GAP INC (Form: 10-K, Received: 03/26/2013 12:26:20)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



þ	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal year ended February 2, 2013



¨	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)



Delaware	94-1697231
(State of Incorporation)	(I.R.S. Employer Identification No.)



Two Folsom Street, San Francisco, California	94105
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (415) 427-0100

Securities registered pursuant to Section 12(b) of the Act:



Common Stock, $0.05 par value	New York Stock Exchange, Inc.
(Title of class)	(Name of exchange where registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

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 þ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of July 27, 2012 was approximately $6 billion based upon the last price reported for such date in the NYSE-Composite transactions.

The number of shares of the registrant’s common stock outstanding as of March 19, 2013 was 465,307,163 .

Documents Incorporated by Reference

Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 21, 2013 (hereinafter referred to as the “2012 Proxy Statement”) are incorporated into Part III.

Special Note on Forward-Looking Statements

This Annual Report on Form 10-K 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:


•	our international expansion plans, including our plans to open Old Navy stores outside of North America, open additional Gap stores in China, and open additional international outlet stores;


•	continued growth of online sales internationally;


•	our ability to maintain a strong financial profile with ample liquidity;


•	the outcome of proceedings, lawsuits, disputes, and claims;


•	improving sales with healthy merchandise margins;


•	investing in our business;


•	growing earnings per share;


•	returning excess cash to shareholders;


•	diluted earnings per share in fiscal 2013;


•	growing sales with healthy merchandise margins;


•	managing our expenses in a disciplined manner;


•	growing revenues through new brands, channels, and geographies;


•	continuing to open franchise stores worldwide;


•	opening additional Athleta stores;


•	the number of new store openings and store closings in fiscal 2013;


•	net square footage change in fiscal 2013;


•	the number of new franchise stores in fiscal 2013;


•	impact of returning to a 52-week fiscal year in fiscal 2013;


•	impact of foreign exchange rate fluctuations;


•	operating margin in fiscal 2013;


•	the effective tax rate in fiscal 2013;


•	current cash balances and cash flows being sufficient to support our business operations, including growth initiatives and planned capital expenditures;


•	our ability to supplement near-term liquidity, if necessary, with our revolving credit facility;


•	depreciation and amortization in fiscal 2013;


•	capital expenditures in fiscal 2013;


•	our plan to increase our dividend in fiscal 2013;


•	the estimates and assumptions we use in our accounting policies;


•	the impact on our income tax provision of any changes in our estimated tax liability;


•	the adoption of accounting standards updates in fiscal 2013;


•	the extension of our portfolio of brands and further penetration of the higher-end apparel market;


•	the assumptions used to estimate the grant date fair value of stock options issued;


•	the expected amount of future lease payments;


•	our intention to utilize undistributed earnings of our foreign subsidiaries;


•	total gross unrecognized tax benefits;


•	expected payments to International Business Machines Corporation ("IBM"); and


•	the impact of losses due to indemnification obligations.

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 risk that the adoption of new accounting pronouncements will impact future results;


•	the risk that changes in general economic conditions or consumer spending patterns could adversely impact our results of operations;


•	the highly competitive nature of our business in the United States and internationally;


•	the risk that we or our franchisees will be unsuccessful in gauging apparel trends and changing consumer preferences;


•	the risk to our business associated with global sourcing and manufacturing, including sourcing costs, events causing disruptions in product shipment, or an inability to secure sufficient manufacturing capacity;


•	the risk that our efforts to expand internationally may not be successful;


•	the risk that our franchisees will be unable to successfully open, operate, and grow the Company’s franchised stores or operate their stores in a manner consistent with our requirements regarding our brand identities and customer experience standards;


•	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 comparable sales and margins will experience fluctuations;


•	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 results or our business initiatives;


•	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 updates or changes to our information technology (“IT”) systems may disrupt our operations;


•	the risk that our IT services agreement with IBM could cause disruptions in our operations and have an adverse effect on our financial results;


•	the risk that actual or anticipated cyber-attacks, and other cybersecurity risks, may cause us to incur increasing costs;


•	the risk that natural disasters, public health crises, political crises, or other catastrophic events could adversely affect our operations and financial results;


•	the risk that acts or omissions by our third-party vendors, including a failure to comply with our code of vendor conduct, could have a negative impact on our reputation or operations;


•	the risk that we do not repurchase some or all of the shares we anticipate purchasing pursuant to our repurchase program;


•	the risk that we will not be successful in defending various proceedings, lawsuits, disputes, claims, and audits; and


•	the risk that changes in the regulatory or administrative landscape could adversely affect our financial condition, strategies, and results of operations.

Additional information regarding factors that could cause results to differ can be found in this Annual Report on Form 10-K and our other filings with the U.S. Securities and Exchange Commission (“SEC”).

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 March 26, 2013 , and 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.

THE GAP, INC.

2012 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS



		Page
PART I

Item 1.	Business	5

Item 1A.	Risk Factors	8

Item 1B.	Unresolved Staff Comments	13

Item 2.	Properties	13

Item 3.	Legal Proceedings	13

Item 4.	Mine Safety Disclosures	13

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14

Item 6.	Selected Financial Data	16

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 8.	Financial Statements and Supplementary Data	30

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	65

Item 9A.	Controls and Procedures	65

Item 9B.	Other Information	65

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	65

Item 11.	Executive Compensation	65

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65

Item 13.	Certain Relationships and Related Transactions, and Director Independence	66

Item 14.	Principal Accounting Fees and Services	66

PART IV

Item 15.	Exhibits, Financial Statement Schedules	67

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Part I

Item 1. Business.

General

The Gap, Inc. (Gap Inc., the “Company,” “we,” and “our”) was incorporated in the State of California in July 1969 and was reincorporated under the laws of the State of Delaware in May 1988.

Gap Inc. is a leading global apparel retail company. We offer apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix brands. Our global portfolio of distinct brands across multiple channels and geographies gives us a competitive advantage in the global retail marketplace. We operate in the specialty, outlet, online, and franchise channels.

Gap Inc. has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, China, and Italy. We also have franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores throughout Asia, Australia, Eastern 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. We have grown our franchise store base to 312 stores in 40 countries at the end of fiscal 2012. Our products are also available to customers online in over 80 countries. 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, especially at our Piperlime and Intermix brands.

Gap. Founded in 1969, Gap is our flagship brand and remains one of the most iconic apparel brands in the marketplace today. The brand stands for casual, American style and offers classic apparel at accessible price points to help customers express their individuality. In addition to designing its own merchandise, Gap offers limited capsule collections in partnership with some of the fashion industry’s best-loved designers and other third-party merchandise from time to time.

Gap entered the children’s apparel market in 1986 with GapKids and in 1989 with babyGap. Maternity apparel was later added to the collection. In 1998, we launched GapBody, which offers loungewear, sleepwear, intimates, and active apparel for women. Today, Gap products are available globally in our specialty and outlet stores, online, and in franchise stores.

Banana Republic. Banana Republic is a global apparel and accessories brand that focuses on delivering modern, covetable workplace style for both men and women. The brand offers versatile workwear that can be styled for any occasion - from desk to dinner. Banana Republic also partners with notable fashion designers to offer exclusive limited-edition collections inspired by the designers' distinct styles and trends.

Acquired in 1983 with two stores, Banana Republic has evolved to offer collections that include apparel, handbags, shoes, jewelry, personal care products, and eyewear for men and women at higher price points than Gap. Today, customers can purchase Banana Republic products in our specialty and outlet stores, online, and in franchise stores.

Old Navy. Old Navy opened its first store in 1994, offering fun, fashion, and value to the whole family. The brand offers customers on-trend clothing and accessories, as well as updated basics for adults, children, and babies, at great prices in a unique and energizing shopping environment. Customers can purchase Old Navy products in stores and online, which includes online-exclusive items such as a plus-size line. In July 2012, the brand opened its first store outside of North America in Odaiba, Japan.

Piperlime. Launched in 2006, Piperlime offers a mix of private-label and branded apparel and jewelry as well as leading brands in shoes and handbags. The brand inspires customers with a fresh and unique mix of products, brands, and price points, as well as favorite picks and tips on how to wear the season's trends from famous guest editors. Customers can shop online and in the brand's first store, which opened in the SoHo neighborhood of New York in September 2012.

Athleta. Acquired in September 2008, Athleta is Gap Inc.’s premier brand in the rapidly growing women's active apparel market. Athleta offers high-quality, stylish, and functional apparel, footwear, and accessories across a wide variety of sports and fitness activities, including crossover apparel and casualwear. Customers can purchase Athleta products online, in stores, and through catalogs.

Intermix. Gap, Inc. acquired Intermix Holdco Inc. ("Intermix") on December 31, 2012. Intermix is known for its tasteful mixing of luxury and contemporary fashion and offering the most coveted existing and up-and-coming designer brands. In addition to its array of seasonal must-haves, Intermix also offers exclusive designer product. Customers can shop in stores in the United States and Canada and online.

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All sales are tendered for cash, debit cards, credit cards, or personal checks. We also issue and redeem gift cards through our brands. Gap, Banana Republic, and Old Navy each have a private label credit card program and a co-branded credit card program through which frequent customers receive benefits. Private label and co-branded credit cards are provided by a third-party financing company.

The range of merchandise displayed in each store varies depending on the selling season and the size and location of the store. Stores are generally open seven days per week (where permitted by law) and most holidays.

We ended fiscal 2012 with 3,407 Company-operated and franchise store locations. For more information on the number of stores by brand and region, see the table in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this Form 10-K.

During fiscal 2012 , we operated two reportable segments: Stores and Direct.

Certain financial information about our reportable segments and international operations is set forth under the heading “Segment Information” in Note 16 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Merchandise Vendors

We purchase private label and non-private label merchandise from over 1,000 vendors. Our vendors have facilities in about 40 countries. No vendor accounted for more than 5 percent of the dollar amount of our total fiscal 2012 purchases. Of our merchandise purchased during fiscal 2012 , approximately 98 percent of all units were produced outside the United States, while the remaining 2 percent of all units were produced domestically. Approximately 26 percent of our merchandise units were produced in China. Product cost increases or events causing disruption of imports from China or other foreign countries, including the imposition of additional import restrictions or vendors potentially failing due to political, financial, or regulatory issues, could have an adverse effect on our operations. Substantially all of our foreign purchases of merchandise are negotiated and paid for in U.S. dollars. Also see the sections entitled “Risk Factors—Our business, including our costs and supply chain, is subject to risks associated with global sourcing and manufacturing” and “Risk Factors—Trade matters may disrupt our supply chain” in Item 1A of this Form 10-K.

Seasonal Business

Our business follows a seasonal pattern, with sales peaking over a total of about eight weeks during the end-of-year holiday period.

Brand Building

Our ability to develop and evolve our existing brands is a key to our success. We believe our distinct brands are among our most important assets. With the exception of Piperlime and Intermix, virtually all aspects of brand development, from product design and distribution to marketing, merchandising and shopping environments, are controlled by Gap Inc. employees. With respect to Piperlime and Intermix, we control all aspects of brand development except for product design related to third-party products. We continue to invest in our brands and enhance the customer experience through significant investments in marketing, enhancement of our online shopping sites, international expansion, remodeling of existing stores, and continued focus on customer service.

Trademarks and Service Marks

Gap, GapKids, babyGap, GapBody, Banana Republic, Old Navy, Piperlime, Athleta, and Intermix trademarks and service marks, and certain other trademarks, have been registered, or are the subject of pending trademark applications, with the United States Patent and Trademark Office and with the registries of many foreign countries and/or are protected by common law.

Franchising

We have franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores in a number of countries throughout Asia, Australia, Eastern 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. We continue to increase the number of countries in which we enter into these types of arrangements as part of our strategy to expand internationally. For additional information on risks related to our franchise business, see the sections entitled “Risk Factors—Our efforts to expand internationally may not be successful” and “Risk Factors—Our franchise business is subject to certain risks not directly within our control and could impair the value of our brands” in Item 1A of this Form 10-K.

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Inventory

The nature of the retail business requires us to carry a significant amount of inventory, especially prior to peak holiday selling season when we, along with other retailers, generally build up inventory levels. We maintain a large part of our inventory in distribution centers. We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes or colors) and we primarily use markdowns to clear merchandise. Also see the section entitled “Risk Factors—We must successfully gauge apparel trends and changing consumer preferences to succeed” in Item 1A of this Form 10-K.

Competitors

The global apparel retail industry is highly competitive. We compete with local, national, and global apparel retailers. We are also faced with competition in European, Japanese, Chinese, and Canadian markets from established regional and national chains, and our franchisees face significant competition in the markets in which they operate. Also see the section entitled “Risk Factors—Our business is highly competitive” in Item 1A of this Form 10-K.

Employees

As of February 2, 2013 , we had a workforce of approximately 136,000 employees, which includes a combination of part-time and full-time employees. We also hire seasonal employees, primarily during the peak end-of-year holiday period. We consider our relationship with our employees to be good.

To remain competitive in the apparel retail industry, we must attract, develop, and retain skilled employees in our design, merchandising, marketing, and other functions. Competition for such personnel is intense. Our success is dependent to a significant degree on the continued contributions of key employees. Also see the section entitled “Risk Factors—We must successfully gauge apparel trends and changing consumer preferences to succeed” in Item 1A of this Form 10-K.

Available Information

We make available on our website, www.gapinc.com, under “Investors, Financial Information, SEC Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish them to the SEC.

Our Board of Directors Committee Charters (Audit and Finance, Compensation and Management Development, and Governance and Nominating Committees) and Corporate Governance Guidelines are also available on our website under “Investors, Governance.” The Code of Business Conduct can be found on our website under “Investors, Corporate Compliance, Code of Business Conduct.” Any amendments and waivers to the code will also be available on the website.

Executive Officers of the Registrant

The following are our executive officers:

Name, Age, Position, and Principal Occupation:

Michelle Banks , 49, Executive Vice President, General Counsel, Corporate Secretary, and Chief Compliance Officer since March 2011; Senior Vice President, General Counsel, Corporate Secretary, and Chief Compliance Officer from March 2008 to March 2011; Senior Vice President and General Counsel from November 2006 to March 2008; Vice President from March 2005 to November 2006; Associate General Counsel from February 2003 to March 2005; Senior Corporate Counsel from January 1999 to February 2003.

Jack Calhoun , 48, Global President, Banana Republic Brand since November 2012; President, Banana Republic North America from 2007 to October 2012; Executive Vice President, Merchandising and Marketing, Banana Republic North America from 2003 to 2007.

Colin Funnell , 51, Executive Vice President, Global Supply Chain since September 2011; Senior Vice President, Supply Chain Strategy, Strategic Sourcing, and Global Logistics from June 2010 to August 2011; Senior Vice President, Corporate Operations and Logistics from 2008 to June 2010; Senior Vice President, Logistics from 2006 to 2007; Senior Vice President, Global Production and Old Navy Supply Chain from 2004 to 2005.

John T. (Tom) Keiser , 47, Executive Vice President and Chief Information Officer since January 2010; Executive Vice President and Chief Information Officer of The Limited Brands, Inc., an apparel company, from 2006 to October 2009; Senior Vice President, INSIGHT Program of The Limited Brands, Inc. from 2004 to 2006.

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Stefan Larsson , 38, Global President, Old Navy Brand since October 2012; Head of Global Sales, H&M Hennes & Mauritz AB from 2010 to 2012; Head of Global Expansion, H&M Hennes & Mauritz AB from 2009 to 2010; Head of Operations, Global Expansion, H&M Hennes & Mauritz AB from 2007 to 2009; Regional Manager, U.S. West Coast, H&M Hennes & Mauritz AB from 2005 to 2007.

Glenn Murphy , 51, Chairman and Chief Executive Officer since August 2007; Chief Executive Officer of Shoppers Drug Mart Corporation, a drug store chain, from 2001 to 2007.

Art Peck , 57, President, Growth, Innovation, and Digital division since November 2012; President, Gap North America from February 2011 to November 2012; Executive Vice President of Strategy and Operations from May 2005 to February 2011; President, Gap Inc. Outlet from October 2008 to February 2011; Acting President, Gap Inc. Outlet from February 2008 to October 2008; Senior Vice President of The Boston Consulting Group, a business consulting firm, from 1982 to May 2005.

Eva Sage-Gavin , 54, Executive Vice President, Global Human Resources and Corporate Affairs since February 2010; Executive Vice President, Human Resources, Communications and Global Responsibility from April 2008 to February 2010; Executive Vice President, Human Resources and Communications from February 2007 to April 2008; Executive Vice President, Human Resources from March 2003 to February 2007.

Sabrina Simmons , 49, Executive Vice President and Chief Financial Officer since January 2008; Executive Vice President, Corporate Finance from September 2007 to January 2008; Senior Vice President, Corporate Finance and Treasurer from March 2003 to September 2007; Vice President and Treasurer from September 2001 to March 2003.

Stephen Sunnucks , 55, Global President, Gap Brand since November 2012; President, Gap Inc. International from April 2011 to November 2012; President, Gap Inc. Europe and International Strategic Alliances from April 2009 to April 2011; President, Gap Inc. Europe from June 2005 to April 2009.

Item 1A. Risk Factors.

Our past performance may not be a reliable indicator of future performance because actual future results and trends may differ materially depending on a variety of factors, including but not limited to the risks and uncertainties discussed below. In addition, historical trends should not be used to anticipate results or trends in future periods.

Global economic conditions and the impact on consumer spending patterns could adversely impact our results of operations.

The Company’s performance is subject to global economic conditions and their impact on levels of consumer spending worldwide. Some of the factors influencing consumer spending include high levels of unemployment, higher consumer debt levels, reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, and general uncertainty regarding the overall future economic environment. Consumer purchases of discretionary items, including our merchandise, generally decline during periods when disposable income is adversely affected or there is economic uncertainty.

Adverse economic changes in any of the regions in which we sell our products, could reduce consumer confidence, and thereby could negatively affect earnings and have a material adverse effect on our results of operations. In a challenging and uncertain economic environment, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, results of operations, cash flows, and financial position.

Our business is highly competitive.

The global apparel retail industry is highly competitive. We compete with local, national, and global department stores, specialty and discount store chains, independent retail stores, and online businesses that market similar lines of merchandise. We face a variety of competitive challenges including:


•	anticipating and quickly responding to changing apparel trends and customer demands;


•	attracting customer traffic;


•	competitively pricing our products and achieving customer perception of value;


•	maintaining favorable brand recognition and effectively marketing our products to customers in several diverse market segments;


•	developing innovative, high-quality products in sizes, colors, and styles that appeal to customers of varying age groups and tastes;

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•	sourcing merchandise efficiently; and


•	providing strong and effective marketing support.

In addition, our franchisees face significant competition in the markets in which they operate. If we or our franchisees are not able to compete successfully in the United States or internationally, our results of operations could be adversely affected.

Furthermore, beginning in fiscal 2013, we will combine all channels and geographies under one global leader each for Gap, Banana Republic, and Old Navy. We do not have experience operating under this new global brand structure. If we are not successful in competing effectively under this structure, our results of operations could be adversely affected.

We must successfully gauge apparel trends and changing consumer preferences to succeed.

Our success is largely dependent upon our ability to gauge the tastes of our customers and to provide merchandise that satisfies customer demand in a timely manner. However, lead times for many of our purchases are long, which may make it more difficult for us to respond rapidly to new or changing apparel trends or consumer acceptance of our products. The global apparel retail business fluctuates according to changes in consumer preferences, dictated in part by apparel trends and season. To the extent we misjudge the market for our merchandise or the products suitable for local markets or fail to execute trends and deliver product to market as timely as our competitors, our sales will be adversely affected, and the markdowns required to move the resulting excess inventory will adversely affect our operating results. Some of our past product offerings have not been well received by our broad and diverse customer base. Merchandise misjudgments could have a material adverse effect on our operating results.

Our ability to anticipate and effectively respond to changing apparel trends depends in part on our ability to attract and retain key personnel in our design, merchandising, marketing, and other functions in the context of our new global brand structure announced in October 2012. Competition for this personnel is intense, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods.

Fluctuations in the global apparel retail business especially affect the inventory owned by apparel retailers, as merchandise usually must be ordered well in advance of the season and frequently before apparel trends are evidenced by customer purchases. In addition, the nature of the global apparel retail business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we build up our inventory levels. We must enter into contracts for the purchase and manufacture of merchandise well in advance of the applicable selling season. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. In the past, we have not always predicted our customers’ preferences and acceptance levels of our trend items with accuracy. If sales do not meet expectations, too much inventory may cause excessive markdowns and, therefore, lower than planned margins.

Our business, including our costs and supply chain, is subject to risks associated with global sourcing and manufacturing.

Independent third parties manufacture nearly all of our products for us. As a result, we are directly impacted by increases in the cost of those products . For example, cotton prices rose substantially during fiscal 2011, which put significant pressure on our average unit costs and gross margins.

