations.

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.
OUR BUSINESS
We are a global retailercollection of purpose-led, lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Gap, Old Navy, Gap, Banana Republic, Athleta, Intermix, and Weddington WayAthleta brands. We have Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico. We have franchise agreements with unaffiliated franchisees to operate Gap, Banana Republic, and Old Navy stores throughout Asia, Australia, 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. Our products are also available to customers online through Company-owned websites and through the use of third parties that provide logistics and fulfillment services. We also have franchise agreements with unaffiliated franchisees to operate Gap, Banana Republic, Old Navy, and Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. In addition to operating in the specialty, outlet, online, and franchise channels, we also use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers. Our omni-channel services, including curbside pick-up, buy online pick-up in store, order-in-store, reserve-in-store, find-in-store, and ship-from-store, as well as enhanced mobilemobile-enabled experiences, are tailored uniquely across our portfoliocollection of brands. Most of the products sold under our brand names are designed by us and manufactured by independent sources. We also sell products that are designed and manufactured by branded third parties, primarily at our Intermix brand.
OVERVIEW
Results forDuring fiscal 2020, we unveiled our Power Plan 2023 strategy, which reflects long-term plans to grow and strengthen the Company. Since then, we have focused on our key initiatives, including growing Old Navy and Athleta, repositioning and transforming Gap and Banana Republic, growing our online business, expanding into new categories such as inclusive sizing, and scaling strategic partnerships such as our recently announced venture into the Home market through the launch of Gap Home at Walmart.com, to amplify the reach of our brands to customers across product categories, markets, and channels.
In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. As a result, we temporarily closed a large number of our stores globally during the first three quartersquarter of fiscal 2017 include a gain from insurance proceeds2020; however, we innovated ways to safely serve customer demand through leveraging our omni-fulfillment capabilities, including curbside pick-up and ship-from-store. We re-opened the majority of $64 million related toour stores that were temporarily closed by the fire that occurred in onebeginning of the buildings at a Company-owned distribution center campus in Fishkill, New York on August 29, 2016 (“the Fishkill fire”), which was recorded in operating expenses in the Condensed Consolidated Statement of Income. During the third quarter of fiscal 2017, we also received $20 million2020. Our results for the first quarter of fiscal 2021 reflect continued domestic recovery from the effects of the COVID-19 pandemic and an ongoing shift in insurance proceeds relatedfocus from store sales to online sales, however, there continued to be impacts from store closures in international markets and in our supply chain. Pandemic-related costs and increased shipping costs incurred to meet customer demand for our growing online business interruption, which were recordedoffset by fixed cost savings gained through strategic store closures as a reductionresult of our fleet rationalization initiatives. Additionally, product acceptance from our customers has improved in response to costour investments in demand generation resulting in improved product margins.
In line with our Power Plan 2023, the Company shared its strategic focus to reduce the number of goods soldGap and occupancy expensesBanana Republic stores in North America by approximately 350 stores from the beginning of fiscal 2020 to the end of fiscal 2023. The majority of the select stores being considered have leases that expired in fiscal 2020 or will expire in fiscal 2021 which allows us to exit underperforming stores with a minimal net impact to our Consolidated Statement of Operations. As of May 1, 2021, we have closed, net of openings, 195 Gap and Banana Republic stores in North America since the beginning of fiscal 2020.
The Company also expects substantial cash lease buyout amounts relating to a small population of stores we intend to close across multiple brands; however, we expect these buyouts to have a minimal net impact to our Consolidated Statements of Operations. During the first quarter of fiscal 2021, the Company executed store buyout agreements. The net impact of these buyouts was not material to our Condensed Consolidated Statement of Income. Fiscal 2016 results were impacted by the previously announced measuresOperations. As a result of COVID-19, we suspended rent payments for our temporarily closed stores. We are continuing to better align talent and financial resources againstwork through negotiations with our most important prioritieslandlords relating to position the Company for improved business performance and long-term success. In connection with these measures, the Company incurred $29 million and $179 million in restructuring costs during the thirteen and thirty-nine weeks ended October 29, 2016, respectively, on a pre-tax basis.
Financial resultsthose leases. The rent abatement benefit was not material to our Condensed Consolidated Statement of Operations for the thirdfirst quarter of fiscal 20172021.
We are continuing our previously shared strategic review of our operating model in Europe. We remain focused on continuing to serve our customers in Europe with asset-light partnerships such as follows:franchise or online. While no decisions have been made, our strategic plans could result in significant costs to the Company including charges related to leases and inventory, and employee-related costs. We are targeting to finalize our plans in fiscal 2021.
Net salesOn March 19, 2021, the Company entered into an agreement to sell the Janie and Jack brand and on April 30, 2021, entered into an agreement to sell the Intermix brand. We closed the sale of Janie and Jack in April 2021 and the sale of Intermix closed on May 21, 2021. We believe these divestitures will allow the Company to prioritize its strategic focus and resources on growing our four purpose-led, lifestyle brands. We recognized a pre-tax loss of $56 million for the thirdfirst quarter of fiscal 2017 increased2021 in conjunction with these transactions. See Note 11 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 percent comparedof this Form 10-Q, for further information.
14

