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Gap Inc.

Gap Inc. The Valuation Project -Mod 11: Adjusting Accounting Information Sherry Xu ( netID : jxu6). Table of Contents. 1. Company Profile 2. Adjusting Accounting Information 2.1 Operating Lease 2.2 Share-Based Compensation. 1. Company profile. Industry : Apparel stores

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Gap Inc.

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  1. GapInc. TheValuationProject-Mod11:Adjusting Accounting Information SherryXu(netID:jxu6)

  2. Table of Contents • 1. Company Profile • 2. Adjusting Accounting Information • 2.1 Operating Lease • 2.2 Share-Based Compensation

  3. 1. Companyprofile Industry:Apparelstores Global retailer offering apparel, accessories, and personal care products for men, women, children, and babies Comparablecompanies:Abercrombie(ANF),AmericanEagle(AEO),Aeropostle(ARO) Foundedin1969inSanFrancisco;incorporatedinDelaware Brands:Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix #ofcompany-operatedstores: 3,095; # of franchise stores: 312 (As of FY2012 balance sheet date)

  4. 2.1Operating Lease (Note 12) GPS leases most of the store premises and some of the corporate facilities and distribution centers. Step 1: discount rate GPS does not provide information on capital leases such that we can estimate the implied interest rate to use in capitalize the operating leases. Thus, we use GPS's cost of debt as discount rate. rD=4.66%

  5. 2.1Operating Lease Step 2: compute the PV of future operating lease payments

  6. 2.1Operating Lease Step 2: compute the PV of future operating lease payments

  7. 2.1Operating Lease • Step 3: adjust NEA • We adjust NEA upward by $5,178 to include this additional enterprise asset (part of PPE). • The financing liabilities will be increased by $5,178. Of this liability: • Current:$864($1,105 payment-interest estimate of $5,178*4.66%) • Non-current:$4,314 ($5,178-$864 current)

  8. 2.1Operating Lease Step 4: adjust EPAT

  9. 2.2 Share-Based Compensation (Note 11)

  10. 2.2 Share-Based Compensation

  11. 2.2 Share-Based Compensation

  12. 2.2 Share-Based Compensation

  13. Questions?

  14. Thank you! Sherry Xu (netID: jxu6)

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