If we experience significant increases in demand or need to replace an existing vendor, there can be no assurance that additional manufacturing capacity will be available when required on terms that are acceptable to us or that any vendor would allocate sufficient capacity to us in order to meet our requirements. In addition, for any new manufacturing source, we may encounter delays in production and added costs as a result of the time it takes to train our vendors in our methods, products, quality control standards, and environmental, labor, health, and safety standards. Moreover, in the event of a significant disruption in the supply of the fabrics or raw materials used by our vendors in the manufacture of our products, our vendors might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price. Any delays, interruption, or increased costs in the manufacture of our products could result in lower sales and net income.

Because independent vendors manufacture nearly all of our products outside of our principal sales markets, third parties must transport our products over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, infrastructure congestion, or other factors, and costs and delays associated with transitioning between vendors, could adversely impact our financial performance. Manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as aircraft, which could adversely affect our gross margins. In addition, the cost of fuel is a significant component in transportation costs, so increases in the price of petroleum products can adversely affect our gross margins.

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Our efforts to expand internationally may not be successful.

Our current strategies include moving to a global brand structure and pursuing continued international expansion in a number of countries around the world through a number of channels. Beginning in fiscal 2013, we will combine all channels and geographies under one global leader each for Gap, Banana Republic, and Old Navy. Each global brand president will oversee their brand's specialty, outlet, online, and franchise operations. We currently plan to open additional Old Navy stores outside of North America, open additional Gap stores in China, open additional international outlet stores, and continue to grow online sales internationally. We have limited experience operating in some of these locations. In many of these locations, we face major, established competitors. In addition, in many of these locations, the real estate, employment and labor, transportation and logistics, regulatory, and other operating requirements differ dramatically from those in the places where we have experience. Moreover, consumer tastes and trends may differ in many of these locations, and as a result, the sales of our products may not be successful or result in the margins we anticipate. In addition, we are exposed to foreign currency exchange rate risk with respect to our sales, profits, assets, and liabilities denominated in currencies other than the U.S. dollar. Although we use instruments to hedge certain foreign currency risks, these measures may not succeed in offsetting all of the negative impact of foreign currency rate movements on our business and results of operations. If our international expansion plans are unsuccessful or do not deliver an appropriate return on our investments, our operations and financial results could be materially, adversely affected.

Our franchise business is subject to certain risks not directly within our control and could impair the value of our brands.

We enter into franchise agreements with unaffiliated franchisees to operate stores in many countries around the world. Under these agreements, third parties operate, or will operate, stores that sell apparel and related products under our brand names. The effect of these arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in new markets internationally and our ability to successfully identify appropriate third parties to act as franchisees, distributors, or in a similar capacity. In addition, certain aspects of these arrangements are not directly within our control, such as the ability of these third parties to meet their projections regarding store locations, store openings, and sales. Other risks that may affect these third parties include general economic conditions in specific countries or markets, foreign exchange, changes in diplomatic and trade relationships, and political instability. Moreover, while the agreements we have entered into and plan to enter into in the future provide us with certain termination rights, the value of our brands could be impaired to the extent that these third parties do not operate their stores in a manner consistent with our requirements regarding our brand identities and customer experience standards. Failure to protect the value of our brands, or any other harmful acts or omissions by a franchisee, could have an adverse effect on our results of operations and our reputation.

The market for prime real estate is competitive.

Our ability to effectively obtain real estate to open new stores nationally and internationally depends on the availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics, demographics, and other factors. We also must be able to effectively renew our existing store leases. In addition, in recent years, we have been seeking to downsize, consolidate, reposition, or close some of our real estate locations, which in most cases requires a modification of an existing store lease. Failure to secure adequate new locations or successfully modify existing locations, or failure to effectively manage the profitability of our existing fleet of stores, could have a material adverse effect on our results of operations.

Additionally, the economic environment may at times make it difficult to determine the fair market rent of retail real estate properties within the United States and internationally. This could impact the quality of our decisions to exercise lease options at previously negotiated rents and the quality of our decisions to renew expiring leases at negotiated rents. Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our targets or efficiently manage the profitability of our existing fleet of stores and could have a material adverse effect on our results of operations.

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We experience fluctuations in our comparable sales and margins.

Our success depends in part on our ability to improve sales, in particular at our largest brands. A variety of factors affect comparable sales and margins, including apparel trends, competition, current economic conditions, the timing of new merchandise releases and promotional events, changes in our merchandise mix, the success of marketing programs, and weather conditions. These factors may cause our comparable sales results to differ materially from prior periods and from expectations. Our comparable sales, including the associated comparable online sales, have fluctuated significantly in the past on an annual, quarterly, and monthly basis. Over the past 24 months, our reported monthly comparable sales have ranged from an increase of 10 percent in July 2012 to a decrease of 10 percent in March 2011. Over the past five years, our reported gross margins have ranged from a high of 40.3 percent in fiscal 2009 to a low of 36.2 percent in fiscal 2011. In addition, over the past five years, our reported operating margins have ranged from a high of 13.4 percent in fiscal 2010 to a low of 9.9 percent in fiscal 2011.

Our ability to deliver strong comparable sales results and margins depends in large part on accurately forecasting demand and apparel trends, selecting effective marketing techniques, providing an appropriate mix of merchandise for our broad and diverse customer base, managing inventory effectively, using effective pricing strategies, and optimizing store performance. Failure to meet the expectations of investors, securities analysts, or credit rating agencies in one or more future periods could reduce the market price of our common stock and cause our credit ratings to decline.

Changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our financial results or our business initiatives.

In the first quarter of fiscal 2011, given favorable market conditions and our history of generating consistent and strong operating cash flow, we made the strategic decision to issue debt. In April 2011, we issued $1.25 billion aggregate principal amount of 5.95 percent notes due April 12, 2021. As a result, we have additional costs that include interest payable semiannually on the notes. We also entered into a $400 million five-year term loan due April 2016, which was funded in May 2011 and repaid in full in August 2012.

Our cash flows from operations are the primary source of funds for these debt service payments. In this regard, we have generated annual cash flow from operations in excess of $1 billion per year for the past decade and ended fiscal 2012 with $1.5 billion of cash and cash equivalents on our balance sheet. We are also able to supplement near-term liquidity, if necessary, with our $500 million revolving credit facility. We continue to target a cash balance of about $1.2 billion, which provides not only for our working capital needs, but also a reserve for unexpected business downturns. However, if our cash flows from operations decline significantly we may be required to reprioritize our business initiatives to ensure that we can continue to service or refinance our debt with favorable rates and terms. In addition, any future reduction in our long-term senior unsecured credit ratings could result in reduced access to the credit and capital markets and higher interest costs on future financings.

We remain committed to maintaining a strong financial profile with ample liquidity. Proceeds from the debt issuance were used for general corporate purposes including share repurchases.

For further information on our debt and credit facilities, see Item 8, Financial Statements and Supplementary Data, Notes 5 and 6 of Notes to Consolidated Financial Statements of this Form 10-K.

Trade matters may disrupt our supply chain.

Trade restrictions, including increased tariffs or quotas, embargoes, safeguards, and customs restrictions against apparel items, as well as U.S. or foreign labor strikes, work stoppages, or boycotts, could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations. We cannot predict whether any of the countries in which our merchandise currently is manufactured or may be manufactured in the future will be subject to additional trade restrictions imposed by the United States and other foreign governments, including the likelihood, type, or effect of any such restrictions. In addition, we face the possibility of anti-dumping or countervailing duties lawsuits from U.S. domestic producers. We are unable to determine the impact of the changes to the quota system or the impact that potential tariff lawsuits could have on our global sourcing operations. Our sourcing operations may be adversely affected by trade limits or political and financial instability, resulting in the disruption of trade from exporting countries, significant fluctuation in the value of the U.S. dollar against foreign currencies, restrictions on the transfer of funds, and/or other trade disruptions.

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Updates or changes to our IT systems may disrupt operations.

We continue to evaluate and implement upgrades and changes to our IT systems, some of which are significant. Upgrades involve replacing existing systems with successor systems, making changes to existing systems, or cost-effectively acquiring new systems with new functionality. We are aware of inherent risks associated with replacing these systems, including accurately capturing data and system disruptions, and believe we are taking appropriate action to mitigate the risks through testing, training, and staging implementation, as well as ensuring appropriate commercial contracts are in place with third-party vendors supplying or supporting our IT initiatives. However, there can be no assurances that we will successfully launch these systems as planned or that they will occur without disruptions to our operations. IT system disruptions, if not anticipated and appropriately mitigated, or failure to successfully implement new or upgraded systems, could have a material adverse effect on our results of operations.

Our IT services agreement with IBM could cause disruptions in our operations and have an adverse effect on our financial results.

We have entered into the eighth year of a ten-year non-exclusive services agreement under which IBM operates certain significant aspects of our IT infrastructure. Under the original agreement, this included supporting our mainframe, server, network and data center, and store operations, as well as help desk, end user support, and some disaster recovery. Since the original agreement in January 2006, we have amended the agreement to take back certain services originally performed by IBM. These returned services include services related to management of our server and data center environment, along with disaster recovery, circuit expense billing, database administration services, and help desk services for stores worldwide. All other services remain with IBM per the original agreement. Our ability to realize the expected benefits of this arrangement is subject to various risks, some of which are not within our complete control. These risks include, but are not limited to, disruption in services and the failure to protect the security and integrity of the Company’s data under the terms of the agreement. We are unable to provide assurances that some or all of these risks will not occur. Failure to effectively mitigate these risks, if they occur, could have a material adverse effect on our operations and financial results.

We are subject to cybersecurity risks and may incur increasing costs in an effort to minimize those risks.

Our business employs systems and websites that allow for the secure storage and transmission of proprietary or confidential information regarding our customers, employees, job applicants, and others, including credit card information and personal identification information. Security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Attacks may be targeted at us, our customers, or others who have entrusted us with information. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Advances in computer capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. In addition, data and security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breach by our employees or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, 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.

Our results could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.

Natural disasters, such as hurricanes, tornadoes, floods, earthquakes, and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, and other political instability; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations, the operations of our franchisees, or the operations of one or more of our vendors. In particular, these types of events could impact our product supply chain from or to the impacted region and could impact our ability or the ability of our franchisees or other third parties to operate our stores or websites. In addition, these types of events could negatively impact consumer spending in the impacted regions or depending upon the severity, globally. To the extent any of these events occur, our operations and financial results could be adversely affected.

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Failure of our vendors to adhere to our code of vendor conduct could harm our business.

We purchase nearly all merchandise from third-party vendors outside of the United States and we require those vendors to adhere to a code of vendor conduct and other environmental, labor, health, and safety standards for the benefit of their workers. From time to time, contractors or their subcontractors may not be in compliance with these standards or applicable local laws. Significant or continuing noncompliance with such standards and laws by one or more contractors could have a negative impact on our reputation and an adverse effect on our results of operations.

Changes in the regulatory or administrative landscape could adversely affect our financial condition and results of operations.

Laws and regulations at the local, state, federal, and international levels frequently change, and the ultimate cost of compliance cannot be precisely estimated. In addition, we cannot predict the impact that may result from changes in the regulatory or administrative landscape. Any changes in regulations, the imposition of additional regulations, or the enactment of any new or more stringent legislation that impacts employment and labor, trade, product safety, transportation and logistics, health care, tax, privacy, operations, or environmental issues, among others, could have an adverse impact on our financial condition and results of operations.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We have Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, China, and Italy. As of February 2, 2013 , the Company-operated stores aggregated approximately 36.9 million square feet. Almost all of these stores are leased, with one or more renewal options after our initial term. Economic terms vary by type of location.

We own approximately 1.2 million square feet of corporate office space located in San Francisco, San Bruno, and Rocklin, California, of which approximately 448,000 square feet is leased to and occupied by others. We lease approximately 915,000 square feet of corporate office space located in San Francisco, Rocklin, Petaluma, and Los Angeles, California; New York, New York; Albuquerque, New Mexico; and Toronto, Ontario, Canada. We also lease regional offices in North America and in various international locations. We own approximately 8.6 million square feet of distribution space located in Fresno, California; Fishkill, New York; Groveport, Ohio; Gallatin, Tennessee; Brampton, Ontario, Canada; and Rugby, England. Of the 8.6 million square feet of owned distribution space, 100,000 square feet is leased to others. We lease approximately 2.4 million square feet of distribution space located in Phoenix, Arizona; Grove City, Ohio; Northern Kentucky; Bolton, Ontario, Canada; and Stafford, England. Third-party logistics companies provide logistics services to us through distribution warehouses in Chiba, Japan; Shanghai and Hong Kong, China; and Edison, New Jersey.

In January 2013, we announced that we will not renew our lease agreement for a significant portion of the Northern Kentucky distribution space when it expires in June 2013.

Item 3. 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, data privacy, and securities-related 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 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 Consolidated Financial Statements.

Item 4. Mine Safety Disclosures.

Not applicable.

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Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The principal market on which our stock is traded is the New York Stock Exchange. The number of holders of record of our stock as of March 19, 2013 was 7,894. The table below sets forth the market prices and dividends declared and paid for each of the fiscal quarters in fiscal 2012 and 2011.



	Market Prices								Dividends Declared and Paid
	Fiscal 2012				Fiscal 2011				Fiscal Year
	High		Low		High		Low		2012		2011
1st Quarter	$	28.77	$	18.53	$	23.35	$	18.94	$	0.125	$	0.1125
2nd Quarter	$	30.17	$	25.02	$	23.73	$	17.41	0.125		0.1125
3rd Quarter	$	37.85	$	29.39	$	19.68	$	15.08	0.125		0.1125
4th Quarter	$	36.15	$	29.84	$	20.41	$	17.62	0.125		0.1125
									$	0.50	$	0.45

Stock Performance Graph

The graph below compares the percentage changes in our cumulative total stockholder return on our common stock for the five-year period ended February 2, 2013 , with (i) the cumulative total return of the Dow Jones U.S. Retail Apparel Index and (ii) the S&P 500 Index. The total stockholder return for our common stock assumes quarterly reinvestment of dividends.

TOTAL RETURN TO STOCKHOLDERS

(Assumes $100 investment on 2/3/2008)

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Total Return Analysis



	2/2/2008		1/31/2009		1/30/2010		1/29/2011		1/28/2012		2/2/2013
The Gap, Inc.	$	100.00	$	59.61	$	102.81	$	105.47	$	106.47	$	188.59
S&P 500	$	100.00	$	61.37	$	81.71	$	99.84	$	104.05	$	121.51
Dow Jones U.S. Apparel Retailers	$	100.00	$	53.55	$	101.41	$	125.79	$	149.75	$	187.51

Source: Research Data Group, Inc. (415) 643-6000 (www.researchdatagroup.com)

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table presents information with respect to purchases of common stock of the Company made during the fourteen weeks ended February 2, 2013 by The Gap, Inc. or any affiliated purchaser, as defined in Exchange Act Rule 10b-18(a)(3):



	Total Number of Shares Purchased	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 (1)
Month #1 (October 28 - November 24)	604,798	$	34.72	604,798	$518 million
Month #2 (November 25 - December 29)	16,400,381	$	31.52	16,400,381	—
Month #3 (December 30 - February 2)	808,029	$	31.41	808,029	$975 million
Total	17,813,208	$	31.63	17,813,208

__________


(1)	On February 23, 2012, we announced that the Board of Directors approved a $1 billion share repurchase authorization. This authorization was completed by the end of December 2012. On January 3, 2013, we announced that the Board of Directors approved a new $1 billion share repurchase authorization. The new authorization has no expiration date.

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Item 6. Selected Financial Data.

The following selected financial data are derived from the Consolidated Financial Statements of the Company. We have also included certain non-financial data to enhance your understanding of our business. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and the Company’s Consolidated Financial Statements and related notes in Item 8.



	Fiscal Year (number of weeks)
	2012 (53)			2011 (52)			2010 (52)			2009 (52)			2008 (52)
Operating Results ($ in millions)
Net sales	$	15,651		$	14,549		$	14,664		$	14,197		$	14,526
Gross margin	39.4		%	36.2		%	40.2		%	40.3		%	37.5		%
Operating margin	12.4		%	9.9		%	13.4		%	12.8		%	10.7		%
Net income	$	1,135		$	833		$	1,204		$	1,102		$	967
Cash dividends paid	$	240		$	236		$	252		$	234		$	243
Per Share Data (number of shares in millions)
Basic earnings per share	$	2.35		$	1.57		$	1.89		$	1.59		$	1.35
Diluted earnings per share	$	2.33		$	1.56		$	1.88		$	1.58		$	1.34
Weighted-average number of shares—basic	482			529			636			694			716
Weighted-average number of shares—diluted	488			533			641			699			719
Cash dividends declared and paid per share	$	0.50		$	0.45		$	0.40		$	0.34		$	0.34
Balance Sheet Information ($ in millions)
Merchandise inventory	$	1,758		$	1,615		$	1,620		$	1,477		$	1,506
Total assets	$	7,470		$	7,422		$	7,065		$	7,985		$	7,564
Working capital	$	1,788		$	2,181		$	1,831		$	2,533		$	1,847
Total long-term debt, less current maturities (1)	$	1,246		$	1,606		$	—		$	—		$	—
Stockholders’ equity	$	2,894		$	2,755		$	4,080		$	4,891		$	4,387
Other Data ($ and square footage in millions)
Purchases of property and equipment	$	659		$	548		$	557		$	334		$	431
Acquisition of business, net of cash acquired (2)	$	129		$	—		$	—		$	—		$	142
Percentage increase (decrease) in comparable sales (3)	5		%	(4		)%	2		%	(3		)%	(12		)%
Number of Company-operated store locations open at year-end	3,095			3,036			3,068			3,095			3,149
Number of franchise store locations open at year-end	312			227			178			136			114
Number of store locations open at year-end (4)	3,407			3,263			3,246			3,231			3,263
Square footage of Company-operated store space at year-end	36.9			37.2			38.2			38.8			39.5
Percentage decrease in square footage of Company-operated store space at year-end	(0.8		)%	(2.6		)%	(1.5		)%	(1.8		)%	(0.3		)%
Number of employees at year-end	136,000			132,000			134,000			135,000			134,000

__________


(1)	In April 2012, we made the first scheduled payment of $40 million related to our $400 million term loan and in August 2012, we repaid the remaining $360 million balance in full.


(2)	On September 28, 2008, we acquired all of the outstanding capital stock of Athleta, a women’s sports and active apparel company, for an aggregate purchase price of $148 million. On December 31, 2012, we acquired all of the outstanding capital stock of Intermix, a multi-brand specialty retailer of luxury and contemporary apparel and accessories, for an aggregate purchase price of $129 million .


(3)	Beginning in fiscal 2011, we report comparable sales including the associated comparable online sales. Comparable sales for fiscal 2010 have been recalculated to include the associated comparable online sales. Comparable sales for fiscal 2009 and 2008 exclude online sales.


(4)	Includes Company-operated and franchise store locations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are a global retailer offering apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix brands. We have Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, and beginning in November 2010, China and Italy. We also have franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores in many other countries around the world. Under these agreements, third parties operate, or will operate, stores that sell apparel and related products under our brand names. In addition, our products are available to customers online in over 80 countries. 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, especially at our Piperlime and Intermix brands.

We identify our operating segments based on the way we manage and evaluate our business activities. As of February 2, 2013 , we have two reportable segments: Stores and Direct.

We are pleased with our fiscal 2012 results. We delivered against our stated priorities to drive increased sales with healthy merchandise margins, prudently invest in our business, grow earnings per share, and return excess cash to shareholders. We delivered positive comparable sales in North America for Gap, Banana Republic, and Old Navy in each of the four quarters of fiscal 2012. We executed on key expansion initiatives with 25 new Athleta stores, more than 30 new Gap stores in China, and our first Old Navy store in Japan. We generated $1.3 billion of free cash flow and distributed $1.3 billion to shareholders through dividends and share repurchases. Free cash flow is defined as net cash provided by operating activities less purchases of property and equipment. For a reconciliation of free cash flow, a non-GAAP (generally accepted accounting principles) financial measure, from a GAAP financial measure, see the Liquidity and Capital Resources section.

Fiscal 2012 consisted of 53 weeks versus 52 weeks in fiscal 2011 and 2010. Net sales and operating results, as well as other metrics derived from the Consolidated Statement of Income, include the impact of the additional week; however, the comparable sales calculation excludes the 53rd week.

Financial results for fiscal 2012 are as follows:


•	Net sales for fiscal 2012 increased $1.1 billion to $15.7 billion compared with $14.5 billion for fiscal 2011 . Comparable sales, which include the associated comparable online sales, for fiscal 2012 increased 5 percent compared with a 4 percent decrease last year.


•	Direct net sales for fiscal 2012 increased by 24 percent to $1.9 billion compared with $1.6 billion for fiscal 2011 .