As part of our Power Plan 2023, the Company is focused on enhancing its rewards program to attract new customers and create enduring relationships to turn its customers into lifelong loyalists. In April 2021, the Company entered into new long-term credit card program agreements with Barclays and Mastercard. Barclays will become the third quarterexclusive issuer of fiscal 2016.
Comparable sales for the third quarter of fiscal 2017 increased 3 percent compared with a 3 percent decrease for the third quarter of fiscal 2016, which included an estimated negative impact from the Fishkill fire of approximately 2 percentage points.
Gross profit for the third quarter of fiscal 2017Gap Inc.’s co-branded and fiscal 2016 were $1.5 billion. Gross margin for the third quarter of fiscal 2017 was 39.7 percent compared with 39.3 percent for the third quarter of fiscal 2016.
Operating margin for the third quarter of fiscal 2017 was 9.8 percent compared with 10.2 percent for the third quarter of fiscal 2016.
Net income for the third quarter of fiscal 2017 was $229 million compared with $204 million for the third quarter of fiscal 2016.
Diluted earnings per share was $0.58 for the third quarter of fiscal 2017 compared with $0.51 for the third quarter of fiscal 2016. Diluted earnings per share for the third quarter of fiscal 2016 included about a $0.09 impact of restructuring costs incurredprivate label credit card program in the third quarter of fiscal 2016.
U.S. beginning in May 2022. In addition, Gap Inc. and Barclays will issue the co-branded credit cards on the Mastercard payment network. Accordingly, our previous private label credit card program with Synchrony Financial will be discontinued in April 2022.
During the first three quarters of fiscal 2017, we distributed $572 million to shareholders through share repurchases and dividends.
Our business priorities for fiscal 2017 remain2021 are as follows:
offering•creating product that is consistently brand-appropriateoffers value to our customers through a combination of fit, quality, brand and on-trend with high customer acceptance, with a focus on expanding our advantage in loyalty categories;price;
•investing in digitalour four purpose-led lifestyle brands to drive relevance and customer capabilities to support growth;gain market share;
creating a unique and differentiated customer experience that builds loyalty, with focus on both the physical and digital expressions of•growing our brands;online business;
•attracting and retaining greatstrong talent in our businesses and functions; and
•reducing our fixed cost structure to fuel demand generation investments;
•leveraging our scale to improvenavigate constraints in supply chain;
•managing inventory to support a healthy merchandise margin;
•rationalizing the effectivenessGap and efficiency of our processes.Banana Republic brands;

•prioritizing asset-light growth through licensing, online, and franchise partnerships globally; and

•continuing to integrate social and environmental sustainability into business practices to support long-term growth.
In fiscal 2017, we are focusedWe believe focusing on investing strategicallythese priorities in the business while also maintainingnear term will propel the Company to execute against the Power Plan 2023 strategy, including leveraging:
•The Power of its Brands, reflected by the Company’s four purpose-led, lifestyle brands, Old Navy, Gap, Banana Republic and Athleta;
•The Power of its Portfolio, which enables growth synergies across key customer categories; and
•The Power of its Platform, which leverages the Company’s powerful platform to both enable growth, such as through competitive omni-channel capabilities, as well as cost synergies, fueled by its scaled operations.
We continue to monitor the evolving pandemic situation and guidance from international and domestic authorities, including federal, state, and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating expense discipline. Oneplan.
Financial results for the first quarter of our primary objectives is to continue transforming our product to market process,fiscal 2021 are as follows:
•Net sales for the first quarter of fiscal 2021 increased 89 percent compared with the developmentfirst quarter of a more efficientfiscal 2020.
•Online sales for the first quarter of fiscal 2021 increased 61 percent compared with the first quarter of fiscal 2020 and store sales for the first quarter of fiscal 2021 increased 115 percent compared with the first quarter of fiscal 2020.
•Gross profit for the first quarter of fiscal 2021 was $1,630 million compared with $268 million for the first quarter of fiscal 2020. Gross margin for the first quarter of fiscal 2021 was 40.8 percent compared with 12.7 percent for the first quarter of fiscal 2020.
•Operating income for the first quarter of fiscal 2021 was $240 million compared with operating model, allowing us to more fully leverage our scale. To enable this, we have several product, supply chain, and IT initiatives underway. Further, we expect to continue our investment in customer experience, both in stores and online, to drive higher customer engagement and loyalty, resulting in marketloss of $(1,244) million for the first quarter of fiscal 2020.
•The effective income tax rate for the first quarter of fiscal 2021 was 11.2 percent, compared with 26.0 percent for the first quarter of fiscal 2020.
•Net income for the first quarter of fiscal 2021 was $166 million compared with net loss of $(932) million for the first quarter of fiscal 2020.
•Diluted earnings per share gains. Finally, we will continue to invest in strengthening brand awareness, customer acquisition, and digital capabilities.was $0.43 for the first quarter of fiscal 2021 compared with diluted loss per share of $(2.51) for the first quarter of fiscal 2020.
In fiscal 2017, we expect that gross margins for our foreign subsidiaries, net of the impact from our merchandise hedge program, will continue to be negatively impacted by the depreciation of certain foreign currencies as our merchandise purchases are primarily in U.S. dollars.