•	Gross profit for fiscal 2012 was $6.2 billion compared with $5.3 billion for fiscal 2011 . Gross margin for fiscal 2012 was 39.4 percent compared with 36.2 percent for fiscal 2011 .


•	Operating expenses for fiscal 2012 increased $393 million to $4.2 billion compared with $3.8 billion for fiscal 2011 and increased 0.6 percent as a percentage of net sales.


•	Operating margin for fiscal 2012 was 12.4 percent compared with 9.9 percent for fiscal 2011 . Operating margin is defined as operating income as a percentage of net sales.


•	Net income for fiscal 2012 was $1.1 billion compared with $833 million for fiscal 2011 . Diluted earnings per share increased 49 percent to $2.33 for fiscal 2012 compared with $1.56 for fiscal 2011 .


•	In fiscal 2012 , we generated free cash flow of $1.3 billion compared with free cash flow of $815 million for fiscal 2011 .


•	During fiscal 2012 , we repurchased about 34 million shares for $1.0 billion and paid cash dividends of $240 million .

In October 2012, we announced a new global brand structure that will guide our long-term growth strategies and shape our future management structure. Beginning in fiscal 2013 , we will combine all channels and geographies under one global leader each for Gap, Banana Republic, and Old Navy. Each global brand president will oversee their brand's specialty, outlet, online, and franchise operations. Our newer brands (Piperlime, Athleta, and Intermix) will be managed within our new Growth, Innovation, and Digital division as part of the new structure.

Our business and financial priorities for fiscal 2013 are as follows:


•	grow sales with healthy merchandise margins;


•	manage our expenses in a disciplined manner;


•	deliver operating margin expansion and earnings per share growth; and


•	return excess cash to shareholders.

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In addition to increasing sales within our existing business, we also plan to grow revenues through our new brands, channels, and geographies, including the following:


•	opening additional stores in Asia with a focus on Gap China and Old Navy Japan;


•	expanding our global outlet presence;


•	continuing to open franchise stores worldwide; and


•	opening additional Athleta stores.

In fiscal 2013 , we expect diluted earnings per share to be in the range of $2.52 to $2.60.

Results of Operations

Net Sales

Net sales primarily consist of retail sales, online sales, and franchise revenues.

See Item 8, Financial Statements and Supplementary Data, Note 16 of Notes to Consolidated Financial Statements for net sales by brand, region, and reportable segment.

Comparable Sales

The percentage change in comparable ("Comp") sales by brand and region and for total Company, including the associated comparable online sales, as compared with the preceding year, is as follows:



	Fiscal Year
	2012		2011
Gap North America	6	%	(4	)%
Old Navy North America	6	%	(3	)%
Banana Republic North America	5	%	(1	)%
International	(3	)%	(7	)%
The Gap, Inc.	5	%	(4	)%

The percentage change in Comp store sales by brand and region and for total Company, excluding the associated comparable online sales, as compared with the preceding year, is as follows:



	Fiscal Year
	2012		2011
Gap North America	4	%	(6	)%
Old Navy North America	5	%	(6	)%
Banana Republic North America	3	%	(2	)%
International	(4	)%	(9	)%
The Gap, Inc.	3	%	(6	)%

Only Company-operated stores are included in the calculations of Comp sales. Gap and Banana Republic outlet Comp sales are reflected within the respective results of each brand. The calculation of total Company Comp sales excludes the results of our franchise business, Piperlime, Athleta, and Intermix.

A store is included in the Comp sales calculations when it has been open and operated by Gap, Inc. for at least one calendar 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”) when it has been open and operated by Gap, Inc. for less than one calendar year or has changed its selling square footage by 15 percent or more within the past year.

A store is considered “Closed” if it is temporarily closed for three or more full consecutive days or 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.

Online Comp sales are defined as sales through online channels in all countries where we have existing Comp store sales.

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Current year foreign exchange rates are applied to both current year and prior year Comp sales to achieve a consistent basis for comparison.

Store Count and Square Footage Information

Net sales per average square foot is as follows:



	Fiscal Year
	2012		2011		2010
Net sales per average square foot (1)	$	364	$	337	$	342

__________


(1)	Excludes net sales associated with our online, catalog, and franchise businesses.

Store count, openings, closings, and square footage for our stores are as follows:



	January 28, 2012	Fiscal 2012		February 2, 2013
	Number of Store Locations	Number of Stores Opened	Number of Stores Closed	Number of Store Locations		Square Footage (in millions)
Gap North America	1,043	30	83	990		10.2
Gap Europe	193	6	1	198		1.7
Gap Asia	152	45	6	191		1.9
Old Navy North America	1,016	26	32	1,010		17.6
Old Navy Asia	—	1	—	1		—
Banana Republic North America	581	22	13	590		4.9
Banana Republic Asia	31	9	2	38		0.2
Banana Republic Europe	10	—	—	10		0.1
Athleta North America	10	25	—	35		0.2
Piperlime North America	—	1	—	1		—
Intermix North America (1)	—	—	—	31		0.1
Company-operated stores total	3,036	165	137	3,095		36.9
Franchise	227	98	13	312		N/A
Total	3,263	263	150	3,407		36.9
Increase (decrease) over prior year				4.4	%	(0.8	)%

	January 29, 2011	Fiscal 2011		January 28, 2012
	Number of Store Locations	Number of Stores Opened	Number of Stores Closed	Number of Store Locations		Square Footage (in millions)
Gap North America	1,111	23	91	1,043		10.7
Gap Europe	184	14	5	193		1.7
Gap Asia	135	22	5	152		1.5
Old Navy North America	1,027	32	43	1,016		18.1
Banana Republic North America	576	14	9	581		4.9
Banana Republic Asia	29	3	1	31		0.2
Banana Republic Europe	5	5	—	10		0.1
Athleta North America	1	9	—	10		—
Company-operated stores total	3,068	122	154	3,036		37.2
Franchise	178	52	3	227		N/A
Total	3,246	174	157	3,263		37.2
Increase (decrease) over prior year				0.5	%	(2.6	)%

__________


(1)	On December 31, 2012, we acquired all of the outstanding capital stock of Intermix. The 31 stores acquired were not included as store openings for fiscal 2012; however, they are included in the ending number of store locations as of February 2, 2013.

Gap and Banana Republic outlet stores are reflected in each of the respective brands. In addition, we have franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores throughout Asia, Australia, Eastern Europe, Latin America, the Middle East, and Africa.

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In fiscal 2013 , we expect to open about 190 Company-operated store locations (about 160 net of repositions) and close about 110 Company-operated store locations (about 80 net of repositions). We expect square footage for Company-operated stores to increase about 1 percent for fiscal 2013 . We expect our franchisees to open about 75 franchise stores in fiscal 2013 .

Net Sales Discussion

Our net sales for fiscal 2012 increased $1.1 billion compared with fiscal 2011 due to an increase in net sales of $735 million related to our Stores reportable segment and an increase in net sales of $367 million related to our Direct reportable segment. Fiscal 2012 consisted of 53 weeks.

•

For the Stores reportable segment, our net sales for fiscal 2012 increased $735 million compared with fiscal 2011 . The increase was primarily due to an increase in Comp store sales, excluding the associated comparable online sales, for North America and incremental sales for new international stores; partially offset by the unfavorable impact of foreign exchange of $43 million. The foreign exchange impact is the translation impact if net sales for fiscal 2011 were translated at fiscal 2012 exchange rates.


•	For the Direct reportable segment, our net sales for fiscal 2012 increased $367 million compared with fiscal 2011 . The increase was due to growth in our online business across all brands and the incremental sales related to new Athleta stores.

In fiscal 2012 , our net sales (including Direct) for the U.S. and Canada were $13.3 billion , an increase of $914 million compared with $12.4 billion for fiscal 2011 . In fiscal 2012 , our net sales (including Direct and franchise), outside of the U.S. and Canada were $2.4 billion , an increase of $188 million compared with $2.2 billion for fiscal 2011 .

Our net sales for fiscal 2011 decreased $115 million, or 1 percent, compared with fiscal 2010 due to a decrease in net sales of $376 million related to our Stores reportable segment, partially offset by an increase in net sales of $261 million related to our Direct reportable segment.

•

For the Stores reportable segment, our net sales for fiscal 2011 decreased $376 million, or 3 percent, compared with fiscal 2010. The decrease was primarily due to a decrease in Comp store sales, excluding the associated comparable online sales, of 6 percent for fiscal 2011 compared with fiscal 2010 , partially offset by the favorable impact of foreign exchange of $156 million and an increase in franchise sales. The foreign exchange impact is the translation impact if net sales for fiscal 2010 were translated at fiscal 2011 exchange rates.


•	For the Direct reportable segment, our net sales for fiscal 2011 increased $261 million, or 20 percent, compared with fiscal 2010 . The increase was due to the growth in our online business across all brands and the incremental sales related to the introduction of international online sales in fiscal 2010 .

In fiscal 2011 , our net sales (including Direct) for the U.S. and Canada were $12.4 billion, a decrease of $353 million, or 3 percent, compared with $12.7 billion for fiscal 2010 . In fiscal 2011 , our net sales (including Direct and franchise) outside of the U.S. and Canada were $2.2 billion, an increase of $238 million, or 12 percent, compared with $1.9 billion for fiscal 2010 .

In fiscal 2013 , we will return to a 52-week fiscal year which could potentially impact the seasonality of net sales throughout the year as a result of the calendar shift of our fiscal quarters in fiscal 2013 compared with fiscal 2012 . In addition, we expect foreign exchange rate fluctuations to have a meaningful impact on our net sales generated internationally. For example, if the Japanese yen continues to weaken against the U.S. dollar, our yen-based sales translated into U.S. dollars will vary significantly from prior years and could negatively impact our total Company net sales growth.

Cost of Goods Sold and Occupancy Expenses



($ in millions)	Fiscal Year
($ in millions)	2012			2011			2010
Cost of goods sold and occupancy expenses	$	9,480		$	9,275		$	8,775
Gross profit	$	6,171		$	5,274		$	5,889
Cost of goods sold and occupancy expenses as a percentage of net sales	60.6		%	63.8		%	59.8		%
Gross margin	39.4		%	36.2		%	40.2		%

Cost of goods sold and occupancy expenses decreased 3.2 percentage points in fiscal 2012 compared with fiscal 2011 .


•	Cost of goods sold decreased 2.0 percentage points in fiscal 2012 compared with fiscal 2011 . The decrease in cost of goods sold as a percentage of net sales was primarily driven by decreased cost of merchandise as well as improved product acceptance resulting in improved regular price margins.

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•	Occupancy expenses decreased 1.2 percentage points in fiscal 2012 compared with fiscal 2011 . The decrease in occupancy expenses as a percentage of net sales was primarily driven by higher net sales without a corresponding increase in occupancy expenses.

Cost of goods sold and occupancy expenses increased 4.0 percentage points in fiscal 2011 compared with fiscal 2010 .


•	Cost of goods sold increased 3.7 percentage points in fiscal 2011 compared with fiscal 2010 . The increase in cost of goods sold as a percentage of net sales was primarily driven by increased cost of merchandise primarily due to higher cotton prices.

•

Occupancy expenses increased 0.3 percentage points in fiscal 2011 compared with fiscal 2010 . The increase in occupancy expenses as a percentage of net sales was primarily driven by lower net sales for the Stores reportable segment without a corresponding decrease in occupancy expenses, partially offset by higher net sales for the Direct reportable segment without a corresponding increase in occupancy expenses.

Operating Expenses and Operating Margin



($ in millions)	Fiscal Year
($ in millions)	2012			2011			2010
Operating expenses	$	4,229		$	3,836		$	3,921
Operating expenses as a percentage of net sales	27.0		%	26.4		%	26.7		%
Operating margin	12.4		%	9.9		%	13.4		%

Operating expenses increased $393 million , or 0.6 percentage points, in fiscal 2012 compared with fiscal 2011 . The increase in operating expenses was primarily due to higher marketing expenses driven largely by investments in Gap brand marketing and customer relationship marketing, store payroll and other store-related expenses, and higher bonus expense.

Operating expenses decreased $85 million, or 0.3 percentage points, in fiscal 2011 compared with fiscal 2010 . The decrease in operating expenses was primarily due to higher income from fees earned under the private label and co-branded credit card agreements, partially offset by an increase in marketing expenses.

In fiscal 2013 , we expect operating margin to be about 13%.

Interest Expense (Reversal)



($ in millions)	Fiscal Year
($ in millions)	2012		2011		2010
Interest expense (reversal)	$	87	$	74	$	(8	)

Interest expense for fiscal 2012 and 2011 primarily consists of interest expense related to our $1.25 billion long-term debt, which was issued in April 2011 , and $400 million term loan, which was funded in May 2011 and repaid in full in August 2012 .

Interest expense for fiscal 2010 includes an interest expense reversal of $15 million from the reduction of interest expense accruals resulting primarily from the filing of a U.S. federal income tax accounting method change application and the resolution of the Internal Revenue Service's review of the Company's federal income tax returns and refund claims for fiscal 2001 through 2006.

Income Taxes



($ in millions)	Fiscal Year
($ in millions)	2012			2011			2010
Income taxes	$	726		$	536		$	778
Effective tax rate	39.0		%	39.2		%	39.3		%

The decrease in the effective tax rate for fiscal 2012 compared with fiscal 2011 was the result of slight changes in the individual components of the effective tax rate. The changes were primarily due to the impact of higher federal tax credits, which were partially offset by an increase in our state taxes as a result of changes in the mix of state earnings in fiscal 2012 .

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While the effective tax rate for fiscal 2011 decreased slightly compared with fiscal 2010 , there were changes in individual components of the effective tax rate. State and other income taxes decreased primarily due to changes in state tax laws and increases in state and federal tax credits. The decreases in these components were offset by the tax impact of foreign operations, which increased primarily due to operating losses in China and Hong Kong for fiscal 2011 (for which no tax benefit has been provided), and their greater impact due to lower Gap Inc. pre-tax income for fiscal 2011 , as well as the unfavorable impact of a change in the mix of income between domestic and foreign operations.

We currently expect the fiscal 2013 effective tax rate to be about 39 percent. The actual rate will ultimately depend on several variables, including the mix of income between domestic and international operations, the overall level of income, the potential resolution of outstanding tax contingencies, and changes in tax laws and rates.

Liquidity and Capital Resources

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, occupancy costs, personnel-related expenses, purchases of property and equipment, payment of taxes, and share repurchases. In addition to share repurchases, we also continue to return excess cash to our shareholders in the form of dividends.

In the first quarter of fiscal 2011 , we made the strategic decision to issue debt in the aggregate amount of $1.65 billion . Given favorable market conditions and our history of generating consistent and strong operating cash flow, we took this step to provide a more optimal capital structure. We remain committed to maintaining a strong financial profile with ample liquidity. Proceeds from the debt issuance were available for general corporate purposes, including share repurchases. During fiscal 2012, we repaid our $400 million, five-year, unsecured term loan in full.

We consider the following to be measures of our liquidity and capital resources:



($ in millions)	February 2, 2013		January 28, 2012		January 29, 2011
Cash and cash equivalents and short-term investments	$	1,510	$	1,885	$	1,661
Debt	$	1,246	$	1,665	$	3
Working capital	$	1,788	$	2,181	$	1,831
Current ratio	1.76:1		2.02:1		1.87:1

As of February 2, 2013 , about half of our cash and cash equivalents were held in the U.S. and are generally accessible without any limitations.

We believe that current cash balances and cash flows from our operations 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.

Cash Flows from Operating Activities

Net cash provided by operating activities during fiscal 2012 increased $573 million compared with fiscal 2011 , primarily due to the following:


•	an increase in net income in fiscal 2012 compared with fiscal 2011;


•	an increase related to income taxes payable, net of prepaid income taxes and other tax-related items, in fiscal 2012 compared with fiscal 2011 primarily due to the timing of tax payments;


•	an increase related to accrued expenses and other current liabilities in fiscal 2012 compared with fiscal 2011 primarily due to a higher bonus accrual in fiscal 2012 compared with fiscal 2011; and


•	an increase related to accounts payable in fiscal 2012 compared with fiscal 2011 primarily due to the volume and timing of payments; partially offset by


•	an increase in merchandise inventory in fiscal 2012 compared with fiscal 2011 primarily due to the timing of inventory receipts.

Net cash provided by operating activities during fiscal 2011 decreased $381 million compared with fiscal 2010 , primarily due to the following:


•	a decrease in net income in fiscal 2011 compared with fiscal 2010 .

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We fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash. Our business follows a seasonal pattern, with sales peaking over a total of about eight weeks during the end-of-year holiday period. The seasonality of our operations, combined with the calendar shift of weeks in fiscal 2013 compared with fiscal 2012 as a result of the 53rd week in fiscal 2012 , may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods.

In fiscal 2013 , we expect depreciation and amortization, net of amortization of lease incentives, to be about $475 million.

Cash Flows from Investing Activities

Our cash outflows for investing activities are primarily for capital expenditures and purchases of investments, while cash inflows are primarily proceeds from maturities of investments. Net cash used for investing activities during fiscal 2012 increased $390 million compared with fiscal 2011 , primarily due to the following:


•	$50 million of net purchases of short-term investments in fiscal 2012 compared with $100 million of net maturities in fiscal 2011;


•	$129 million used for the acquisition of Intermix in fiscal 2012; and


•	$111 million more property and equipment purchases in fiscal 2012 compared with fiscal 2011.

Net cash used for investing activities during fiscal 2011 increased $25 million compared with fiscal 2010 , primarily due to the following:


•	$25 million less net maturities of short-term investments in fiscal 2011 compared with fiscal 2010 .

In fiscal 2012 , capital expenditures were $659 million. In fiscal 2013 , we expect capital expenditures to be about $675 million .

Cash Flows from Financing Activities

Our cash outflows from financing activities consist primarily of the repurchases of our common stock, repayments of debt, and dividend payments. Cash inflows primarily consist of proceeds from the issuance of debt and proceeds from issuances under share-based compensation plans, net of withholding tax payments. Net cash used for financing activities during fiscal 2012 increased $879 million compared with fiscal 2011 , primarily due to the following:


•	$1.6 billion of proceeds from our issuance of long-term debt in fiscal 2011; and


•	$400 million of payments of long-term debt in fiscal 2012; partially offset by


•	$1.1 billion less repurchases of common stock in fiscal 2012 compared with fiscal 2011.

Net cash used for financing activities during fiscal 2011 decreased $1.5 billion compared with fiscal 2010 , primarily due to the following:


•	$1.6 billion of proceeds from our issuance of long-term debt in fiscal 2011 ; partially offset by


•	$133 million more repurchases of common stock in fiscal 2011 compared with fiscal 2010 .

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. 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 result.

The following table reconciles free cash flow, a non-GAAP financial measure, from a GAAP financial measure.



	Fiscal Year
($ in millions)	2012			2011			2010
Net cash provided by operating activities	$	1,936		$	1,363		$	1,744
Less: Purchases of property and equipment	(659		)	(548		)	(557		)
Free cash flow	$	1,277		$	815		$	1,187

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Long-Term Debt

In April 2011, we issued $1.25 billion aggregate principal amount of 5.95 percent notes (the “Notes”) due April 2021 and received proceeds of $1.24 billion in cash, net of underwriting and other fees. Interest is payable semi-annually on April 12 and October 12 of each year and commenced on October 12, 2011. We have an option to call the Notes in whole or in part at any time, subject to a make whole premium. The Notes agreement is unsecured and does not contain any financial covenants.

Credit Facilities

We have a $500 million, five-year, unsecured revolving credit facility (the “Facility”), which is scheduled to expire in April 2016. The Facility is available for general corporate purposes including working capital, trade letters of credit, and standby letters of credit. The Facility fees fluctuate based on our long-term senior unsecured credit ratings and our leverage ratio. If we were to draw on the Facility, interest would be a base rate (typically LIBOR) plus a margin based on our long-term senior unsecured credit ratings and our leverage ratio on the unpaid principal amount. To maintain availability of funds under the Facility, we pay a facility fee on the full facility amount, regardless of usage. As of February 2, 2013 , there were no borrowings under the Facility. The net availability of the Facility, reflecting $30 million of outstanding standby letters of credit, was $470 million as of February 2, 2013 .

On April 7, 2011, we obtained long-term senior unsecured credit ratings from Moody’s Investors Service (“Moody’s”) and Fitch Ratings (“Fitch”). Moody’s assigned a rating of Baa3, and Fitch assigned a rating of BBB-. Standard & Poor’s Rating Service (“Standard & Poor’s”) continues to rate us BB+. As of February 2, 2013 , there were no changes in these credit ratings. Any future reduction in the Moody’s or Standard & Poor’s ratings would increase any future interest expense if we were to draw on the Facility. If a one notch reduction in our Moody’s or Standard & Poor’s ratings were to occur during fiscal 2013 , the increase in our interest expense for fiscal 2013 would be immaterial.

We also have two separate agreements to make unsecured revolving credit facilities available for our operations in China (the “China Facilities”). The China Facilities are uncommitted and are available for borrowings, overdraft borrowings, and the issuance of bank guarantees. The 196 million Chinese yuan China Facilities expired in the third quarter of fiscal 2012 and they were subsequently renewed with an increased availability of 250 million Chinese yuan ( $40 million as of February 2, 2013 ) and no expiration date. As of February 2, 2013 , there were no borrowings under the China Facilities. There were 24 million Chinese yuan ( $4 million as of February 2, 2013 ) in bank guarantees related to store leases under the China Facilities as of February 2, 2013 . The China Facility agreements do not contain any financial covenants.

As of February 2, 2013 , we also had a $50 million , two-year, unsecured committed letter of credit agreement with an expiration date of September 2014 . As of February 2, 2013 , we had no material trade letters of credit issued under this letter of credit agreement. Trade letters of credit represent a payment undertaking guaranteed by a bank on our behalf to pay a vendor a given amount of money upon presentation of specific documents demonstrating that merchandise has shipped.

The Facility and letter of credit agreement contain financial and other covenants including, but not limited to, limitations on liens and subsidiary debt, as well as the maintenance of two financial ratios—a minimum annual fixed charge coverage ratio of 2.00 and a maximum annual leverage ratio of 2.25. As of February 2, 2013 , we were in compliance with all such covenants. Violation of these covenants could result in a default under the Facility and letter of credit agreement, which would permit the participating banks to terminate our ability to access the Facility for letters of credit and advances, terminate our ability to request letters of credit under the letter of credit agreement, require the immediate repayment of any outstanding advances under the Facility, and require the immediate posting of cash collateral in support of any outstanding letters of credit under the letter of credit agreement.

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.

We increased our annual dividend, which had been $0.45 per share for fiscal 2011 , to $0.50 per share for fiscal 2012 . We intend to increase our annual dividend to $0.60 per share for fiscal 2013 .

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Share Repurchases

Between February 2010 and February 2012, the Board of Directors authorized a total of $5.25 billion for share repurchases, all of which was completed by the end of December 2012. In January 2013, we announced that the Board of Directors approved a new $1 billion share repurchase authorization, of which $975 million was remaining as of February 2, 2013 .

During fiscal 2012 , we repurchased approximately 34 million shares for $1.0 billion , including commissions, at an average price per share of $29.89 .

Contractual Cash Obligations

We are party to many contractual obligations involving commitments to make payments to third parties. The following table provides summary information concerning our future contractual obligations as of February 2, 2013 . These obligations impact our short-term and long-term liquidity and capital resource needs. Certain of these contractual obligations are reflected in the Consolidated Balance Sheet, while others are disclosed as future obligations.



	Payments Due by Period
($ in millions)	Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		Total
Long-term debt (1)	$	—	$	—	$	—	$	1,250	$	1,250
Interest payments on long-term debt	74		149		149		260		632
Liabilities for unrecognized tax benefits (2)	7		—		—		—		7
Operating leases (3)	1,093		1,993		1,337		1,709		6,132
Purchase obligations and commitments (4)	3,029		190		12		—		3,231
Total contractual cash obligations	$	4,203	$	2,332	$	1,498	$	3,219	$	11,252

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(1)	Represents principal maturities, excluding interest. See Note 5 of Notes to Consolidated Financial Statements.


(2)	Excludes $102 million of long-term liabilities recorded in lease incentives and other long-term liabilities in the Consolidated Balance Sheet as of February 2, 2013 , as the amount relates to uncertain tax positions and we are not able to reasonably estimate when cash payments will occur.


(3)	Excludes maintenance, insurance, taxes, and contingent rent obligations. See Note 11 of Notes to Consolidated Financial Statements for discussion of our operating leases.


(4)	Represents estimated open purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business.

Commercial Commitments

We have commercial commitments, not reflected in the table above, that were incurred in the normal course of business to support our operations, including standby letters of credit of $97 million (of which $30 million was issued under the Facility), surety bonds of $38 million , and bank guarantees of $12 million outstanding as of February 2, 2013 .

Other Cash Obligations Not Reflected in the Consolidated Balance Sheet (Off-Balance Sheet Arrangements)

The majority of our contractual obligations relate to operating leases for our stores. Future minimum lease payments represent commitments under non-cancelable operating leases and are disclosed in the table above with additional information provided in Item 8, Financial Statements and Supplementary Data, Note 11 of Notes to Consolidated Financial Statements.

Our other off-balance sheet arrangements are disclosed in Item 8, Financial Statements and Supplementary Data, Note 15 of Notes to Consolidated Financial Statements.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a large, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

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Our significant accounting policies can be found in Item 8, Financial Statements and Supplementary Data, Note 1 of Notes to Consolidated Financial Statements. The policies and estimates discussed below include the financial statement elements that are either judgmental or involve the selection or application of alternative accounting policies and are material to our financial statements. Management has discussed the development and selection of these critical accounting policies and estimates with the Audit and Finance Committee of our Board of Directors, which has reviewed our disclosure relating to critical accounting policies and estimates in this annual report on Form 10-K.

Merchandise Inventory

We value inventory at the lower of cost or market (“LCM”), with cost determined using the weighted-average cost method. We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes or colors) and we primarily use markdowns to clear merchandise. We record an adjustment to inventory when future estimated selling price is less than cost. Our LCM adjustment calculation requires management to make assumptions to estimate the selling price and amount of slow-moving merchandise and broken assortments subject to markdowns, which is dependent upon factors such as historical trends with similar merchandise, inventory aging, forecasted consumer demand, and the promotional environment. In addition, we estimate and accrue shortage for the period between the last physical count and the balance sheet date. Our shortage estimate can be affected by changes in merchandise mix and changes in actual shortage trends. Historically, actual shortage has not differed materially from our estimates.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our LCM or inventory shortage adjustments. However, if estimates regarding consumer demand are inaccurate or actual physical inventory shortage differs significantly from our estimate, our operating results could be affected. We have not made any material changes in the accounting methodology used to calculate our LCM or inventory shortage adjustments in the past three fiscal years.

Impairment of Long-Lived Assets, Goodwill, and Intangible 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 or asset group may not be recoverable. Events that result in an impairment review include the decision to close a store, corporate facility, or distribution center, or a significant decrease in the operating performance of the long-lived asset. Long-lived assets are considered impaired if the estimated undiscounted future cash flows of the asset or asset group are less than the carrying amount. For impaired assets, we recognize a loss equal to the difference between the carrying amount of the asset or asset group and its estimated fair value. The estimated fair value of the asset or asset group is based on estimated 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, which for retail stores is at the store level. Our estimate of future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales and expenses and estimating useful lives of the assets. These estimates can be affected by factors such as future store results, real estate demand, and economic conditions that can be difficult to predict. We have not made any material changes in the methodology to assess and calculate impairment of long-lived assets in the past three fiscal years. We recorded a charge for the impairment of long-lived assets of $8 million , $16 million , and $8 million for fiscal 2012 , 2011 , and 2010 , respectively.

We also 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. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable.

In connection with the acquisitions of Athleta in September 2008 and Intermix in December 2012, we allocated $99 million and $85 million of the respective purchase prices to goodwill. The carrying amount of goodwill was $184 million as of February 2, 2013 . We review goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill, as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If it is determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, it is unnecessary to perform the two-step goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the first step of the two-step goodwill impairment test is required to compare the fair value of the reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step of the two-step goodwill impairment test is required to measure the goodwill impairment loss. The second step includes hypothetically valuing all the tangible and intangible assets of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying amount.

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A reporting unit is an operating segment or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. We have deemed our Direct operating segment to be the reporting unit at which goodwill is tested for Athleta and for fiscal 2012, we have identified Intermix as the reporting unit at which goodwill is tested for Intermix. During the fourth quarter of fiscal 2012, we completed our annual impairment testing of goodwill and we did not recognize any impairment charges. We determined that as of the date of our annual impairment review, the fair value of goodwill attributable to Athleta significantly exceeded its carrying amount, and it is not more likely than not that the fair value of the Direct reporting unit is less than its carrying amount. The fair value of the goodwill attributable to Intermix, as determined on December 31, 2012 (the date of acquisition), is equal to its carrying amount as of February 2, 2013 .

In connection with the acquisitions of Athleta in September 2008 and Intermix in December 2012, we allocated $54 million and $38 million of the respective purchase prices to trade names. The carrying amount of the trade names was $92 million as of February 2, 2013 . A trade name is considered impaired if the estimated fair value of the trade name is less than the carrying amount. If a trade name is considered impaired, we recognize a loss equal to the difference between the carrying amount and the estimated fair value of the trade name. The fair value of the trade names is determined using the relief from royalty method. During the fourth quarter of fiscal 2012, we completed our annual impairment review of the trade names and we did not recognize any impairment charges. The fair value of the Athleta trade name significantly exceeded its carrying amount as of the date of our annual impairment review. The fair value of the Intermix trade name, as determined on December 31, 2012 (the date of acquisition), is equal to its carrying amount as of February 2, 2013 .

These analyses require management to make assumptions and to apply judgment, including forecasting future sales and expenses, and selecting appropriate discount rates and royalty rates, which can be affected by economic conditions and other factors that can be difficult to predict.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate impairment losses of long-lived assets, goodwill, and intangible assets. However, if actual results are not consistent with our estimates and assumptions used in the calculations, we may be exposed to impairment losses that could be material.

Revenue Recognition

While revenue recognition for the Company does not involve significant judgment, it represents an important accounting policy. We recognize revenue and the related cost of goods sold at the time the products are received by the customers. For store sales, revenue is recognized when the customer receives and pays for the merchandise at the register, primarily with either cash, debit card, or credit card. For sales from our online and catalog business, revenue is recognized at the time we estimate the customer receives the merchandise. We record an allowance for estimated returns based on our historical return patterns and various other assumptions that management believes to be reasonable.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return reserve. However, if the actual rate of sales returns increases significantly, our operating results could be adversely affected. We have not made any material changes in the accounting methodology used to estimate future sales returns in the past three fiscal years.

Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers

Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Over time, some portion of these instruments is not redeemed (“breakage”). We determine breakage income for gift cards, gift certificates, and credit vouchers based on historical redemption patterns. Breakage income is recorded in other income, which is a component of operating expenses in the Consolidated Statements of Income, when we can determine the portion of the liability where redemption is remote, which is three years after the gift card, gift certificate, or credit voucher is issued. When breakage income is recorded, a liability is recognized for any legal obligation to remit the unredeemed portion to relevant jurisdictions. Our gift cards, gift certificates, and credit vouchers do not have expiration dates.

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We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our breakage income. However, if the actual rate of redemption for gift cards, gift certificates, and credit vouchers increases significantly, our operating results could be adversely affected. We have not made any material changes in the accounting methodology used to estimate breakage income in the past three fiscal years.

Income Taxes

We record a valuation allowance against our deferred tax assets when it is more likely than not that some portion or all of such deferred tax assets will not be realized. In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including forecasting future income, taxable income, and the mix of income or losses in the jurisdictions in which we operate. Our effective tax rate in a given financial statement period may also be materially impacted by changes in the mix and level of income or losses, changes in the expected outcome of audits, or changes in the deferred tax valuation allowance.

At any point in time, many tax years are subject to or in the process of being audited by various taxing authorities. To the extent our estimates of settlements change or the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. Our income tax expense includes changes in our estimated liability for exposures associated with our various tax filing positions. Determining the income tax expense for these potential assessments requires management to make assumptions that are subject to factors such as proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations, and resolution of tax audits.

We believe the judgments and estimates discussed above are reasonable. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

Recent Accounting Pronouncements

See Item 8, Financial Statements and Supplementary Data, Note 1 of Notes to Consolidated Financial Statements for recent accounting pronouncements, including the expected dates of adoption and estimated effects on our Consolidated Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Derivative Financial Instruments

We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. Our risk management policy is to hedge the following using foreign exchange forward contracts: (1) a significant portion of forecasted merchandise purchases denominated primarily in U.S. dollars made by our international subsidiaries whose functional currencies are their local currencies; (2) forecasted intercompany royalty payments; (3) 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; and (4) intercompany obligations that bear foreign exchange risk. 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. These contracts are entered into with large, reputable financial institutions that are monitored for counterparty risk. The principal currencies hedged against changes in the U.S. dollar are British pounds, Canadian dollars, Euro, and Japanese yen. Our use of derivative financial instruments represents risk management; we do not enter into derivative financial contracts for trading purposes. Additional information is presented in Item 8, Financial Statements and Supplementary Data, Note 8 of Notes to Consolidated Financial Statements. Our derivative financial instruments are recorded in the Consolidated Balance Sheets at fair value as of the balance sheet dates. As of February 2, 2013 , we had foreign exchange forward contracts outstanding related to our forecasted merchandise purchases for foreign operations, forecasted intercompany royalty payments, forecasted intercompany revenue transactions, and intercompany obligations that bear foreign exchange risk to buy the notional amounts of $988 million and 31 million British pounds. As of February 2, 2013 , we had foreign exchange forward contracts outstanding to hedge the net assets of our subsidiaries in the notional amount of 25 million Euro.

We have performed a sensitivity analysis as of February 2, 2013 based on a model that measures the impact of a hypothetical 10 percent adverse change in the level of foreign currency exchange rates to U.S. dollars (with all other variables held constant) on our underlying exposure, net of derivative financial instruments. The foreign currency exchange rates used in the model were based on the spot rates in effect as of February 2, 2013 . The sensitivity analysis indicated that a hypothetical 10 percent adverse movement in foreign currency exchange rates would have an unfavorable impact on the underlying cash flow exposure, net of our foreign exchange derivative financial instruments, of $33 million as of February 2, 2013 .

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Long-Term Debt

In April 2011 , we issued $1.25 billion aggregate principal amount of 5.95 percent Notes due April 2021 and received proceeds of $1.24 billion in cash, net of underwriting and other fees. Interest is payable semi-annually on April 12 and October 12 of each year and commenced on October 12, 2011. The Notes are not subject to interest rate risk, as they have a fixed interest rate.

Cash Equivalents

We have highly liquid fixed and variable income investments classified as cash equivalents, which are placed primarily in money market funds, time deposits, and commercial paper. These investments are classified as held-to-maturity based on our positive intent and ability to hold the securities to maturity. We value these investments at their original purchase prices plus interest that has accrued at the stated rate. The value of our investments is not subject to material interest rate risk. However, changes in interest rates would impact the interest income derived from our investments. We earned interest income of $6 million in fiscal 2012 .

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Item 8. Financial Statements and Supplementary Data.

THE GAP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




	Page

Report of Independent Registered Public Accounting Firm	31

Consolidated Balance Sheets as of February 2, 2013 and January 28, 2012	32

Consolidated Statements of Income for the fiscal years ended February 2, 2013, January 28, 2012, and January 29, 2011	33

Consolidated Statements of Comprehensive Income for the fiscal years ended February 2, 2013, January 28, 2012, and January 29, 2011	34

Consolidated Statements of Stockholders' Equity for the fiscal years ended February 2, 2013, January 28, 2012, and January 29, 2011	35

Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2013, January 28, 2012, and January 29, 2011	36

Notes to Consolidated Financial Statements	37

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of The Gap, Inc.:

We have audited the accompanying consolidated balance sheets of The Gap, Inc. and subsidiaries (the "Company") as of February 2, 2013 and January 28, 2012, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three fiscal years in the period ended February 2, 2013. We also have audited the Company's internal control over financial reporting as of February 2, 2013, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Gap, Inc. and subsidiaries as of February 2, 2013 and January 28, 2012, and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 2, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2013, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission .

/s/ Deloitte & Touche LLP

San Francisco, California

March 26, 2013

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THE GAP, INC.

CONSOLIDATED BALANCE SHEETS



($ and shares in millions except par value)	February 2, 2013			January 28, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	1,460		$	1,885
Short-term investments	50			—
Merchandise inventory	1,758			1,615
Other current assets	864			809
Total current assets	4,132			4,309
Property and equipment, net	2,619			2,523
Other long-term assets	719			590
Total assets	$	7,470		$	7,422
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt	$	—		$	59
Accounts payable	1,144			1,066
Accrued expenses and other current liabilities	1,092			998
Income taxes payable	108			5
Total current liabilities	2,344			2,128
Long-term liabilities:
Long-term debt	1,246			1,606
Lease incentives and other long-term liabilities	986			933
Total long-term liabilities	2,232			2,539
Commitments and contingencies (see Notes 11 and 15)
Stockholders' equity:
Common stock $0.05 par value
Authorized 2,300 shares and Issued 1,106 shares for all periods presented; Outstanding 463 and 485 shares	55			55
Additional paid-in capital	2,864			2,867
Retained earnings	13,259			12,364
Accumulated other comprehensive income	181			229
Treasury stock at cost (643 and 621 shares)	(13,465		)	(12,760		)
Total stockholders' equity	2,894			2,755
Total liabilities and stockholders' equity	$	7,470		$	7,422

See Accompanying Notes to Consolidated Financial Statements

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THE GAP, INC.

CONSOLIDATED STATEMENTS OF INCOME



	Fiscal Year
($ and shares in millions except per share amounts)	2012			2011			2010
Net sales	$	15,651		$	14,549		$	14,664
Cost of goods sold and occupancy expenses	9,480			9,275			8,775
Gross profit	6,171			5,274			5,889
Operating expenses	4,229			3,836			3,921
Operating income	1,942			1,438			1,968
Interest expense (reversal)	87			74			(8		)
Interest income	(6		)	(5		)	(6		)
Income before income taxes	1,861			1,369			1,982
Income taxes	726			536			778
Net income	$	1,135		$	833		$	1,204
Weighted-average number of shares—basic	482			529			636
Weighted-average number of shares—diluted	488			533			641
Earnings per share—basic	$	2.35		$	1.57		$	1.89
Earnings per share—diluted	$	2.33		$	1.56		$	1.88
Cash dividends declared and paid per share	$	0.50		$	0.45		$	0.40

See Accompanying Notes to Consolidated Financial Statements

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THE GAP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Fiscal Year
($ in millions)	2012			2011			2010
Net income	$	1,135		$	833		$	1,204
Other comprehensive income (loss), net of tax:
Foreign currency translation, net of tax (tax benefit) of $-, $(2), and $6	(71		)	24			37
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $18, $(8), and $(19)	28			(11		)	(31		)
Reclassification adjustment for realized (gains) losses on derivative financial instruments, net of (tax) tax benefit of $(4), $20, and $14	(5		)	31			24
Other comprehensive income (loss), net of tax	(48		)	44			30
Comprehensive income	$	1,087		$	877		$	1,234

See Accompanying Notes to Consolidated Financial Statements

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THE GAP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock
($ and shares in millions)	Shares	Amount											Shares		Amount			Total
Balance as of January 30, 2010	1,106	$	55	$	2,935		$	10,815		$	155		(430	)	$	(9,069	)	$	4,891
Net income							1,204											1,204
Foreign currency translation, net of tax of $6										37								37
Change in fair value of derivative financial instruments, net of tax benefit of $(19)										(31		)						(31		)
Reclassification adjustment for realized losses on derivative financial instruments, net of tax benefit of $14										24								24
Repurchases of common stock													(96	)	(1,956		)	(1,956		)
Reissuance of treasury stock under share-based compensation plans, net of shares withheld for employee taxes				(89		)							8		159			70
Tax benefit from exercise of stock options and vesting of stock units				11														11
Share-based compensation, net of estimated forfeitures				82														82
Cash dividends							(252		)									(252		)
Balance as of January 29, 2011	1,106	55		2,939			11,767			185			(518	)	(10,866		)	4,080
Net income							833											833
Foreign currency translation, net of tax benefit of $(2)										24								24
Change in fair value of derivative financial instruments, net of tax benefit of $(8)										(11		)						(11		)
Reclassification adjustment for realized losses on derivative financial instruments, net of tax benefit of $20										31								31
Repurchases of common stock													(111	)	(2,096		)	(2,096		)
Reissuance of treasury stock under share-based compensation plans, net of shares withheld for employee taxes				(140		)							8		202			62
Tax benefit from exercise of stock options and vesting of stock units				10														10
Share-based compensation, net of estimated forfeitures				58														58
Cash dividends							(236		)									(236		)
Balance as of January 28, 2012	1,106	55		2,867			12,364			229			(621	)	(12,760		)	2,755
Net income							1,135											1,135
Foreign currency translation, net of tax of $-										(71		)						(71		)
Change in fair value of derivative financial instruments, net of tax of $18										28								28
Reclassification adjustment for realized gains on derivative financial instruments, net of tax of $(4)										(5		)						(5		)
Repurchases of common stock													(34	)	(1,026		)	(1,026		)
Reissuance of treasury stock under share-based compensation plans, net of shares withheld for employee taxes				(147		)							12		321			174
Tax benefit from exercise of stock options and vesting of stock units				33														33
Share-based compensation, net of estimated forfeitures				111														111
Cash dividends							(240		)									(240		)
Balance as of February 2, 2013	1,106	$	55	$	2,864		$	13,259		$	181		(643	)	$	(13,465	)	$	2,894