15

RESULTS OF OPERATIONS
Net Sales
See Note 122 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 inof this Form 10-Q, for net sales by brand and region.

disaggregation.
Comparable Sales (“("Comp Sales”Sales")
The percentage change in Comp Sales by global brand and for The Gap, Inc., as compared with the preceding year, is as follows:
 13 Weeks Ended 39 Weeks Ended
 October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Gap Global1 % (8)% (1)% (5)%
Old Navy Global4 % 3 % 5 % (1)%
Banana Republic Global(1)% (8)% (4)% (9)%
The Gap, Inc.3 % (3)% 2 % (3)%
Comp Sales for the third quarter of fiscal 2016 include an estimated negative impact from the Fishkill fire of approximately 4 percentage points for Gap Global, approximately 1 percentage point for Old Navy Global, and approximately 2 percentage points for Banana Republic Global.
Comp Sales include the results of Company-operated stores and sales through online channels in those countries where we have existing comparable store sales.channels. The calculation of The Gap Inc. Comp Sales includes the results of Athleta and Intermix but excludes the results of our franchise business.
A store is included in the Comp Sales calculations when it has been open and operated by the Company for at least one year and the selling square footage has not changed by 15 percent or more within the past year. A store is included in the Comp Sales calculations on the first day it has comparable prior year sales. Stores in which the selling square footage has changed by 15 percent or more as a result of a remodel, expansion, or reduction are excluded from the Comp Sales calculations until the first day they have comparable prior year sales.
A store is considered non-comparable (“Non-comp”("Non-comp") when it has been open and operated by the Company for less than one year or has changed its selling square footage by 15 percent or more within the past year.
A store is considered “Closed”"Closed" if it is temporarily closed for three or more full consecutive days or it is permanently closed. When a temporarily closed store reopens, the store will be placed in the Comp/Non-comp status it was in prior to its closure. If a store was in Closed status for three or more days in the prior year, the store will be in Non-comp status for the same days the following year.
Current year foreign exchange rates are applied to both current year and prior year Comp Sales to achieve a consistent basis for comparison.

For the thirteen weeks ended May 1, 2021, any stores temporarily closed for more than three days as a result of COVID-19 during the first quarter of fiscal 2020 were excluded from the Comp Sales calculations. After temporarily closed stores reopened, subsequent sales were included in the Comp/Non-comp status they were in prior to temporary closure. Online sales continued to be included in the Comp Sales calculation for each period.
Store CountAs a result of the extensive temporary store closures due to the COVID-19 pandemic, Comp Sales are not a meaningful metric for the thirteen weeks ended May 2, 2020. The Comp Sales for the thirteen weeks ended May 1, 2021 reflect continued recovery from the pandemic.
The percentage change in Comp Sales by global brand and Square Footage Information
Net sales per average square foot arefor The Gap, Inc. for the thirteen weeks ended May 1, 2021 is as follows:
 13 Weeks Ended 39 Weeks Ended
 October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Net sales per average square foot (1)$82
 $81
 242
 $240
__________
(1)Excludes net sales associated with our online and franchise businesses.13 Weeks Ended
May 1, 2021
Old Navy Global35 %
Gap Global29 %
Banana Republic Global(4)%
Athleta27 %
The Gap, Inc.28 %


16


Store count, openings, closings, and square footage for our stores are as follows:
 January 30, 202113 Weeks Ended May 1, 2021May 1, 2021
 Number of
Store Locations		Number of
Stores Opened		Number of
Stores Closed (1)		Number of
Store Locations		Square Footage
(in millions)
Old Navy North America1,220 24 2 1,242 19.9 
Gap North America556 1 5 552 5.8 
Gap Asia340 5 8 337 2.9 
Gap Europe117 1 2 116 1.0 
Banana Republic North America471 1 3 469 4.0 
Banana Republic Asia47 3 2 48 0.2 
Athleta North America199 3 — 202 0.8 
Intermix North America31 — — 31 0.1 
Janie and Jack North America (2)119 — — — — 
Company-operated stores total3,100 38 22 2,997 34.7 
Franchise615 36 77 574  N/A
Total3,715 74 99 3,571 34.7 
Decrease over prior year(8.7)%(5.4)%
 February 1, 202013 Weeks Ended May 2, 2020May 2, 2020
 Number of
Store Locations		Number of
Stores Opened		Number of
Stores Closed (1)		Number of
Store Locations		Square Footage
(in millions)
Old Navy North America1,207 4 3 1,208 19.5 
Old Navy Asia17 — 17 — — 
Gap North America675 — 8 667 7.1 
Gap Asia358 5 2 361 3.2 
Gap Europe137 — 7 130 1.1 
Banana Republic North America541 — 2 539 4.5 
Banana Republic Asia48 1 3 46 0.2 
Athleta North America190 1 — 191 0.8 
Intermix North America33 — — 33 0.1 
Janie and Jack North America139 — 1 138 0.2 
Company-operated stores total3,345 11 43 3,313 36.7 
Franchise574 29 5 598 N/A
Total3,919 40 48 3,911 36.7 
Increase (decrease) over prior year1.6 %(0.3)%
 January 28, 2017 39 Weeks Ended October 28, 2017 October 28, 2017
 
Number of
Store Locations
 
Number of
Stores Opened
 
Number of
Stores Closed
 
Number of
Store Locations
 
Square Footage
(in millions)
Gap North America844
 6
 15
 835
 8.6
Gap Asia311
 24
 26
 309
 3.0
Gap Europe164
 2
 9
 157
 1.3
Old Navy North America1,043
 20
 6
 1,057
 17.6
Old Navy Asia13
 —
 —
 13
 0.2
Banana Republic North America601
 4
 9
 596
 5.0
Banana Republic Asia48
 1
 1
 48
 0.2
Banana Republic Europe1
 —
 1
 —
 —
Athleta North America132
 8
 —
 140
 0.6
Intermix North America43
 —
 5
 38
 0.1
Company-operated stores total3,200
 65
 72
 3,193
 36.6
Franchise459
 31
 44
 446
  N/A
Total3,659
 96
 116
 3,639
 36.6
Decrease over prior year      (2.8)% (2.9)%
          
 January 30, 2016 39 Weeks Ended October 29, 2016 October 29, 2016
 
Number of
Store Locations
 
Number of
Stores Opened
 
Number of
Stores Closed
 
Number of
Store Locations
 
Square Footage
(in millions)
Gap North America866
 11
 19
 858
 9.0
Gap Asia305
 18
 8
 315
 3.0
Gap Europe175
 1
 10
 166
 1.4
Old Navy North America1,030
 19
 10
 1,039
 17.4
Old Navy Asia65
 5
 10
 60
 0.9
Banana Republic North America612
 7
 7
 612
 5.1
Banana Republic Asia51
 —
 2
 49
 0.2
Banana Republic Europe10
 —
 —
 10
 0.1
Athleta North America120
 10
 —
 130
 0.5
Intermix North America41
 2
 1
 42
 0.1
Company-operated stores total3,275
 73
 67
 3,281
 37.7
Franchise446
 52
 37
 461
 N/A
Total3,721
 125
 104
 3,742
 37.7
Decrease over prior year      (1.4)% (2.3)%
__________
Gap(1)Represents stores that have been permanently closed, not stores temporarily closed as a result of COVID-19.
(2)On April 8, 2021, the Company completed the sale of the Janie and Banana Republic outletJack brand. The 119 stores sold are not included as store closures or in the ending balance for fiscal 2021.
Outlet and factory stores are reflected in each of the respective brands.

17

Net Sales
Our net sales for the thirdfirst quarter of fiscal 20172021 increased $40$1,884 million, or 189 percent, compared with the thirdfirst quarter of fiscal 20162020, driven primarily by temporary store closures across our fleet during the first quarter of fiscal 2020 due to the COVID-19 pandemic.
Store sales increased 115% compared with the first quarter of fiscal 2020, primarily driven by significant increases across all brands as store traffic came back at domestic store locations the Company has reopened; partially offset by strategic store closures. Even with the return of store traffic, our investment in demand generation during the period helped drive online sales growth for the first quarter of fiscal 2021 which increased $608 million or 61 percent, compared with the first quarter of fiscal 2020 reflecting progress against executing our Power Plan 2023 strategy of digital dominance.
Cost of Goods Sold and Occupancy Expenses
  