See Accompanying Notes to Consolidated Financial Statements

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THE GAP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Fiscal Year
($ in millions)	2012			2011			2010
Cash flows from operating activities:
Net income	$	1,135		$	833		$	1,204
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	559			592			648
Amortization of lease incentives	(76		)	(86		)	(86		)
Share-based compensation	113			58			77
Tax benefit from exercise of stock options and vesting of stock units	33			10			11
Excess tax benefit from exercise of stock options and vesting of stock units	(34		)	(13		)	(11		)
Non-cash and other items	11			74			55
Deferred income taxes	(37		)	(11		)	93
Changes in operating assets and liabilities:
Merchandise inventory	(143		)	4			(127		)
Other current assets and other long-term assets	(44		)	(101		)	(87		)
Accounts payable	91			11			(7		)
Accrued expenses and other current liabilities	68			(45		)	(141		)
Income taxes payable, net of prepaid and other tax-related items	146			(91		)	66
Lease incentives and other long-term liabilities	114			128			49
Net cash provided by operating activities	1,936			1,363			1,744
Cash flows from investing activities:
Purchases of property and equipment	(659		)	(548		)	(557		)
Purchases of short-term investments	(200		)	(50		)	(475		)
Maturities of short-term investments	150			150			600
Acquisition of business	(129		)	—			—
Other	(6		)	(6		)	3
Net cash used for investing activities	(844		)	(454		)	(429		)
Cash flows from financing activities:
Proceeds from issuance of short-term debt	—			16			6
Payments of short-term debt	(19		)	—			(3		)
Proceeds from issuance of long-term debt	—			1,646			—
Payments of long-term debt issuance costs	—			(11		)	—
Payments of long-term debt	(400		)	—			—
Proceeds from issuances under share-based compensation plans, net of withholding tax payments of $147, $140, and $88	174			62			70
Repurchases of common stock	(1,030		)	(2,092		)	(1,959		)
Excess tax benefit from exercise of stock options and vesting of stock units	34			13			11
Cash dividends paid	(240		)	(236		)	(252		)
Net cash used for financing activities	(1,481		)	(602		)	(2,127		)
Effect of foreign exchange rate fluctuations on cash and cash equivalents	(36		)	17			25
Net increase (decrease) in cash and cash equivalents	(425		)	324			(787		)
Cash and cash equivalents at beginning of period	1,885			1,561			2,348
Cash and cash equivalents at end of period	$	1,460		$	1,885		$	1,561
Non-cash investing activities:
Purchases of property and equipment not yet paid at end of period	$	74		$	61		$	59
Supplemental disclosure of cash flow information:
Cash paid for interest during the period	$	83		$	45		$	1
Cash paid for income taxes during the period	$	582		$	599		$	677

See Accompanying Notes to Consolidated Financial Statements

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Notes to Consolidated Financial Statements

For the Fiscal Years Ended February 2, 2013 , January 28, 2012 , and January 29, 2011

Note 1. Organization and Summary of Significant Accounting Policies

Organization

The Gap, Inc., a Delaware Corporation, is a global retailer offering apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix brands. We have Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, and beginning in November 2010, China and Italy. We also have franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores in Asia, Australia, Eastern Europe, Latin America, the Middle East, and Africa. In addition, our products are available to customers online in over 80 countries.

We identify our operating segments based on the way we manage and evaluate our business activities. As of February 2, 2013 , we have two reportable segments: Stores and Direct.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of The Gap, Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated.

Fiscal Year and Presentation

Our fiscal year is a 52-week or 53-week period ending on the Saturday closest to January 31. The fiscal year ended February 2, 2013 ( fiscal 2012 ) consisted of 53 weeks. The fiscal years ended January 28, 2012 ( fiscal 2011 ) and January 29, 2011 ( fiscal 2010 ) consisted of 52 weeks.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents and Short-Term Investments

Cash includes funds deposited in banks as well as amounts in transit from banks for customer credit card and debit card transactions that process in less than seven days. The majority of these amounts are processed within five business days.

All highly liquid investments with original maturities of 91 days or less are classified as cash equivalents. Highly liquid investments with original maturities of greater than 91 days that will mature less than one year from the balance sheet date are classified as short-term investments. Our cash equivalents and short-term investments are placed primarily in money market funds, time deposits, and commercial paper and are classified as held-to-maturity based on our positive intent and ability to hold the securities to maturity. We value these investments at their original purchase prices plus interest that has accrued at the stated rate. Income related to these securities is recorded in interest income in the Consolidated Statements of Income.

Restricted Cash

Restricted cash consists primarily of cash that serves as collateral for our insurance obligations. Any cash that is legally restricted from use is classified as restricted cash. If the purpose of restricted cash relates to acquiring a long-term asset, liquidating a long-term liability, or is otherwise unavailable for a period longer than one year from the balance sheet date, the restricted cash is included in other long-term assets. Otherwise, restricted cash is included in other current assets in the Consolidated Balance Sheets.

Merchandise Inventory

We value inventory at the lower of cost or market, with cost determined using the weighted-average cost method. We record an adjustment when future estimated selling price is less than cost. We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes or colors) and use markdowns to clear merchandise. In addition, we estimate and accrue shortage for the period between the last physical count and the balance sheet date.

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Derivative Financial Instruments

Derivative financial instruments are recorded at fair value in the Consolidated Balance Sheets as other current assets, other long-term assets, accrued expenses and other current liabilities, or lease incentives and other long-term liabilities.

For derivative financial instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative financial instruments is reported as a component of other comprehensive income (“OCI”) and is recognized in income in the period in which the underlying transaction occurs. For derivative financial instruments that are designated and qualify as net investment hedges, the effective portion of the gain or loss on the derivative financial instruments is reported as a component of OCI and is reclassified into income in the period or periods during which the hedged subsidiary is either sold or liquidated (or substantially liquidated). Gains and losses on the derivative financial instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, if any, are recognized in current income. For derivative financial instruments not designated as hedging instruments, the gain or loss on the derivative financial instruments is recorded in operating expenses in the Consolidated Statements of Income. Cash flows from derivative financial instruments are classified as cash flows from operating activities in the Consolidated Statements of Cash Flows.

Property and Equipment

Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are as follows:



Category		Term
Leasehold improvements		Shorter of lease term or economic life, up to 15 years
Furniture and equipment		Up to 15 years
Buildings and building improvements		Up to 39 years
Software		3 to 7 years

When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts, with any resulting gain or loss recorded in operating expenses in the Consolidated Statements of Income. Costs of maintenance and repairs are expensed as incurred.

Lease Rights, Key Money, and Favorable Lease Assets

Lease rights are costs incurred to acquire the right to lease a specific property. A majority of our lease rights are related to premiums paid to landlords. Key money is the amount of funds paid to a landlord or tenant to acquire the rights of tenancy under a commercial property lease for a property located in France. These rights can be subsequently sold by us to a new tenant or the amount of key money paid can potentially be recovered from the landlord should the landlord refuse to allow the automatic right of renewal to be exercised. Lease rights and key money are recorded at cost and are amortized over the corresponding lease term. Lease rights and key money are recorded in other long-term assets in the Consolidated Balance Sheets, net of related amortization.

In connection with our acquisition of Intermix, we acquired favorable lease assets as a result of leases with terms that were considered favorable relative to market terms for similar leases as of the date of acquisition. The favorable lease assets will be recognized as rent expense in cost of goods sold and occupancy expenses in the Consolidated Statements of Income over the remaining term of the leases.

Insurance and Self-Insurance

We use a combination of insurance and self-insurance for a number of risk management activities including workers’ compensation, general liability, and employee-related health care benefits, a portion of which is paid by our employees. Undiscounted liabilities associated with these risks are estimated based primarily on actuarially-determined amounts and are accrued in part by considering historical claims experience, demographic factors, severity factors, and other actuarial assumptions.

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Asset Retirement Obligations

An asset retirement obligation represents a legal obligation associated with the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development, or normal operation of that long-lived asset. The Company’s asset retirement obligations are primarily associated with leasehold improvements that we are contractually obligated to remove at the end of a lease to comply with the lease agreement. We recognize asset retirement obligations at the inception of a lease with such conditions if a reasonable estimate of fair value can be made. The asset retirement obligation is recorded in accrued expenses and other current liabilities and lease incentives and other long-term liabilities in the Consolidated Balance Sheets and is subsequently adjusted for changes in estimated asset retirement obligations. The associated estimated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life.

Treasury Stock

We account for treasury stock under the cost method, using the first-in, first-out flow assumption, and we include treasury stock as a component of stockholders’ equity.

Revenue Recognition

We recognize revenue and the related cost of goods sold at the time the products are received by the customers. Revenue is recognized for store sales when the customer receives and pays for the merchandise at the register. For sales through online and catalog orders, we estimate and defer recognition of revenue and the related product costs for shipments that are in-transit to the customer. Revenue is recognized at the time we estimate the customer receives the product, which is typically within a few days of shipment. Amounts related to shipping and handling that are billed to customers are recorded in net sales, and the related costs are recorded in cost of goods sold and occupancy expenses in the Consolidated Statements of Income. Revenues are presented net of estimated returns and any taxes collected from customers and remitted to governmental authorities. Allowances for estimated returns are recorded based on estimated margin using our historical return patterns.

We sell merchandise to franchisees under multi-year franchise agreements. We recognize revenue from sales to franchisees at the time merchandise ownership is transferred to the franchisee, which generally occurs when the merchandise reaches the franchisee’s pre-designated turnover point. These sales are recorded in net sales, and the related cost of goods sold is recorded in cost of goods sold and occupancy expenses in the Consolidated Statements of Income. We also receive royalties from franchisees based on a percentage of the total merchandise purchased by the franchisee, net of any refunds or credits due them. Royalty revenue is recognized when merchandise ownership is transferred to the franchisee and is recorded in net sales in the Consolidated Statements of Income.

Classification of Expenses

Cost of goods sold and occupancy expenses include the following:


•	the cost of merchandise;


•	inventory shortage and valuation adjustments;


•	freight charges;


•	shipping and handling costs;


•	costs associated with our sourcing operations, including payroll and related benefits;


•	production costs;


•	insurance costs related to merchandise; and


•	rent, occupancy, depreciation, and amortization related to our store operations, distribution centers, and certain corporate functions.

Operating expenses include the following:


•	payroll and related benefits (for our store operations, field management, distribution centers, and corporate functions);


•	marketing;


•	general and administrative expenses;


•	costs to design and develop our products;


•	merchandise handling and receiving in distribution centers;


•	distribution center general and administrative expenses;


•	rent, occupancy, depreciation, and amortization for our corporate facilities; and

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•	other expenses (income).

The classification of expenses varies across the apparel retail industry. Accordingly, our cost of goods sold and occupancy expenses and operating expenses may not be comparable to those of other companies. Merchandise handling and receiving expenses and distribution center general and administrative expenses recorded in operating expenses were $231 million , $224 million , and $226 million in fiscal 2012 , 2011 , and 2010 , respectively.

Rent Expense

Minimum rent expense is recognized over the term of the lease. We recognize minimum rent starting when possession of the property is taken from the landlord, which normally includes a construction period prior to the store opening. When a lease contains a predetermined fixed escalation of the minimum rent, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rent expense and the amounts payable under the lease as a short-term or long-term deferred rent liability. We also receive tenant allowances upon entering into certain leases, which are recorded as a short-term or long-term tenant allowance liability and amortized using the straight-line method as a reduction to rent expense over the term of the lease. A co-tenancy failure by our landlord during the lease term may result in a reduction of the required cash payments made to the landlord for the duration of the co-tenancy failure and is recorded as a reduction to rent expense as the reduced cash payments are made. Future payments for common area maintenance, insurance, real estate taxes, and other occupancy costs the Company is obligated to make are excluded from minimum lease payments.

Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of sales that are in excess of a predetermined level and/or rent increase based on a change in the consumer price index or fair market value. These amounts are excluded from minimum rent and are included in the determination of rent expense when it is probable that the expense has been incurred and the amount can be reasonably estimated.

Impairment of Long-Lived 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. Events that result in an impairment review include the decision to close a store, corporate facility, or distribution center, or a significant decrease in the operating performance of the long-lived asset. Long-lived assets are considered impaired if the estimated undiscounted future cash flows of the asset or asset group are less than the carrying amount. For impaired assets, we recognize a loss equal to the difference between the carrying amount of the asset or asset group and its estimated fair value, which is recorded in operating expenses in the Consolidated Statements of Income. The estimated fair value of the asset or asset group is 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, which for retail stores is at the store level.

Goodwill and Intangible Assets

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 the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations.

We review goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill, as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If it is determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, it is unnecessary to perform the two-step goodwill impairment test. If it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the first step of the two-step goodwill impairment test is required to compare the fair value of the reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step of the two-step goodwill impairment test is required to measure the goodwill impairment loss. The second step includes hypothetically valuing all the tangible and intangible assets of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying amount.

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A trade name is considered impaired if the estimated fair value of the trade name is less than the carrying amount. If a trade name is considered impaired, we recognize a loss equal to the difference between the carrying amount and the estimated fair value of the trade name. The fair value of a trade name is determined using the relief from royalty method, which requires management to make assumptions and to apply judgment, including forecasting future sales and expenses, and selecting appropriate discount rates and royalty rates.

Goodwill and other indefinite-lived intangible assets, including the trade names, are recorded in other long-term assets in the Consolidated Balance Sheets.

Lease Losses

The decision to close a store, corporate facility, or distribution center can result in accelerated depreciation and amortization over the revised remaining useful lives of the associated long-lived assets. In addition, upon exiting leased premises, we record a charge and corresponding lease loss reserve equal to the incremental amount of the present value of the net future obligation greater than the remaining rent-related deferred balances. The net future obligation is determined as the remaining contractual rent obligations less the amount for which we are able to or expect to be able to sublease the properties. We estimate the amount for which we expect to be able to sublease the properties based on the status of our efforts to sublease vacant office space and stores, a review of real estate market conditions, our projections for sublease income, and our assumptions regarding sublease commencement. Lease losses are recorded in operating expenses in the Consolidated Statements of Income.

Pre-Opening Costs

Pre-opening and start-up activity costs, which include rent and occupancy, supplies, advertising, and payroll expenses incurred prior to the opening of a new store or other facility, are expensed in the period in which they occur.

Advertising

Costs associated with the production of advertising, such as writing, copy, printing, and other costs, are expensed as incurred. Costs associated with communicating advertising that has been produced, such as television and magazine costs, are expensed when the advertising event takes place. Advertising expense was $653 million , $548 million , and $516 million in fiscal 2012 , 2011 , and 2010 , respectively, and is recorded in operating expenses in the Consolidated Statements of Income.

Prepaid catalog expense consists of the cost to prepare, print, and distribute catalogs. Such costs are amortized over their expected period of future benefit, which is approximately one to five months.

Share-Based Compensation

Share-based compensation expense for stock options and other stock awards is determined based on the grant-date fair value. We use the Black-Scholes-Merton option-pricing model to determine the fair value of stock options, which requires the input of subjective assumptions regarding the expected term, expected volatility, dividend yield, and risk-free interest rate. For units granted whereby one share of common stock is issued for each unit as the unit vests (“Stock Units”), the fair value is determined based on the Company’s stock price on the date of grant less future expected dividends during the vesting period. For stock options and Stock Units, we recognize share-based compensation cost net of estimated forfeitures and revise the estimates in subsequent periods if actual forfeitures differ from the estimates. We estimate the forfeiture rate based on historical experience as well as expected future behavior. Share-based compensation expense is recorded primarily in operating expenses in the Consolidated Statements of Income over the period during which the employee is required to provide service in exchange for stock options and Stock Units.

Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers

Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Over time, some portion of these instruments is not redeemed. We determine breakage income for gift cards, gift certificates, and credit vouchers based on historical redemption patterns. Breakage income is recorded in other income, which is a component of operating expenses in the Consolidated Statements of Income, when we can determine the portion of the liability where redemption is remote. Based on our historical information, three years after the gift card, gift certificate, or credit voucher is issued, we can determine the portion of the liability where redemption is remote. When breakage income is recorded, a liability is recognized for any legal obligation to remit the unredeemed portion of gift certificates and credit vouchers to relevant jurisdictions. Our gift cards, gift certificates, and credit vouchers do not have expiration dates.

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Credit Cards

We have credit card agreements (the “Agreements”) with third parties to provide our customers with private label credit cards and/or co-branded credit cards (collectively, the “Credit Cards”). Each private label credit card bears the logo of Gap, Old Navy, or Banana Republic and can be used at any of our U.S. or Canadian store locations and online. The co-branded credit card is a VISA credit card bearing the logo of Gap, Old Navy, or Banana Republic and can be used everywhere VISA credit cards are accepted. A third-party financing company is the sole owner of the accounts issued under the Credit Card programs, and this third party absorbs the losses associated with non-payment by the cardholder and a portion of any fraudulent usage of the accounts. We receive cash from the third-party financing company in accordance with the Agreements and based on usage of the Credit Cards. We also receive payment from Visa U.S.A. Inc. in accordance with the Agreements and based on specified transactional fees. We recognize income for such cash receipts when the amounts are fixed or determinable and collectibility is reasonably assured, which is generally the time at which the actual usage of the Credit Cards or specified transaction occurs. The income is recorded in other income, which is a component of operating expenses in our Consolidated Statements of Income.

The Credit Card programs offer incentives to cardholders in the form of reward certificates upon the cumulative purchase of an established amount. The cost associated with reward points and certificates is accrued as the rewards are earned by the cardholder and is recorded in cost of goods sold and occupancy expenses in the Consolidated Statements of Income. Other administrative costs related to the Credit Card programs, including payroll, marketing expenses, and other direct costs, are recorded in operating expenses in the Consolidated Statements of Income.

Earnings per Share

Basic earnings per share is computed as net income divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed as net income divided by the weighted-average number of common shares outstanding for the period including common stock equivalents. Common stock equivalents consist of shares subject to share-based awards with exercise prices less than the average market price of our common stock for the period, to the extent their inclusion would be dilutive. Stock options and other stock awards that contain performance conditions are not included in the calculation of common stock equivalents until such performance conditions have been achieved.

Foreign Currency

Our international subsidiaries primarily use local currencies as the functional currency and translate their assets and liabilities at the current rate of exchange in effect at the balance sheet date. Revenue and expenses from their operations are translated using the monthly average exchange rates in effect during the period in which the transactions occur. The resulting gains and losses from translation are recorded in the Consolidated Statements of Comprehensive Income and in accumulated OCI in the Consolidated Statements of Stockholders’ Equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in the Consolidated Statements of Income. The aggregate transaction gains and losses included in the Consolidated Statements of Income were as follows:



	Fiscal Year
($ in millions)	2012			2011			2010
Foreign currency transaction losses	$	(3	)	$	(7	)	$	(1	)

Comprehensive Income

In the first quarter of fiscal 2012 , we adopted the revised requirements issued by the Financial Accounting Standards Board ("FASB") to present comprehensive income in a separate statement. Comprehensive income is comprised of net income and other gains and losses affecting equity that are excluded from net income. The components of OCI consist of foreign currency translation gains and losses, net of tax, changes in the fair value of derivative financial instruments, net of tax, and reclassification adjustments for realized gains and losses on derivative financial instruments, net of tax.

Income Taxes

Deferred income taxes are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements. A valuation allowance is established against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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Our income tax expense includes changes in our estimated liability for exposures associated with our various tax filing positions. At any point in time, many tax years are subject to or in the process of being audited by various taxing authorities. To the extent our estimates of settlements change or the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made.

The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties related to unrecognized tax benefits in operating expenses in the Consolidated Statements of Income.

Recent Accounting Pronouncements

In July 2012, the FASB issued an accounting standards update (“ASU”) to simplify the manner in which entities may test indefinite-lived intangible assets for impairment. The ASU permits an entity to first assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. We will adopt the provisions of the ASU in the first quarter of fiscal 2013. We do not expect the adoption of the ASU to have a material impact on our Consolidated Financial Statements.

In February 2013, the FASB issued an ASU that requires enhanced disclosures around the amounts reclassified out of accumulated other comprehensive income. The amendments do not change the requirements for reporting net income or other comprehensive income. The ASU requires an entity to present information about significant reclassifications out of accumulated other comprehensive income and their corresponding effects on the respective line items in net income. The ASU is effective for annual and interim reporting periods beginning after December 15, 2012 and as such, we will adopt the disclosure provisions in the first quarter of fiscal 2013.