13 Weeks Ended
($ in millions)May 1,
2021		May 2,
2020
Cost of goods sold and occupancy expenses$2,361 $1,839 
Gross profit$1,630 $268 
Cost of goods sold and occupancy expenses as a percentage of net sales59.2 %87.3 %
Gross margin40.8 %12.7 %
Cost of goods sold and occupancy expenses decreased 28.1 percentage points as a percentage of net sales in the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020.
•Cost of goods sold decreased 13.9 percentage points as a percentage of net sales in the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020, primarily driven by higher inventory impairment recognized in the first quarter of fiscal 2020 due to store closures as a result of COVID-19. Cost of goods sold as a percentage of net sales in the first quarter of fiscal 2021 also decreased as a result of improved retail traffic and lower promotional activity primarily at Old Navy Global and Gap Global.
•Occupancy expenses decreased 14.2 percentage points as a percentage of net sales in the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020 primarily driven by an increase in net sales at Old Navy, partially offset bylargely due to temporary store closures as a decrease in net sales at Gap and Banana Republic. The increase in Comp Salesresult of 3 percent forCOVID-19 during the thirdfirst quarter of fiscal 2017 was offset by the impact of lost sales primarily from international store closures in fiscal 2016.
Our net sales for the first three quarters of fiscal 2017 decreased $10 million compared with the first three quarters of fiscal 2016 primarily driven by a decrease in net sales at Gap and Banana Republic, as well as an unfavorable impact of foreign exchange of $49 million, partially offset by an increase in net sales at Old Navy. The unfavorable impact of foreign exchange was primarily due to the weakening of the Japanese yen, British pound, and Chinese yuan against the U.S. dollar. The foreign exchange impact is the translation impact if net sales for the first three quarters of fiscal 2016 were translated at exchange rates applicable2020. Additionally, during the first three quartersquarter of fiscal 2017. The increase in Comp Sales of 2 percent for the first three quarters of fiscal 2017 was offset by the2021 online sales continued to grow which has minimal impact of lost sales primarily from international store closures in fiscal 2016.on fixed occupancy expenses.




Cost of Goods Sold and OccupancyOperating Expenses
  
13 Weeks Ended
($ in millions)May 1,
2021		May 2,
2020
Operating expenses$1,390 $1,512 
Operating expenses as a percentage of net sales34.8 %71.8 %
Operating margin6.0 %(59.0)%
  
13 Weeks Ended 39 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Cost of goods sold and occupancy expenses$2,313
 $2,305
 $6,770
 $6,948
Gross profit$1,525
 $1,493
 $4,307
 $4,139
Cost of goods sold and occupancy expenses as a percentage of net sales60.3% 60.7% 61.1% 62.7%
Gross margin39.7% 39.3% 38.9% 37.3%

Cost of goods sold and occupancyOperating expenses decreased 0.4 percent$122 million or 37 percentage points as a percentage of net sales in the thirdfirst quarter of fiscal 2017 compared with the third quarter of fiscal 2016.
Cost of goods sold was flat as a percentage of net sales in the third quarter of fiscal 2017 compared with the third quarter of fiscal 2016, primarily driven by improved average selling price per unit at Old Navy and Banana Republic, offset by higher average unit cost at all global brands.
Occupancy expenses decreased0.4 percent as a percentage of net sales in the third quarter of fiscal 2017 compared with the third quarter of fiscal 2016, primarily driven by an increase in online sales without a corresponding increase in occupancy expenses and the closure of international stores in fiscal 2016, partially offset by real estate expenses for new stores at the Times Square, New York location for Gap and Old Navy.
Cost of goods sold and occupancy expenses decreased1.6 percent as a percentage of net sales during the first three quarters of fiscal 20172021 compared with the first three quartersquarter of fiscal 2016.2020 primarily due to the following:
Cost•a decrease due to impairment charges related to store assets and operating lease assets of goods sold decreased1.2 percent as a percentage of net sales$484 million that occurred during the first three quartersquarter of fiscal 2017 compared with2020 primarily due to the impact of COVID-19; partially offset by
•an increase in store payroll and benefits and other store operating expenses due to COVID-19 temporary store closures during the first three quartersquarter of fiscal 2016, primarily driven by higher margins achieved2020;
•an increase in advertising expense to fuel demand across all purpose-led lifestyle brands;
•an increase in bonus expense as a result of improved average selling price per unit at all global brands, partially offset by higher average unit cost at all globalperformance; and
•a loss on divestiture activity related to the Janie and Jack and Intermix brands.
18

Interest Expense
Occupancy expenses decreased0.4
  
13 Weeks Ended
($ in millions)May 1,
2021		May 2,
2020
Interest expense$54 $19 
Interest expense increased $35 million or 184 percent as a percentage of net sales during the first three quartersquarter of fiscal 20172021 compared with the first three quarters of fiscal 2016, primarily driven by an increase in online sales without a corresponding increase in occupancy expenses and the closure of international stores in fiscal 2016, partially offset by real estate expenses incurred for new stores at the Times Square, New York location for Gap and Old Navy.

Operating Expenses
  
13 Weeks Ended 39 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Operating expenses$1,147
 $1,104
 $3,224
 $3,249
Operating expenses as a percentage of net sales29.9% 29.1% 29.1% 29.3%
Operating margin9.8% 10.2% 9.8% 8.0%
Operating expenses increased $43 million, or 0.8 percent as a percentage of net sales, in the third quarter of fiscal 2017 compared with the third quarter of fiscal 2016. The increase in operating expenses for the third quarter of fiscal 2017 compared with the third quarter of fiscal 2016 was2020 primarily due to the following:
an increase in payroll-related expenses primarily driven by an increase in bonus expense;higher outstanding long-term debt and
an increase in marketing and investments in digital and customer initiatives; partially offset by
$36 million of restructuring costs incurred in the third quarter of fiscal 2016; and
a decrease of $27 million of store asset impairment charges unrelated to restructuring activities.
Operating expenses decreased $25 million, or 0.2 percent higher interest rates as a percentageresult of net sales, during the first three quartersMay 2020 issuance of fiscal 2017 compared with the first three quarters of fiscal 2016.Notes. The decrease in operating expenses for the first three quarters of fiscal 2017 compared with the first three quarters of fiscal 2016 was primarily due to the following:
$171 million of restructuring costs incurred during the first three quarters of fiscal 2016;
a gain from insurance proceeds of $64 million related to the Fishkill fire recorded in the second quarter of fiscal 2017; and
a decrease of $18 million of store asset impairment charges unrelated to restructuring activities; partially offset by
an increase in payroll-related expenses primarily driven by an increase in bonus expense; and
an increase in marketing and investments in digital and customer initiatives.



Interest Expense
  
13 Weeks Ended 39 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016
Interest expense$18
 $20
 $53
 $57
Interest expense for the third quarter and the first three quarters of fiscal 2017 and fiscal 2016 primarily includes interest on overall borrowings and obligations mainlytotal outstanding principal related to our Notes was $2.25 billion as of May 1, 2021 as compared with $1.25 billion related to our previous 5.95 percent 2021 Notes as of May 2, 2020. Additionally, the new Notes bear interest at 8.375 percent, 8.625 percent, and 8.875 percent compared with our previous 5.95 percent 2021 Notes.


Income Taxes
13 Weeks Ended 39 Weeks Ended
13 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		 October 28,
2017		 October 29,
2016		($ in millions)May 1,
2021		May 2,
2020
Income taxes$135
 $168
 $398
 $383
Income taxes$21 $(327)
Effective tax rate37.1% 45.2% 38.2% 45.6%Effective tax rate11.2 %26.0 %
The decrease in the effective tax rate for the third quarter and first three quarters of fiscal 2017 compared with the third quarter and first three quarters of fiscal 2016 was primarily due to the impact of restructuring costs incurred for foreign subsidiaries during the third quarter of fiscal 2016 and resulting valuation allowances on certain foreign deferred tax assets. The decrease in the effective tax rate for the first three quarters of fiscal 20172021 compared with the first three quartersquarter of fiscal 20162020 is primarily due to a tax benefit resulting from divestiture activity during the first quarter of fiscal 2021 as well as the impact of the Coronavirus Aid, Relief, and Economic Security Act in the first quarter of fiscal 2020. This was partially offset by changes in the impactmix of pretax income between domestic and international operations during the adoptionfirst quarter of ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting in fiscal 2017. See Note 2 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 in this Form 10-Q for additional disclosures on the adoption of the accounting standard.2020.

LIQUIDITY AND CAPITAL RESOURCES
We continue to manage through the impacts of COVID-19, including the impact it has on our liquidity. As of May 1, 2021, we consider the following to be our primary measures of liquidity and capital resources:
($ in millions)Source of LiquidityOutstanding IndebtednessTotal Available Liquidity
Cash and cash equivalents$2,066 $— $2,066 
Short-term investments475 — 475 
Debt
8.375 percent 2023 Notes500 500 — 
8.625 percent 2025 Notes750 750 — 
8.875 percent 2027 Notes1,000 1,000 — 
Total$4,791 $2,250 $2,541 
We are also able to supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments.
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, and payment of taxes. In addition, we may have dividend payments, debt repayments, and share repurchases. As of October 28, 2017, cash and cash equivalents were $1.4 billion, the majority of which was held in the United States and is generally accessible without any limitations.
We believe thatour capital structure provides sufficient liquidity and our cash flows from our operations, along with current cash balances, and cash flows from our operationsthe instruments mentioned above will be sufficient to support our business operations including growth initiatives and planned capital expenditures, for the next 12 months and beyond. We are also able to supplement near-term liquidity, if necessary, with our $500 million revolving credit facility or other available market instruments.

twelve months.
Cash Flows from Operating Activities
Net cash provided by operating activities increased by $1,280 million during the first three quartersquarter of fiscal 2017 decreased $200 million2021 compared with the first three quartersquarter of fiscal 2016,2020, primarily due to the following:
    Net Income (Loss)
•Net income
an increase of $187 million compared with net loss in net income.prior comparable period;
Non-cash itemsitem
•a decrease of $72$479 million relateddue to store assethigher non-cash impairment charges for operating lease assets and store assets during the first three quartersquarter of fiscal 20172020 compared with the first three quartersquarter of fiscal 2016 primarily due to restructuring activities in fiscal 2016.2021;
Changes in operating assets and liabilities
a decrease•an increase of $239$304 million related to accountsincome taxes payable, primarily duenet of receivables and other tax-related items resulting from the net operating loss carrybacks attributable to the first quarter of fiscal 2020 as well as timing of lease payments and other non-merchandise payables;tax-related payments;
a decrease
19