Note 2. Additional Financial Statement Information

Cash and Cash Equivalents and Short-Term Investments

Cash and cash equivalents and short-term investments consist of the following:



($ in millions)	February 2, 2013		January 28, 2012
Cash (1)	$	942	$	876
Bank certificates of deposit and time deposits	304		685
Money market funds	189		224
Domestic commercial paper	25		100
Cash equivalents	518		1,009
Cash and cash equivalents	$	1,460	$	1,885
Bank certificates of deposit and time deposits	$	50	$	—
Short-term investments	$	50	$	—

__________


(1)	Cash includes $71 million and $59 million of amounts in transit from banks for customer credit card and debit card transactions as of February 2, 2013 and January 28, 2012 , respectively.

We did not record any impairment charges on our cash equivalents or short-term investments in fiscal 2012 , 2011 , or 2010 .

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Other Current Assets

Other current assets consist of the following:



($ in millions)	February 2, 2013		January 28, 2012
Accounts receivable	$	331	$	297
Current portion of deferred tax assets	220		205
Prepaid minimum rent and occupancy expenses	147		144
Prepaid income taxes	60		101
Derivative financial instruments	49		12
Prepaid catalog expenses	4		2
Restricted cash	—		6
Other	53		42
Other current assets	$	864	$	809

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and consist of the following:



($ in millions)	February 2, 2013			January 28, 2012
Leasehold improvements	$	3,131		$	3,168
Furniture and equipment	2,464			2,463
Land, buildings, and building improvements	1,101			1,096
Software	1,078			960
Construction-in-progress	136			96
Property and equipment, at cost	7,910			7,783
Less: Accumulated depreciation	(5,291		)	(5,260		)
Property and equipment, net of accumulated depreciation	$	2,619		$	2,523

Depreciation expense for property and equipment was $554 million , $586 million , and $639 million for fiscal 2012 , 2011 , and 2010 , respectively.

Interest of $6 million and $4 million related to assets under construction was capitalized in fiscal 2012 and 2011 , respectively. No interest related to assets under construction was capitalized in fiscal 2010.

We recorded a charge for the impairment of long-lived assets related to our Stores reportable segment of $8 million , $16 million , and $8 million for fiscal 2012 , 2011 , and 2010 , respectively, which is recorded in operating expenses in the Consolidated Statements of Income.

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Other Long-Term Assets

Other long-term assets consist of the following:



($ in millions)	February 2, 2013		January 28, 2012
Long-term income tax-related assets	$	244	$	258
Goodwill	184		99
Trade names	92		54
Lease rights, key money, and favorable lease assets, net of accumulated amortization of $144 and $140	31		22
Deferred compensation plan assets	27		22
Restricted cash	11		11
Other indefinite-lived intangible assets	6		—
Intangible assets subject to amortization, net of accumulated amortization of $15 and $14	3		1
Derivative financial instruments	2		1
Other	119		122
Other long-term assets	$	719	$	590

Both the cost and accumulated amortization of lease rights and key money are impacted by fluctuations in foreign currency exchange rates. Amortization expense associated with lease rights and key money was $4 million , $4 million , and $5 million in fiscal 2012 , 2011 , and 2010 , respectively.

In connection with our acquisition of Intermix, we acquired favorable lease assets of $10 million which will be recognized as rent expense in cost of goods sold and occupancy expenses in the Consolidated Statements of Income over the remaining term of the leases. There was no material rent expense recognized related to the favorable lease assets in fiscal 2012 .

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:



($ in millions)	February 2, 2013		January 28, 2012
Accrued compensation and benefits	$	369	$	292
Unredeemed gift cards, gift certificates, and credit vouchers, net of breakage	232		228
Short-term deferred rent and tenant allowances	93		104
Insurance liabilities	72		70
Sales return allowance	27		21
Accrued advertising	26		26
Credit card reward points and certificates liability	18		14
Derivative financial instruments	14		14
Short-term asset retirement obligations	6		9
Short-term lease loss reserve	5		5
Other	230		215
Accrued expenses and other current liabilities	$	1,092	$	998

The activity related to short-term asset retirement obligations includes adjustments to the asset retirement obligation balance and fluctuations in foreign currency exchange rates. The activity was not material for fiscal 2012 or 2011 .

No other individual items accounted for greater than five percent of total current liabilities as of February 2, 2013 or January 28, 2012 .

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Lease Incentives and Other Long-Term Liabilities

Lease incentives and other long-term liabilities consist of the following:



($ in millions)	February 2, 2013		January 28, 2012
Long-term deferred rent, tenant allowances, and unfavorable lease liabilities	$	750	$	705
Long-term income tax-related liabilities	132		129
Long-term asset retirement obligations	49		47
Deferred compensation plan liabilities	27		22
Long-term lease loss reserve	1		4
Other	27		26
Lease incentives and other long-term liabilities	$	986	$	933

The activity related to long-term asset retirement obligations includes adjustments to the asset retirement obligation balance and fluctuations in foreign currency exchange rates. The activity was not material for fiscal 2012 or 2011 .

In connection with our acquisition of Intermix, we assumed unfavorable lease liabilities of $20 million as a result of leases with terms that were considered unfavorable relative to market terms for similar leases as of the date of acquisition. The unfavorable lease liabilities will be recognized as a reduction of rent expense in cost of goods sold and occupancy expenses in the Consolidated Statements of Income over the remaining term of the leases. There was no material amount recognized in cost of goods sold and occupancy expenses related to the unfavorable lease liabilities in fiscal 2012 .

Accumulated Other Comprehensive Income

Accumulated OCI consists of the following:



($ in millions)	February 2, 2013		January 28, 2012
Foreign currency translation, net of tax	$	158	$	229
Accumulated changes in fair value of derivative financial instruments, net of tax	23		—
Accumulated other comprehensive income	$	181	$	229

Sales Return Allowance

A summary of activity in the sales return allowance account is as follows:



($ in millions)	February 2, 2013			January 28, 2012			January 29, 2011
Balance at beginning of fiscal year	$	21		$	22		$	22
Additions	845			720			712
Returns	(839		)	(721		)	(712		)
Balance at end of fiscal year	$	27		$	21		$	22

The amount of additions and returns for fiscal 2011 have been corrected in the table above to $720 million and $721 million , respectively, to appropriately reflect sales return allowance activities during fiscal 2011. This correction did not have any impact on the Consolidated Financial Statements for any period reported.

Note 3. Acquisition

On December 31, 2012, we acquired all of the outstanding capital stock of Intermix, a multi-brand retailer of luxury and contemporary women's apparel and accessories based in New York, New York, for an aggregate purchase price of $129 million in cash. The acquisition will allow us to extend our portfolio of brands and further penetrate the higher-end apparel market with an established brand.

The results of operations for Intermix since the date of acquisition are not material to the Consolidated Statements of Income. In addition, the impact of the acquisition on the Company's results of operations, as if the acquisition had been completed on the first day of fiscal 2011, is not significant.

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The preliminary purchase price allocation as of December 31, 2012 was as follows:



($ in millions)
Goodwill	$	85
Trade name	38
Intangible assets subject to amortization	3
Net assets acquired	3
Total purchase price	$	129

The purchase price allocation above is subject to adjustments as the fair values are finalized.

All of the assets and liabilities acquired, including goodwill, have been allocated to the Direct reportable segment. None of the goodwill acquired is deductible for tax purposes.

See Note 4 of Notes to Consolidated Financial Statements for disclosures about goodwill and intangible assets.

Note 4. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following and are included in other long-term assets in the Consolidated Balance Sheets:



($ in millions)	February 2, 2013			January 28, 2012
Goodwill	$	184		$	99
Trade names	$	92		$	54
Other indefinite-lived intangible assets	$	6		$	—
Intangible assets subject to amortization	$	18		$	15
Less: Accumulated amortization	(15		)	(14		)
Intangible assets subject to amortization, net	$	3		$	1

Goodwill

As discussed in Note 3 of Notes to Consolidated Financial Statements, we preliminarily allocated $85 million to goodwill as part of our acquisition of Intermix on December 31, 2012. During fiscal 2012 , 2011 , and 2010 , there were no changes in the $99 million carrying amount of goodwill related to Athleta. The goodwill associated with both Athleta and Intermix is allocated to the Direct reportable segment.

During the fourth quarter of fiscal 2012 , we completed our annual impairment test of goodwill and we did not recognize any impairment charges.

Other Intangible Assets

As discussed in Note 3 of Notes to Consolidated Financial Statements, we allocated $38 million to trade name and $3 million to intangible assets subject to amortization in connection with our acquisition of Intermix. The intangible assets subject to amortization related to Intermix consist of customer relationships and a non-compete agreement that will be amortized over a period of four years and one year, respectively. There was no material amortization expense recognized in operating expenses in the Consolidated Statement of Income in fiscal 2012 related to Intermix's intangible assets subject to amortization. The future amortization expense associated with Intermix's intangible assets subject to amortization is $2 million in fiscal 2013 and immaterial amounts in each of the following three fiscal years.

During fiscal 2012 , 2011 , and 2010 , there were no changes in the $54 million carrying amount of Athleta's trade name. Athleta's intangible assets subject to amortization of $15 million , consisting primarily of customer relationships, were fully amortized in fiscal 2012 . Amortization expense for Athleta's intangible assets subject to amortization was $1 million , $2 million , and $4 million for fiscal 2012 , 2011 , and 2010 , respectively, and it is recorded in operating expenses in the Consolidated Statements of Income.

During the fourth quarter of fiscal 2012 , we completed our annual impairment test of trade names and we did not recognize any impairment charges.

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Note 5. Long-Term Debt

Long-term debt consists of the following:



($ in millions)	February 2, 2013		January 28, 2012
Notes	$	1,246	$	1,246
Term loan	—		400
Total long-term debt	1,246		1,646
Less: Current portion	—		(40		)
Total long-term debt, less current portion	$	1,246	$	1,606

In April 2011, we issued $1.25 billion aggregate principal amount of 5.95 percent Notes due April 2021 and received proceeds of $1.24 billion in cash, net of underwriting and other fees of $11 million . The net proceeds were available for general corporate purposes, including repurchases of our common stock. Interest is payable semi-annually on April 12 and October 12 of each year and commenced on October 12, 2011. We have an option to call the Notes in whole or in part at any time, subject to a make-whole premium. The Notes agreement is unsecured and does not contain any financial covenants. The amount recorded in long-term debt in the Consolidated Balance Sheets for the Notes is equal to the aggregate principal amount of the Notes, net of the unamortized discount. As of February 2, 2013 and January 28, 2012 , the estimated fair value of the Notes was $1.41 billion and $1.19 billion , respectively, and was based on the quoted market price of the Notes (level 1 inputs) as of the last business day of the respective fiscal year.

In April 2011, we also entered into a $400 million , five -year, unsecured term loan due April 2016 , which was funded in May 2011. Repayments of $40 million were payable on April 7 of each year, commencing on April 7, 2012, with a final repayment of $240 million due on April 7, 2016. In addition, interest was payable at least quarterly based on an interest rate equal to LIBOR plus a margin based on our long-term senior unsecured credit ratings. The average interest rate during fiscal 2012 and 2011 was 2 percent . In April 2012, we repaid $40 million on the term loan and in August 2012, we repaid the remaining $360 million reducing the outstanding balance on the term loan to zero . The estimated fair value of the term loan was $400 million as of January 28, 2012 . The carrying amount of the term loan as of January 28, 2012 approximated its fair value, as the interest rate varied depending on quoted market rates (level 1 inputs) and our credit rating.

Note 6. Credit Facilities

Our $500 million , five -year, unsecured revolving credit Facility, which is scheduled to expire in April 2016 , is available for general corporate purposes including working capital, trade letters of credit, and standby letters of credit. The Facility fees fluctuate based on our long-term senior unsecured credit ratings and our leverage ratio. If we were to draw on the Facility, interest would be a base rate (typically LIBOR) plus a margin based on our long-term senior unsecured credit ratings and our leverage ratio on the unpaid principal amount. To maintain availability of funds under the Facility, we pay a facility fee on the full facility amount, regardless of usage. As of February 2, 2013 , there were no borrowings under the Facility. The net availability of the Facility, reflecting $30 million of outstanding standby letters of credit, was $470 million as of February 2, 2013 .

In conjunction with our financings in April 2011, we obtained long-term senior unsecured credit ratings from Moody’s and Fitch. Moody’s assigned a rating of Baa3 , and Fitch assigned a rating of BBB- . Standard & Poor’s continued to rate us BB+ . As of February 2, 2013 , there were no changes in these credit ratings. Any future reduction in the Moody’s or Standard & Poor’s ratings would increase any future interest expense if we were to draw on the Facility.

The China Facilities are two separate agreements to make unsecured revolving credit facilities available for our operations in China; they are uncommitted and are available for borrowings, overdraft borrowings, and the issuance of bank guarantees. The 196 million Chinese yuan China Facilities expired in October 2012 and they were subsequently renewed with an increased availability of 250 million Chinese yuan ( $40 million as of February 2, 2013 ) and no expiration date. As of February 2, 2013 , there were no borrowings under the China Facilities. There were 24 million Chinese yuan ( $4 million as of February 2, 2013 ) in bank guarantees related to store leases under the China Facilities as of February 2, 2013 . The China Facility agreements do not contain any financial covenants. As of January 28, 2012 , there were borrowings of $19 million under the China Facilities, which were recorded in current maturities of debt in the Consolidated Balance Sheet.

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Trade letters of credit represent a payment undertaking guaranteed by a bank on our behalf to pay a vendor a given amount of money upon presentation of specific documents demonstrating that merchandise has shipped. Vendor payables are recorded in the Consolidated Balance Sheets at the time of merchandise title transfer, although the letters of credit are generally issued prior to the title transfer. As of February 2, 2013 , we had a $50 million , two -year, unsecured letter of credit agreement with an expiration date of September 2014 . As of February 2, 2013 , we had no material trade letters of credit issued under this letter of credit agreement.

The Facility and letter of credit agreement contain financial and other covenants including, but not limited to, limitations on liens and subsidiary debt, as well as the maintenance of two financial ratios—a minimum annual fixed charge coverage ratio of 2.00 and a maximum annual leverage ratio of 2.25 . As of February 2, 2013 , we were in compliance with all such covenants. Violation of these covenants could result in a default under the Facility and letter of credit agreement, which would permit the participating banks to terminate our ability to access the Facility for letters of credit and advances, terminate our ability to request letters of credit under the letter of credit agreement, require the immediate repayment of any outstanding advances under the Facility, and require the immediate posting of cash collateral in support of any outstanding letters of credit under the letter of credit agreement.

Note 7. Fair Value Measurements

There were no purchases, sales, issuances, or settlements related to recurring level 3 measurements during fiscal 2012 or 2011 . There were no transfers into or out of level 1 and level 2 during fiscal 2012 or 2011 .

Financial Assets and Liabilities

Financial assets and liabilities measured at fair value on a recurring basis and cash equivalents and short-term investments held at amortized cost are as follows:



			Fair Value Measurements at Reporting Date Using
($ in millions)	February 2, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	518	$	189	$	329	$	—
Short-term investments	50		—		50		—
Derivative financial instruments	51		—		51		—
Deferred compensation plan assets	27		27		—		—
Total	$	646	$	216	$	430	$	—
Liabilities:
Derivative financial instruments	$	14	$	—	$	14	$	—



			Fair Value Measurements at Reporting Date Using
($ in millions)	January 28, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,009	$	224	$	785	$	—
Short-term investments	—		—		—		—
Derivative financial instruments	13		—		13		—
Deferred compensation plan assets	22		22		—		—
Total	$	1,044	$	246	$	798	$	—
Liabilities:
Derivative financial instruments	$	14	$	—	$	14	$	—

We have highly liquid investments classified as cash equivalents and short-term investments, which are placed primarily in money market funds, time deposits, and commercial paper. These investments are classified as held-to-maturity based on our positive intent and ability to hold the securities to maturity. We value these investments at their original purchase prices plus interest that has accrued at the stated rate.

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Derivative financial instruments primarily include foreign exchange forward contracts. The principal currencies hedged against changes in the U.S. dollar are British pounds, Canadian dollars, Euro, and Japanese yen. 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 the 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 in the Consolidated Balance Sheets.

We maintain the Gap Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees to defer compensation up to a maximum amount. Plan investments are recorded at market value and are 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 in the Consolidated Balance Sheets.

Nonfinancial Assets

As discussed in Note 2 of Notes to Consolidated Financial Statements, we recorded a charge for the impairment of long-lived assets of $8 million , $16 million , and $8 million in fiscal 2012 , 2011 , and 2010 , respectively. The impairment charge reduced the then carrying amount of the applicable long-lived assets of $11 million , $21 million , and $12 million to their fair value of $3 million , $5 million , and $4 million during fiscal 2012 , 2011 , and 2010 , respectively. The fair value of the long-lived assets was determined using level 3 inputs and the valuation techniques discussed in Note 1 of Notes to Consolidated Financial Statements.

As discussed in Note 2 of Notes of Consolidated Financial Statements, we acquired favorable lease assets in connection with our acquisition of Intermix. There were no impairment charges recorded for favorable lease assets in fiscal 2012 . The fair value of the favorable lease assets was determined using the with-and-without method, with inputs that included discount rates and annual market rent escalation factors (level 3 inputs).

As discussed in Note 4 of Notes to Consolidated Financial Statements, there were no impairment charges recorded for goodwill or other indefinite-lived intangible assets for fiscal 2012 , 2011 , or 2010 .

Note 8. Derivative Financial Instruments

We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. Our risk management policy is to hedge a portion of our transactions related to merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange forward contracts. The principal currencies hedged against changes in the U.S. dollar are British pounds, Canadian dollars, Euro, and Japanese yen. We do not enter into derivative financial contracts for trading purposes.

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 primarily 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 Japanese yen and Canadian dollars received by entities whose functional currencies are U.S. dollars; and (3) 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 of Euro and British pounds. 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 18 months.

During fiscal 2011 , we entered into and settled treasury rate lock agreements in anticipation of issuing our 5.95 percent fixed-rate Notes of $1.25 billion in April 2011. Prior to the issuance of the Notes, we were subject to changes in interest rates, and we therefore locked into fixed-rate coupons to hedge against the interest rate fluctuations. The gain related to the treasury lock agreements is reported as a component of OCI and is recognized in income over the life of the Notes.

There were no material amounts recorded in income for fiscal 2012 , 2011 , or 2010 as a result of hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or the discontinuance of cash flow hedges because the forecasted transactions were no longer probable.

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.

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There were no amounts recorded in income for fiscal 2012 , 2011 , or 2010 as a result of hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or the discontinuance of net investment hedges.

Other Derivatives Not Designated as Hedging Instruments

We use 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, as well as the remeasurement of the underlying intercompany balances, is recorded in operating expenses in the Consolidated Statements of Income in the same period and generally offset. We generally enter into foreign exchange forward contracts as needed to hedge intercompany balances that bear foreign exchange risk.

Outstanding Notional Amounts

As of February 2, 2013 and January 28, 2012 , we had foreign exchange forward contracts outstanding in the following notional amounts:



(notional amounts in millions)	February 2, 2013		January 28, 2012
U.S. dollars (1)	$	988	$	873
British pounds	£	31	£	31
Japanese yen	¥	—	¥	2,564
Euro	€	25	€	16

__________


(1)	The principal currencies hedged against changes in the U.S. dollar were British pounds, Canadian dollars, Euro, and Japanese yen.

Contingent Features

We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of February 2, 2013 or January 28, 2012 .

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Quantitative Disclosures about Derivative Financial Instruments

The fair values of foreign exchange forward contracts are as follows:



($ in millions)	February 2, 2013		January 28, 2012
Derivatives designated as cash flow hedges:
Other current assets	$	41	$	9
Other long-term assets	$	2	$	1
Accrued expenses and other current liabilities	$	10	$	10
Lease incentives and other long-term liabilities	$	—	$	—

Derivatives designated as net investment hedges:
Other current assets	$	—	$	—
Other long-term assets	$	—	$	—
Accrued expenses and other current liabilities	$	1	$	—
Lease incentives and other long-term liabilities	$	—	$	—

Derivatives not designated as hedging instruments:
Other current assets	$	8	$	3
Other long-term assets	$	—	$	—
Accrued expenses and other current liabilities	$	3	$	4
Lease incentives and other long-term liabilities	$	—	$	—

Total derivatives in an asset position	$	51	$	13
Total derivatives in a liability position	$	14	$	14

Substantially all of the unrealized gains and losses from designated cash flow hedges as of February 2, 2013 will be recognized in income within the next 12 months at the then-current values, which may differ from the fair values as of February 2, 2013 shown above.

See Note 7 of Notes to 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 contracts in cash flow hedging and net investment hedging relationships recorded in OCI and the Consolidated Statements of Income, on a pre-tax basis, are as follows :



	Fiscal Year
($ in millions)	2012		2011			2010
Derivatives in cash flow hedging relationships:
Gain (loss) recognized in other comprehensive income	$	46	$	(20	)	$	(50	)
Gain (loss) reclassified into cost of goods sold and occupancy expenses	$	5	$	(46	)	$	(33	)
Gain (loss) reclassified into operating expenses	$	4	$	(5	)	$	(5	)

Derivatives in net investment hedging relationships:
Loss recognized in other comprehensive income	$	—	$	(1	)	$	(5	)

For fiscal 2012 , 2011 and 2010 , there were no amounts of gain or loss reclassified from OCI into 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.