•an increase of $123$148 million related to merchandise inventory primarily due to the volumeutilization of seasonal inventory stored at our distribution center since fiscal 2020 as a result of the COVID-19 pandemic compared with higher inventory purchases during the first quarter of fiscal 2020; and timing
•an increase of receipts; and
a decrease of $56$126 million related to accrued expenses and other current liabilities in partprimarily due to the timing of severanceinterest payments as a result of fiscal 2016 restructuring activities; partially offset by
an increase of $108 million related to income taxes payable, net of prepaid and other tax-related items, primarily due to an increase in taxable income during the first three quarters of fiscal 2017 compared with the first three quarters of fiscal 2016 as well as the timing of tax payments.our long-term debt.
We fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash. Our business typically follows a seasonal pattern, with sales peaking during the end-of-year holiday period. The seasonality of our operations, in addition to the residual impact of COVID-19 and strategic initiatives, may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods.




Cash Flows from Investing Activities
Net cash used for investing activities was $161 million during the first three quartersquarter of fiscal 2017 increased $22 million2021 compared with $116 million of cash provided by investing activities during the first three quartersquarter of fiscal 2016,2020, primarily due to the following:
•$80303 million more in property and equipmenthigher net purchases including purchases related to the rebuilding of the Company’s Fishkill, New York distribution center campus; offset by
$60 million in insurance proceeds allocated to loss on property and equipmentavailable-for-sale debt securities during the first three quartersquarter of fiscal 2017 related to the Fishkill fire2021 compared with no insurance proceeds allocated during the first three quartersquarter of fiscal 2016.

2020.
Cash Flows from Financing Activities
Net cash used for financing activities was $98 million during the first three quartersquarter of fiscal 2017 increased $364 million2021 compared with $499 million of cash provided by financing activities during the first three quartersquarter of fiscal 2016,2020, primarily due to the following:
•$300500 million in proceeds received as a result of cash used for repurchases of common stockdrawing down on our revolving credit facility during the first three quartersquarter of fiscal 2017 compared with no repurchases2020; and
•$91 million payment of common stockthe dividend that was deferred during the first three quartersquarter of fiscal 2016; and
$67 million related to the repayment2020 as a result of the Japan Term Loan in full in June 2017.

COVID-19 pandemic.
Free Cash Flow
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.business and infrastructure. 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. Free cash flow for the first three quarters of fiscal 2017 is further adjusted for insurance proceeds allocated to loss on property and equipment, as our cash used for purchases of property and equipment for the first three quarters of fiscal 2017 includes certain capital expenditures related to the rebuilding of the Company-owned distribution center which was impacted by the Fishkill fire.
The following table reconciles free cash flow, a non-GAAP financial measure, from a GAAP financial measure.
39 Weeks Ended 13 Weeks Ended
($ in millions)October 28,
2017		 October 29,
2016		($ in millions)May 1,
2021		May 2,
2020
Net cash provided by operating activities$600
 $800
Net cash provided by (used for) operating activitiesNet cash provided by (used for) operating activities$340 $(940)
Less: Purchases of property and equipment(463) (383)Less: Purchases of property and equipment(124)(122)
Add: Insurance proceeds related to loss on property and equipment60
 —
Free cash flow$197
 $417
Free cash flow$216 $(1,062)
Debt and Credit Facilities
CertainFor financial information about the Company’s debt and credit facilities is set forth under the headingas of May 1, 2021 see “Debt and Credit Facilities” in Note 3 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Dividend Policy
In determining whether and at what level to declare a dividend, we consider a number of factors including sustainability, operating performance, liquidity, and market conditions.
WeDuring the thirteen weeks ended May 1, 2021, the Company paid the previously declared first quarter of fiscal 2020 dividend to shareholders of record at the close of business on April 7, 2021. On May 11, 2021, the board of directors authorized a second quarter fiscal year 2021 dividend of $0.23$0.12 per share, during eachpayable on or after July 28, 2021 to shareholders of record at the first three quartersclose of business on July 7, 2021.
20

Share Repurchases
On May 11, 2021, the Company announced the resumption of its share repurchase program, which has $800 million of its $1 billion authorization remaining. Subject to market conditions and other considerations, the Company intends to repurchase up to $200 million of shares under the program in the remainder of fiscal 2017 and fiscal 2016. Including the dividend paid during the first three quarters of fiscal 2017 of $0.69 per share, we intend to pay an annual dividend of $0.92 per share for fiscal 2017, consistent with the annual dividend for fiscal 2016.

Share Repurchasesyear 2021.
Certain financial information about the Company’s share repurchases is set forth under the heading “Share Repurchases” in Note 67 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.



Summary Disclosures about Contractual Cash Obligations and Commercial Commitments
There have been no material changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of January 28, 2017,30, 2021, other than those which occur in the normal course of business. See Note 119 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on commitments and contingencies.

Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.30, 2021. See Note 1 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on accounting policies.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Our market risk profile as of January 28, 201730, 2021, is disclosed in our Annual Report on Form 10-K and has not significantly changed. See Notes 3, 4, and 56 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q for disclosures on our debt, investments, and derivative financial instruments.
Item 4.     Controls and Procedures.
Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act Rule 13a-15(e))of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s thirdfirst quarter of fiscal 20172021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely. We continually monitor and assess the control environment for potential impacts to the design and operating effectiveness of internal controls over financial reporting due to various factors, including any residual impact of COVID-19.




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PART II – OTHER INFORMATION
Item 1.Legal Proceedings.
Item 1.     Legal Proceedings.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims ("Actions") arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, employment, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance.
We cannot predict with assurance the outcome of Actions brought against us. Accordingly, developments, settlements, or resolutions may occur and impact incomeoperations in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material effect on our financial results.

Item 1A.     Risk Factors.
Item 1A.Risk Factors.
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.30, 2021.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
The following table presents information with respectOn February 26, 2019, we announced that the Board of Directors approved a $1 billion share repurchase authorization (the "February 2019 repurchase program"), which has no expiration date. There were no shares repurchased, other than shares withheld to purchasessettle employee statutory tax withholding related to the vesting of common stock of the Company madeunits, during the thirteen weeks endedOctober 28, 2017 by May 1, 2021. The Gap, Inc.February 2019 repurchase program had $800 million remaining as of May 1, 2021.
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Item 6.     Exhibits.
Incorporated by Reference
Exhibit No.Exhibit DescriptionFormFile No.ExhibitFiling DateFiled/
Furnished
Herewith
3.1Amended and Restated Certificate of Incorporation (P)10-K1-75623.1April 26, 1993
3.2
Certificate of Amendment of Amended and Restated Certificate of Incorporation10-K1-75623.2April 4, 2000
3.3
Amended and Restated Bylaws (effective March 23, 2020)8-K1-75623.1March 5, 2020
10.1†
2021 Form of Non-Qualified Stock Option Agreement under the 2016 Long-Term Incentive Plan8-K1-756210.1March 9, 2021
10.2†
2021 Form of Restricted Stock Unit Award Agreement under the 2016 Long-Term Incentive Plan8-K1-756210.2March 9, 2021
10.3†
2021 Form of Performance Share Agreement under the 2016 Long-Term Incentive Plan8-K1-756210.3March 9, 2021
10.4*
Credit Card Program Agreement, dated as of April 8, 2021, by and among Registrant, Old Navy, LLC, Banana Republic, LLC, Athleta LLC and Barclays Bank DelawareX
31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002)X
31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002)X
32.1
Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X
32.2
Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X
101The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended May 1, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Stockholders' Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial StatementsX
104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)X
_____________________________
(P)    This Exhibit was originally filed in paper format. Accordingly, a hyperlink has not been provided.
†    Indicates management contract or any affiliated purchaser, as defined in Exchange Act Rule 10b-18(a)(3):compensatory plan or arrangement.
*    Certain portions of this Exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.


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Total
Number of
Shares
Purchased (1)
 
Average
Price Paid
Per Share
Including
Commissions
 
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
 
Maximum
Number (or
approximate
dollar amount) of
Shares that May
Yet be Purchased
Under the Plans
or Programs (2)
Month #1 (July 30 - August 26)539,800
 $23.15
 539,800
 $788 million
Month #2 (August 27 - September 30)2,249,992
 $26.66
 2,249,992
 $728 million
Month #3 (October 1 - October 28)963,538
 $28.57
 963,538
 $700 million
Total3,753,330
 $26.64
 3,753,330
  
__________
(1)Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units.
(2)On February 25, 2016, we announced that the Board of Directors approved a $1 billion share repurchase authorization, which has no expiration date.





Item 6.Exhibits.

10.1Agreement with Shawn Curran dated September 29, 2017 and confirmed on October 5, 2017. (1)
31.1Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002). (1)
31.2Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002). (1)
32.1Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
32.2Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
101The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. (1)
__________
(1)Filed herewith.
(2)Furnished herewith.





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:May 28, 2021THE GAP, INC.By/s/ Sonia Syngal
Sonia Syngal
Date:November 22, 2017By  /s/ Arthur Peck
Arthur Peck
Chief Executive Officer
(Principal Executive Officer)
Date:November 22, 2017By  /s/ Teri List-Stoll
Date:May 28, 2021ByTeri List-Stoll/s/ Katrina O'Connell
Katrina O'Connell
Executive Vice President and Chief Financial Officer


Exhibit Index
10.1
Agreement with Shawn Curran dated September 29, 2017(Principal Financial and confirmed on October 5, 2017. (1)
31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002). (1)
31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002). (1)
32.1
Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
32.2
Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
101
The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. (1)
Accounting Officer)
_____________________________
(1)Filed herewith.
(2)Furnished herewith.


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