During fiscal 2011 , there was a gain of $1 million recognized in OCI related to treasury rate lock agreements, which is recognized in income over the life of the 5.95 percent Notes.

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Gains and losses on foreign exchange forward contracts not designated as hedging instruments recorded in the Consolidated Statements of Income, on a pre-tax basis are as follows:



	Fiscal Year
($ in millions)	2012		2011		2010
Gain recognized in operating expenses	$	5	$	7	$	8

Note 9. Common Stock

Common and Preferred Stock

The Company is authorized to issue 2.3 billion shares of common stock. We are also authorized to issue 60 million shares of Class B common stock, which is convertible into shares of common stock on a share-for-share basis. Transfer of the Class B shares is restricted. In addition, the holders of the Class B common stock have six votes per share on most matters and are entitled to a lower cash dividend. No Class B shares have been issued as of February 2, 2013 .

The Company is authorized to issue 30 million shares of one or more series of preferred stock, which has a par value of $0.05 per share, and to establish at the time of issuance the issue price, dividend rate, redemption price, liquidation value, conversion features, and such other terms and conditions of each series (including voting rights) as the Board of Directors deems appropriate, without further action on the part of the stockholders. No preferred shares have been issued as of February 2, 2013 .

Share Repurchases

Share repurchase activity is as follows:



	Fiscal Year
($ and shares in millions except average per share cost)	2012		2011		2010
Number of shares repurchased	34		111		96
Total cost	$	1,026	$	2,096	$	1,956
Average per share cost including commissions	$	29.89	$	18.88	$	20.44

In November 2009, the Board of Directors authorized $500 million for share repurchases, which was fully utilized by the end of March 2010. In connection with this authorization, we entered into purchase agreements with individual members of the Fisher family (related-party transactions). The Fisher family shares were purchased at the same weighted-average market price that we paid for share repurchases in the open market. During fiscal 2010, approximately 0.5 million shares were repurchased for $10 million from the Fisher family subject to these agreements.

All of the share repurchases in fiscal 2012 were paid for as of February 2, 2013 . All except $4 million of total share repurchases in fiscal 2011 were paid for as of January 28, 2012 .

Note 10. Share-Based Compensation

Share-based compensation expense is as follows:



	Fiscal Year
($ in millions)	2012			2011			2010
Stock units	$	92		$	39		$	59
Stock options	17			15			14
Employee stock purchase plan	4			4			4
Share-based compensation expense	113			58			77
Less: Income tax benefit	(44		)	(23		)	(31		)
Share-based compensation expense, net of tax	$	69		$	35		$	46

No material share-based compensation expense was capitalized in fiscal 2012 , 2011 , or 2010 .

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There were no material modifications made to our outstanding stock options and other stock awards in fiscal 2012 , 2011 , or 2010 .

General Description of Stock Option and Other Stock Award Plans

The 1996 Stock Option and Award Plan (the “1996 Plan”) was established on March 26, 1996 and amended and restated on January 28, 2003. The 1996 Plan was further amended and restated on January 24, 2006 and renamed the 2006 Long-Term Incentive Plan (the “2006 Plan”). The 2006 Plan was amended and restated on August 20, 2008. The 2006 Plan was further amended and restated on May 17, 2011 and renamed the 2011 Long-Term Incentive Plan (the “2011 Plan”). Under the 2011 Plan, nonqualified stock options and other stock awards are granted to officers, directors, eligible employees, and consultants at exercise prices or initial values equal to the fair market value of the Company’s common stock at the date of grant or as determined by the Compensation and Management Development Committee of the Board of Directors (the “Committee”).

The 2002 Stock Option Plan (the “2002 Plan”) was established on January 1, 1999. The 2002 Plan empowered the Committee to award nonqualified stock options to non-officer employees. On May 9, 2006, the 2002 Plan was discontinued, and those awards then outstanding continued to be subject to the terms of the 2002 Plan under which they were granted. Pursuant to the 2011 Plan, any shares (not to exceed 28,019,786 shares) that otherwise would have been returned to the 2002 Plan after May 9, 2006 on account of expiration, cancellation, or forfeiture of awards granted are available for grant under the 2011 Plan.

As of February 2, 2013 , there were 216,586,781 shares that have been authorized for issuance under the 2011 Plan, including those shares available for issuance under the 2002 Plan, which have or may become available for issuance under the 2011 Plan.

All shares related to stock options and other stock awards are issued from treasury stock.

Stock Units

Under the 2011 Plan, Stock Units are granted to employees and members of the Board of Directors. Vesting generally occurs over a period of three to four years of continued service by the employee in equal annual installments. Vesting is immediate in the case of members of the Board of Directors. In some cases, vesting is subject to the attainment of a pre-determined financial target (“Performance Shares”). Performance Shares generally vest over a period of three to four years.

At the end of each reporting period, we evaluate the probability that the Performance Shares will vest. We record share-based compensation expense on an accelerated basis based on the grant-date fair value and the probability that the pre-determined financial target will be achieved.

A summary of Stock Unit activity under the 2011 Plan for fiscal 2012 is as follows:



	Shares		Weighted-Average Grant-Date Fair Value
Balance as of January 28, 2012	7,937,101		$	18.74
Granted	3,798,940		$	25.00
Granted, with vesting subject to performance conditions	2,105,971		$	24.84
Vested	(2,922,254	)	$	17.08
Forfeited	(1,554,323	)	$	21.82
Balance as of February 2, 2013	9,365,435		$	22.62

A summary of additional information about Stock Units is as follows:



	Fiscal Year
	2012		2011		2010
Weighted-average fair value per share of Stock Units granted	$	24.95	$	20.19	$	21.84
Grant-date fair value of Stock Units vested (in millions)	$	50	$	58	$	58

The aggregate intrinsic value of unvested Stock Units as of February 2, 2013 was $309 million .

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As of February 2, 2013 , there was $92 million (before any related tax benefit) of unrecognized share-based compensation, adjusted for estimated forfeitures, related to unvested Stock Units, which is expected to be recognized over a weighted-average period of 2.04 years . Total unrecognized share-based compensation may be adjusted for future changes in estimated forfeitures.

Stock Units Granted Based on Performance Metrics

Under the 2011 Plan, some Stock Units are granted to certain employees only after the achievement of pre-determined performance metrics. Once the Stock Unit is granted, vesting is then subject to continued service by the employee, and expense is recognized over a period of three years on an accelerated basis.

At the end of each reporting period, we evaluate the probability that Stock Units will be granted. We record share-based compensation expense based on the probability that the performance metrics will be achieved, with an offsetting increase to current liabilities. We revalue the liability at the end of each reporting period and record an adjustment to share-based compensation expense as required, based on the probability that the performance metrics will be achieved. Upon achievement of the performance metrics, a Stock Unit is granted. At that time, the associated liability is reclassified to stockholders’ equity.

Out of 3,798,940 Stock Units granted in fiscal 2012 , 235,451 Stock Units were granted based on satisfaction of performance metrics.

The liability related to potential Stock Units based on performance metrics, which is recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets, was $3 million and $1 million as of February 2, 2013 and January 28, 2012 , respectively.

Stock Options

We have stock options outstanding under the 2011 Plan and the 2002 Plan. Stock options generally expire 10 years from the grant date, three months after employee termination, or one year after the date of an employee’s retirement or death, if earlier. Vesting generally occurs over a period of four years of continued service by the employee, with 25 percent vesting on each of the four anniversary dates.

The fair value of stock options issued during fiscal 2012 , 2011 , and 2010 was estimated on the date of grant using the following assumptions:



	Fiscal Year
	2012		2011		2010
Expected term (in years)	4.6		4.9		4.8
Expected volatility	33.6	%	30.6	%	29.0	%
Dividend yield	2.1	%	2.1	%	1.8	%
Risk-free interest rate	1.0	%	2.3	%	2.7	%

A summary of stock option activity under the 2011 Plan and the 2002 Plan for fiscal 2012 is as follows:



	Shares		Weighted- Average Exercise Price
Balance as of January 28, 2012	20,597,538		$	19.10
Granted	2,467,175		$	26.52
Exercised	(9,454,063	)	$	18.93
Forfeited/Expired	(810,295	)	$	20.43
Balance as of February 2, 2013	12,800,355		$	20.56

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A summary of additional information about stock options is as follows:



	Fiscal Year
	2012		2011		2010
Weighted-average fair value per share of stock options granted	$	6.35	$	5.28	$	5.57
Aggregate intrinsic value of stock options exercised (in millions)	$	94	$	19	$	19
Fair value of stock options vested (in millions)	$	15	$	15	$	15

Information about stock options outstanding, vested or expected to vest, and exercisable as of February 2, 2013 is as follows:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares as of February 2, 2013	Weighted- Average Remaining Contractual Life (in years)	Weighted- Average Exercise Price		Number of Shares as of February 2, 2013	Weighted- Average Exercise Price
$11.77 - $16.44	2,817,605	4.60	$	15.01	1,981,010	$	15.36
$16.90 - $19.68	3,127,468	4.54	$	18.92	2,644,343	$	18.94
$19.72 - $21.79	3,176,244	5.86	$	21.60	1,435,212	$	21.42
$21.88 - $25.09	3,281,788	7.85	$	24.21	596,340	$	22.90
$27.43 - $36.10	397,250	9.70	$	34.50	750	$	28.41
	12,800,355	5.89	$	20.56	6,657,655	$	18.77
Vested or expected to vest as of February 2, 2013	11,376,064	5.61	$	20.32

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of February 2, 2013 was $160 million , $144 million , and $95 million , respectively. Stock options exercisable as of February 2, 2013 had a weighted-average remaining contractual life of 4.15 years .

Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan (“ESPP”), eligible U.S. employees are able to purchase our common stock at 85 percent of the closing price on the New York Stock Exchange on the last day of the three-month purchase periods. Accordingly, compensation expense is recognized for an amount equal to the 15 percent discount. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 960,930 , 1,357,769 , and 1,301,167 shares issued under the ESPP in fiscal 2012 , 2011 , and 2010 , respectively. As of February 2, 2013 , there were 5,064,960 shares reserved for future issuances under the ESPP.

Note 11. Leases

We lease most of our store premises and some of our corporate facilities and distribution centers. These operating leases expire at various dates through 2030 . Most store leases have a five-year base period and include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed upon at lease inception. Some leases also include early termination options, which can be exercised under specific conditions.

We also lease certain equipment under operating leases that expire at various dates through 2018 .

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The aggregate minimum non-cancelable annual lease payments under leases in effect on February 2, 2013 are as follows:



($ in millions)
Fiscal Year
2013	$	1,093
2014	1,069
2015	924
2016	753
2017	584
Thereafter	1,709
Total minimum lease commitments	$	6,132

The total minimum lease commitment amount above does not include minimum sublease rent income of $31 million receivable in the future under non-cancelable sublease agreements.

Rent expense related to our store premises, corporate facilities, and distribution centers under operating leases is as follows:



	Fiscal Year
($ in millions)	2012			2011			2010
Minimum rent expense	$	1,104		$	1,072		$	1,009
Contingent rent expense	123			123			125
Less: Sublease income	(4		)	(8		)	(5		)
Total	$	1,223		$	1,187		$	1,129

In addition to rent expense related to our store premises, corporate facilities, and distribution centers as noted above, we had rent expense related to equipment under operating leases of $2 million , $4 million , and $3 million for fiscal 2012 , 2011 , and 2010 , respectively.

We had lease loss reserves of $6 million and $9 million as of February 2, 2013 and January 28, 2012 , respectively. Lease losses were $3 million , $4 million , and $3 million for fiscal 2012 , 2011 , and 2010 , respectively. Remaining lease payments associated with our lease loss reserve are expected to be paid over the various remaining lease terms through 2021 . Based on our current assumptions as of February 2, 2013 , we expect our lease payments, net of sublease income, to result in a total net cash outlay of approximately $13 million for the remaining lease terms.

Note 12. Income Taxes

For financial reporting purposes, components of income before income taxes are as follows:



	Fiscal Year
($ in millions)	2012		2011		2010
United States	$	1,692	$	1,253	$	1,686
Foreign	169		116		296
Income before income taxes	$	1,861	$	1,369	$	1,982

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The provision for income taxes consists of the following:



	Fiscal Year
($ in millions)	2012			2011			2010
Current:
Federal	$	617		$	419		$	476
State	56			37			75
Foreign	90			91			134
Total current	763			547			685
Deferred:
Federal	(37		)	14			94
State	(6		)	(6		)	(5		)
Foreign	6			(19		)	4
Total deferred	(37		)	(11		)	93
Total provision	$	726		$	536		$	778

Except as noted below and where required by U.S. tax law, no provision has been made for U.S. income taxes on the undistributed earnings of our foreign subsidiaries as we intend to utilize those earnings in our foreign operations for an indefinite period of time. Such undistributed earnings and profits, as calculated pursuant to provisions in the U.S. Internal Revenue Code and related Treasury Regulations, of foreign subsidiaries as of February 2, 2013 and January 28, 2012 were approximately $1.7 billion and $1.5 billion , respectively. Cash balances in these foreign subsidiaries are substantially lower than these earnings and profits. If we had not intended to utilize the undistributed earnings in our foreign operations for an indefinite period of time, the deferred tax liability as of February 2, 2013 and January 28, 2012 would have been approximately $237 million and $225 million , respectively.

In fiscal 2012, we assessed the forecasted cash needs and overall financial position of our foreign subsidiaries. As a result, we determined that approximately $54 million of undistributed earnings was in excess of the amount we expect to utilize in the operations of our Canadian subsidiaries for an indefinite period of time, and accordingly, we have established a deferred tax liability for U.S. income taxes with respect to such earnings as of February 2, 2013 and we have recorded related tax expense of $5 million .

The difference between the effective tax rate and the U.S. federal tax rate is as follows:



	Fiscal Year
	2012		2011		2010
Federal tax rate	35.0	%	35.0	%	35.0	%
State income taxes, less federal benefit	2.7		2.2		3.5
Tax impact of foreign operations	2.0		2.1		1.3
Other	(0.7	)	(0.1	)	(0.5	)
Effective tax rate	39.0	%	39.2	%	39.3	%

In fiscal 2012, we changed the presentation of our effective tax rate reconciliation to reflect the impact of state and foreign tax credits and other related items in the corresponding line items in the table. Previously, these items were included in Other within the table. The reconciliations for fiscal 2011 and 2010 have been conformed to reflect these changes in presentation.

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Deferred tax assets (liabilities) consist of the following:



($ in millions)	February 2, 2013			January 28, 2012
Deferred tax assets:
Deferred rent	$	136		$	137
Accrued payroll and related benefits	124			66
Nondeductible accruals	79			74
Inventory capitalization and other adjustments	66			65
Depreciation	—			18
State and foreign net operating losses ("NOLs")	37			36
Fair value of derivative financial instruments included in accumulated OCI	—			(5		)
Other	100			83
Total deferred tax assets	542			474
Valuation allowance	(56		)	(39		)
Total deferred tax liabilities	(59		)	(15		)
Net deferred tax assets	$	427		$	420

Current portion (included in other current assets)	$	220		$	205
Non-current portion (included in other long-term assets)	207			215
Total	$	427		$	420

As of February 2, 2013 , we had approximately $50 million state and $137 million foreign NOL carryovers in multiple taxing jurisdictions that could be utilized to reduce the tax liabilities of future years. The tax-effected NOL was approximately $3 million for state and $34 million for foreign as of February 2, 2013 . We provided a valuation allowance of approximately $1 million and $33 million against the deferred tax asset related to the state and foreign NOLs, respectively. The state losses expire between fiscal 2022 and fiscal 2023 , approximately $106 million of the foreign losses expire between fiscal 2013 and fiscal 2021 , and $31 million of the foreign losses do not expire.

The activity related to our unrecognized tax benefits is as follows:



	Fiscal Year
($ in millions)	2012			2011			2010
Balance at beginning of fiscal year	$	102		$	67		$	132
Increases related to current year tax positions	10			10			10
Prior year tax positions:
Increases	10			31			15
Decreases	(12		)	(2		)	(74		)
Cash settlements	(4		)	(2		)	(4		)
Expiration of statute of limitations	3			(1		)	(14		)
Foreign currency translation	—			(1		)	2
Balance at end of fiscal year	$	109		$	102		$	67

Of the $109 million , $102 million , and $67 million of total unrecognized tax benefits as of February 2, 2013 , January 28, 2012 , and January 29, 2011 , respectively, approximately $29 million , $25 million , and $5 million (net of the federal benefit on state issues), respectively, represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. During fiscal 2012 and 2011 , interest expense of $5 million and $6 million , respectively, was recognized in the Consolidated Statements of Income relating to tax liabilities. During fiscal 2010 , an interest expense reversal of $15 million was recognized in the Consolidated Statement of Income. As of February 2, 2013 and January 28, 2012 , the Company had total accrued interest related to the unrecognized tax benefits of $33 million and $29 million , respectively. There were no accrued penalties related to the unrecognized tax benefits as of February 2, 2013 or January 28, 2012 .

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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, Hong Kong, Japan, India, and the United Kingdom. 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 2007 .

The Company engages in continual discussions with taxing authorities regarding tax matters in the various U.S. and foreign jurisdictions. It is reasonably possible that we will recognize a decrease in gross unrecognized tax benefits within the next 12 month of up to $50 million , primarily due to the possible completion of several advance pricing agreements and the closing of audits. If we do recognize such a decrease, the net impact on the Consolidated Statement of Income would be a benefit to our income taxes of approximately $10 million .

Note 13. Employee Benefit Plans

We have two qualified defined contribution retirement plans, the GapShare 401(k) Plan and the GapShare Puerto Rico Plan (the “Plans”), which are available to employees who meet the eligibility requirements. The Plans permit eligible employees to make contributions up to the maximum limits allowable under the applicable Internal Revenue Codes. Under the Plans, we match, in cash, all or a portion of employees’ contributions under a predetermined formula. Our contributions vest immediately. Our matching contributions to the Plans were $37 million , $36 million , and $36 million in fiscal 2012 , 2011 , and 2010 , respectively.

We maintain the Gap Inc. DCP, which allows eligible employees and non-employee directors to defer compensation up to a maximum amount. Plan investments are recorded at market value and are designated for the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices. As of February 2, 2013 and January 28, 2012 , the assets related to the DCP were $27 million and $22 million , respectively, and were recorded in other long-term assets in the Consolidated Balance Sheets. As of February 2, 2013 and January 28, 2012 , the corresponding liabilities related to the DCP were $27 million and $22 million , respectively, and were recorded in lease incentives and other long-term liabilities in the Consolidated Balance Sheets. We match all or a portion of employees’ contributions under a predetermined formula. Plan investments are elected by the participants, and investment returns are not guaranteed by the Company. Our matching contributions to the DCP in fiscal 2012 , 2011 , and 2010 were not material.

Note 14. Earnings per Share

Weighted-average number of shares used for earnings per share is as follows:



	Fiscal Year
(shares in millions)	2012	2011	2010
Weighted-average number of shares—basic	482	529	636
Common stock equivalents	6	4	5
Weighted-average number of shares—diluted	488	533	641

There were no material shares with an anti-dilutive effect on earnings per share for fiscal 2012 . The above computations of weighted-average number of shares—diluted exclude 12 million and 11 million shares related to stock options and other stock awards for fiscal 2011 and 2010 , respectively, as their inclusion would have an anti-dilutive effect on earnings per share.

Note 15. Commitments and Contingencies

Our future purchase obligations and commitments as of February 2, 2013 are as follows:



	Payments Due by Period
($ in millions)	Less than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		Total
Purchase obligations and commitments (1)	$	3,029	$	190	$	12	$	—	$	3,231

__________


(1)	Represents estimated open purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business.

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In January 2006, we entered into a non-exclusive services agreement with IBM under which IBM operates certain significant aspects of our IT infrastructure. The services agreement expires in March 2016 , and we have the right to renew it for up to three additional years. We have various options to terminate the agreement, and we pay IBM a combination of fixed and variable charges, with the variable charges fluctuating based on our actual consumption of services. IBM also has certain termination rights in the event of our material breach of the agreement and failure to cure. We paid $95 million , $107 million , and $118 million to IBM for fixed charges in fiscal 2012 , 2011 , and 2010 , respectively. Based on the current projection of service needs, we expect to pay approximately $267 million to IBM over the remaining term of the contract.

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 Consolidated Financial Statements taken as a whole.

In January 2012, we were released from our reinsurance pool for workers’ compensation, general liability, and automobile liability and no longer have any related obligations as of February 2, 2013 .

As a multinational company, we are subject to various 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 February 2, 2013 , 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 February 2, 2013 and January 28, 2012 , we recorded a liability for the 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 February 2, 2013 and January 28, 2012 was not material for any individual Action or in total. Subsequent to February 2, 2013 and through our filing date of March 26, 2013 , no information has become available that indicates a material change to our estimate is required.

Note 16. Segment Information

We identify our operating segments according to how our business activities are managed and evaluated. All of our operating segments sell a group of similar products – apparel, accessories, and personal care products. As of February 2, 2013 , we have two reportable segments:


•	Stores – The Stores reportable segment includes the results of the retail stores for Gap, Old Navy, and Banana Republic. We have aggregated the results of all Stores operating segments into one reportable segment because the operating segments have similar economic characteristics.


•	Direct – The Direct reportable segment includes the results of our online brands, as well as Piperlime and Athleta. Intermix is also a component of the Direct reportable segment; however, its results since the date of acquisition are immaterial.

The accounting policies for each of our operating segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements.

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Net sales by brand, region, and reportable segment are as follows:



($ in millions)	Gap			Old Navy			Banana Republic			Franchise (3)			Other (4)			Total			Percentage of Net Sales
Fiscal 2012	Gap			Old Navy			Banana Republic			Franchise (3)			Other (4)			Total			Percentage of Net Sales
U.S. (1)	$	3,323		$	4,945		$	2,171		$	—		$	—		$	10,439		67	%
Canada	352			410			216			—			—			978			6
Europe	691			—			66			63			—			820			5
Asia	1,062			9			148			86			—			1,305			9
Other regions	—			—			—			182			—			182			1
Total Stores reportable segment	5,428			5,364			2,601			331			—			13,724			88
Direct reportable segment (2)	537			748			247			—			395			1,927			12
Total	$	5,965		$	6,112		$	2,848		$	331		$	395		$	15,651		100	%
Sales growth	5		%	8		%	8		%	17		%	31		%	8		%
($ in millions)	Gap			Old Navy			Banana Republic			Franchise (3)			Other (4)			Total			Percentage of Net Sales
Fiscal 2011	Gap			Old Navy			Banana Republic			Franchise (3)			Other (4)			Total			Percentage of Net Sales
U.S. (1)	$	3,231		$	4,644		$	2,060		$	—		$	—		$	9,935		68	%
Canada	333			392			193			—			—			918			6
Europe	702			—			54			69			—			825			6
Asia	966			—			131			79			—			1,176			8
Other regions	—			—			—			135			—			135			1
Total Stores reportable segment	5,232			5,036			2,438			283			—			12,989			89
Direct reportable segment (2)	433			638			188			—			301			1,560			11
Total	$	5,665		$	5,674		$	2,626		$	283		$	301		$	14,549		100	%
Sales growth (decline)	(1		)%	(4		)%	2		%	45		%	22		%	(1		)%
($ in millions)	Gap			Old Navy			Banana Republic			Franchise (3)			Other (4)			Total			Percentage of Net Sales
Fiscal 2010	Gap			Old Navy			Banana Republic			Franchise (3)			Other (4)			Total			Percentage of Net Sales
U.S. (1)	$	3,454		$	4,945		$	2,084		$	—		$	—		$	10,483		71	%
Canada	341			427			190			—			—			958			7
Europe	703			—			36			47			—			786			5
Asia	872			—			118			59			—			1,049			7
Other regions	—			—			—			89			—			89			1
Total Stores reportable segment	5,370			5,372			2,428			195			—			13,365			91
Direct reportable segment (2)	365			533			155			—			246			1,299			9
Total	$	5,735		$	5,905		$	2,583		$	195		$	246		$	14,664		100	%
Sales growth	2		%	2		%	5		%	38		%	32		%	3		%

__________


(1)	U.S. includes the United States and Puerto Rico.

(2)

In July 2010, we began selling products online to customers in select countries outside the U.S. using a U.S.-based third party that provides logistics and fulfillment services. In August 2010, we began selling products online to customers in select countries outside the U.S. utilizing our own logistics and fulfillment capabilities. Online sales shipped from distribution centers located outside the U.S. were $172 million ( $117 million for Canada, $50 million for Europe, and $5 million for Japan), $127 million ( $89 million for Canada and $38 million for Europe), and $42 million ( $30 million for Canada and $12 million for Europe) in fiscal 2012 , 2011 , and 2010 , respectively.


(3)	Franchise sales were $331 million ( $289 million for Gap and $42 million for Banana Republic), $283 million ( $247 million for Gap and $36 million for Banana Republic), and $195 million ( $171 million for Gap and $24 million for Banana Republic) in fiscal 2012 , 2011 , and 2010 , respectively.


(4)	Includes Piperlime and Athleta.

Gap and Banana Republic outlet retail sales are reflected within the respective results of each brand.

Financial Information for Reportable Segments

Operating income is a primary measure of profit we use to make decisions on allocating resources to our operating segments and to assess the operating performance of each operating segment. It is defined as income before interest expense, interest income, and income taxes. Corporate expenses are allocated to each operating segment and recorded in operating income on a rational and systematic basis.

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Reportable segment assets presented below include those assets that are directly used in, or allocable to, that segment’s operations. Total assets for the Stores reportable segment primarily consist of merchandise inventory, the net book value of store assets, and prepaid expenses and receivables related to store operations. Total assets for the Direct reportable segment primarily consist of merchandise inventory, the net book value of IT and distribution center assets, and the net book value of goodwill and intangible assets as a result of the acquisitions of Athleta and Intermix. We do not allocate corporate assets to our operating segments. Unallocated corporate assets primarily include cash and cash equivalents, short-term investments, the net book value of corporate property and equipment, and tax-related assets. Reportable segment capital expenditures are direct purchases of property and equipment by that segment. Unallocated capital expenditures primarily consist of corporate purchases of property and equipment.

Selected financial information by reportable segment and reconciliations to our consolidated totals are as follows:



	Fiscal Year
($ in millions)	2012		2011		2010
Operating income:
Stores	$	1,508	$	1,095	$	1,666
Direct	434		343		302
Operating income	$	1,942	$	1,438	$	1,968
Depreciation and amortization expense:
Stores	$	496	$	533	$	584
Direct	63		59		64
Depreciation and amortization expense	$	559	$	592	$	648
Purchases of property and equipment:
Stores	$	364	$	362	$	391
Direct	89		70		55
Unallocated	206		116		111
Purchases of property and equipment	$	659	$	548	$	557



($ in millions)	February 2, 2013		January 28, 2012
Segment assets:
Stores	$	3,407	$	3,315
Direct	886		591
Unallocated	3,177		3,516
Total assets	$	7,470	$	7,422

Long-lived assets, excluding long-term derivative financial instruments in an asset position and long-term deferred tax assets, by geographic location are as follows:



($ in millions)	February 2, 2013		January 28, 2012
U.S. (1)	$	2,488	$	2,245
Canada	196		191
Total North America	2,684		2,436
Other regions	445		462
Total long-lived assets	$	3,129	$	2,898

__________


(1)	U.S. includes the United States and Puerto Rico.

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Net sales by region are allocated based on the location in which the sale was originated. Store sales are allocated based on the location of the store, and online sales are allocated based on the location of the distribution center from which the products were shipped. Net sales by geographic location are as follows:



	Fiscal Year
($ in millions)	2012		2011		2010
U.S. (1)	$	12,194	$	11,368	$	11,740
Canada	1,095		1,007		988
Total North America	13,289		12,375		12,728
Other regions	2,362		2,174		1,936
Total net sales	$	15,651	$	14,549	$	14,664

__________


(1)	U.S. includes the United States and Puerto Rico.

Note 17. Quarterly Information (Unaudited)

Selected quarterly and annual operating results are as follows:



	13 Weeks Ended		13 Weeks Ended		13 Weeks Ended		14 Weeks Ended		53 Weeks Ended
($ in millions except per share amounts)	April 28, 2012		July 28, 2012		October 27, 2012		February 2, 2013		February 2, 2013 (fiscal 2012)
Net sales	$	3,487	$	3,575	$	3,864	$	4,725	$	15,651
Gross profit	$	1,375	$	1,427	$	1,593	$	1,776	$	6,171
Net income	$	233	$	243	$	308	$	351	$	1,135
Earnings per share—basic (1)	$	0.48	$	0.50	$	0.64	$	0.74	$	2.35
Earnings per share—diluted (1)	$	0.47	$	0.49	$	0.63	$	0.73	$	2.33

	13 Weeks Ended		13 Weeks Ended		13 Weeks Ended		13 Weeks Ended		52 Weeks Ended
($ in millions except per share amounts)	April 30, 2011		July 30, 2011		October 29, 2011		January 28, 2012		January 28, 2012 (fiscal 2011)
Net sales	$	3,295	$	3,386	$	3,585	$	4,283	$	14,549
Gross profit	$	1,304	$	1,251	$	1,314	$	1,405	$	5,274
Net income	$	233	$	189	$	193	$	218	$	833
Earnings per share—basic (1)	$	0.40	$	0.35	$	0.38	$	0.45	$	1.57
Earnings per share—diluted (1)	$	0.40	$	0.35	$	0.38	$	0.44	$	1.56

__________


(1)	Earnings per share was computed individually for each of the periods presented; therefore, the sum of the earnings per share amounts for the quarters may not equal the total for the year.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. 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 Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an assessment of our internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework . Based on the assessment, management concluded that as of February 2, 2013 , our internal control over financial reporting is effective. The Company’s internal control over financial reporting as of February 2, 2013 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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 fourth quarter of fiscal 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

Part III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated herein by reference to the sections entitled “Nominees for Election as Directors,” “Corporate Governance—Audit and Finance Committee,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2013 Proxy Statement. See also Part I, Item 1 in the section entitled “Executive Officers of the Registrant.”

The Company has adopted a code of ethics, our Code of Business Conduct, which applies to all employees including our principal executive officer, principal financial officer, controller, and persons performing similar functions. Our Code of Business Conduct is available on our website, gapinc.com, under “Investors, Corporate Compliance, Code of Business Conduct.” Any amendments and waivers to the code will also be available on the website.

Item 11. Executive Compensation.

The information required by this item is incorporated herein by reference to the sections entitled “Compensation of Directors,” “Corporate Governance—Compensation and Management Development Committee,” and “Executive Compensation and Related Information” in the 2013 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated herein by reference to the sections entitled “Executive Compensation and Related Information—Equity Compensation Plan Information” and “Beneficial Ownership of Shares” in the 2013 Proxy Statement.

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Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated herein by reference to the sections entitled “Other Information” and “Corporate Governance—Director Independence” in the 2013 Proxy Statement.

Item 14. Principal Accounting Fees and Services.

The information required by this item is incorporated herein by reference to the section entitled “Principal Accounting Firm Fees” in the 2013 Proxy Statement.

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Part IV

Item 15. Exhibits, Financial Statement Schedules.



1.	Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Form 10-K.



2.	Financial Statement Schedules: Schedules are included in the Consolidated Financial Statements or notes of this Form 10-K or are not required.



3.	Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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:	March 26, 2013	By	/s/ GLENN K. MURPHY
			Glenn K. Murphy Chairman and Chief Executive Officer (Principal Executive Officer)

Date:	March 26, 2013	By	/s/ SABRINA L. SIMMONS
			Sabrina L. Simmons Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





Date:	March 26, 2013	By	/s/ ADRIAN D. P. BELLAMY
			Adrian D. P. Bellamy, Director

Date:	March 26, 2013	By	/s/ DOMENICO DE SOLE
			Domenico De Sole, Director

Date:	March 26, 2013	By	/s/ ROBERT J. FISHER
			Robert J. Fisher, Director

Date:	March 26, 2013	By	/s/ WILLIAM S. FISHER
			William S. Fisher, Director

Date:	March 26, 2013	By	/s/ ISABELLA D. GOREN
			Isabella D. Goren, Director

Date:	March 26, 2013	By	/s/ BOB L. MARTIN
			Bob L. Martin, Director

Date:	March 26, 2013	By	/s/ JORGE P. MONTOYA
			Jorge P. Montoya, Director

Date:	March 26, 2013	By	/s/ GLENN K. MURPHY
			Glenn K. Murphy, Director

Date:	March 26, 2013	By	/s/ MAYO A. SHATTUCK III
			Mayo A. Shattuck III, Director

Date:	March 26, 2013	By	/s/ KATHERINE TSANG
			Katherine Tsang, Director

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Exhibit Index




1.1		Underwriting Agreement, dated April 7, 2011 in connection with the offering of $1,250,000,000 aggregate principal amount of Registrant’s 5.95% Notes due 2021, filed as Exhibit 1.1 to Registrant’s Form 8-K on April 12, 2011, Commission File No. 1-7562.

3.1		Registrant’s Amended and Restated Certificate of Incorporation, filed as Exhibit 3.1 to Registrant’s Annual Report on Form 10-K for the year ended January 30, 1993, Commission File No. 1-7562.

3.2		Certificate of Amendment of Amended and Restated Certificate of Incorporation, filed as Exhibit 3.2 to Registrant’s Annual Report on Form 10-K for year ended January 29, 2000, Commission File No. 1-7562.

3.3		Amended and Restated Bylaws of the Company (effective February 17, 2011), filed as Exhibit 3(ii) to Registrant’s Form 8-K on February 18, 2011, Commission File No. 1-7562.

4.1		Indenture, dated September 1, 1997, between Registrant and Harris Trust Company of California, filed as Exhibit 4 to Registrant’s Form 10-Q for the quarter ended November 1, 1997, Commission File No. 1-7562.

4.2		Indenture, dated November 21, 2001, between Registrant and The Bank of New York, filed as Exhibit 4.2 to Registrant’s Annual Report on Form 10-K for the year ended February 2, 2002, Commission File No. 1-7562.

4.3		Indenture, dated as of April 12, 2011, by and between Registrant and Wells Fargo Bank, National Association, as Trustee, filed as Exhibit 4.1 to Registrant’s Form 8-K on April 12, 2011, Commission File No. 1-7562.

4.4		First Supplemental Indenture, dated as of April 12, 2011, relating to the issuance of $1,250,000,000 aggregate principal amount of Registrant’s 5.95% Notes due 2021, filed as Exhibit 4.2 to Registrant’s Form 8-K on April 12, 2011, Commission File No. 1-7562.

4.5		Form of Registrant’s 5.95% Notes due 2021, included as Exhibit A to First Supplemental Indenture, filed as Exhibit 4.2 to Registrant’s Form 8-K on April 12, 2011, Commission File No. 1-7562.

10.1		3-Year LC Agreement dated as of May 6, 2005 among The Gap, Inc., LC Subsidiaries, and HSBC Bank USA, National Association (formerly HSBC Bank USA), as LC Issuer, filed as Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended May 1, 2010, Commission File No. 1-7562.

10.2		Letter Amendment No. 1 to the 3-Year Letter of Credit Agreement with HSBC Bank USA, National Association dated May 18, 2007, filed as Exhibit 10.3 to Registrant’s Form 8-K on May 24, 2007, Commission File No. 1-7562.

10.3		Letter Amendment No. 2 to the 3-Year Letter of Credit Agreement with HSBC Bank USA, National Association dated September 21, 2010, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended October 30, 2010, Commission File No. 1-7562.

10.4		Letter Amendment No. 3 to the 3-Year Letter of Credit Agreement with HSBC Bank USA, National Association dated August 24, 2012, filed as Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended October 27, 2012, Commission File No. 1-7562.

10.5		Letter Agreement dated April 1, 2008 regarding the 3-Year Letter of Credit Agreement with HSBC Bank USA, National Association, filed as Exhibit 10.8 to Registrant’s Form 10-Q for the quarter ended May 3, 2008, Commission File No. 1-7562.

10.6		3-Year LC Agreement dated as of May 6, 2005 among The Gap, Inc., LC Subsidiaries, and Citibank, N.A., as LC Issuer, filed as Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended May 1, 2010, Commission File No. 1-7562.

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10.7		Letter Amendment No. 1 to the 3-Year Letter of Credit Agreement with Citibank, N.A. dated May 18, 2007, filed as Exhibit 10.2 to Registrant’s Form 8-K on May 24, 2007, Commission File No. 1-7562.

10.8		Letter Agreement dated April 1, 2008 regarding the 3-Year Letter of Credit Agreement with Citicorp USA Inc., filed as Exhibit 10.7 to Registrant’s Form 10-Q for the quarter ended May 3, 2008, Commission File No. 1-7562.

10.9		Letter Agreement dated September 21, 2010 terminating the 3-Year Letter of Credit Agreement with Citicorp USA Inc., filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended October 30, 2010, Commission File No. 1-7562.

10.10		Term Loan and Revolving Credit Agreement dated April 7, 2011, filed as Exhibit 10.1 to Registrant’s Form 8-K on April 7, 2011, Commission File No. 1-7562. (1)

10.11		Amendment No. 1 to Term Loan and Revolving Credit Agreement dated April 25, 2011, filed as Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended April 30, 2011, Commission File No. 1-7562. (1)

10.12		First Amended and Restated Master Services Agreement between Registrant and IBM, dated as of March 2, 2009, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended May 2, 2009, Commission File No. 1-7562. (1)

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

10.13		Executive Management Incentive Compensation Award Plan, filed as Appendix A to Registrant’s definitive proxy statement for its annual meeting of stockholders held on May 18, 2010, Commission File No. 1-7562.

10.14		The Gap, Inc. Executive Deferred Compensation Plan, filed as Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended October 31, 1998, Commission File No.1-7562.

10.15		Amendment to Executive Deferred Compensation Plan – Freezing of Plan Effective December 31, 2005, filed as Exhibit 10.1 to Registrant’s Form 8-K on November 8, 2005, Commission File No. 1-7562.

10.16		Amendment to Executive Deferred Compensation Plan – Merging of Plan into the Supplemental Deferred Compensation Plan, filed as Exhibit 10.29 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

10.17		Amendment to Executive Deferred Compensation Plan – Suspension of Pending Merger into Supplemental Deferred Compensation Plan, filed as Exhibit 10.30 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

10.18		Amendment to Executive Deferred Compensation Plan – Merging of Plan into the Deferred Compensation Plan, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended October 31, 2009, Commission File No. 1-7562.

10.19		Deferred Compensation Plan, amended and restated effective September 1, 2011, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended October 29, 2011, Commission File No. 1-7562.

10.20		Supplemental Deferred Compensation Plan, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8, dated November 29, 2005, Commission File No. 333-129986.

10.21		First Amendment to Supplemental Deferred Compensation Plan, filed as Exhibit 10.32 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

10.22		Second Amendment to Supplemental Deferred Compensation Plan – Merging of Executive Deferred Compensation Plan into the Plan and Name Change to Deferred Compensation Plan, filed as Exhibit 10.33 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

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10.23		Third Amendment to Supplemental Deferred Compensation Plan – Suspension of Pending Merging of Executive Deferred Compensation Plan into the Plan and Name Change to Deferred Compensation Plan, filed as Exhibit 10.34 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

10.24		Fourth Amendment to Supplemental Deferred Compensation Plan – Merging of Executive Deferred Compensation Plan into the Plan and Name Change to Deferred Compensation Plan, filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended October 31, 2009, Commission File No. 1-7562.

10.25		1981 Stock Option Plan, filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, Commission File No. 33-54690.

10.26		Management Incentive Restricted Stock Plan II, filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, Commission File No. 33-54686.

10.27		1996 Stock Option and Award Plan, filed as Exhibit A to Registrant’s definitive proxy statement for its annual meeting of stockholders held on May 21, 1996, Commission File No. 1-7562.

10.28		Amendment Number 1 to Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended August 2, 1997, Commission File No. 1-7562.

10.29		Amendment Number 2 to Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.15 to Registrant’s Form 10-K for the year ended January 31, 1998, Commission File No. 1-7562.

10.30		Amendment Number 3 to Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended October 31, 1998, Commission File No. 1-7562.

10.31		Amendment Number 4 to Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended July 29, 2000, Commission File No. 1-7562.

10.32		Amendment Number 5 to Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.13 to Registrant’s Form 10-K for the year ended February 3, 2001, Commission File No. 1-7562.

10.33		Amendment Number 6 to Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended May 5, 2001, Commission File No. 1-7562.

10.34		1996 Stock Option and Award Plan (As Amended and Restated Effective as of January 28, 2003), filed as Appendix C to Registrant’s definitive proxy statement for its annual meeting of stockholders held on May 14, 2003, Commission File No. 1-7562.

10.35		Form of Non-Qualified Stock Option Agreement for employees under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.5 to Registrant’s Form 10-Q for the quarter ended August 2, 1997, Commission File No. 1-7562.

10.36		Form of Non-Qualified Stock Option Agreement for directors under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.6 to Registrant’s Form 10-Q for the quarter ended August 2, 1997, Commission File No. 1-7562.

10.37		Form of Non-Qualified Stock Option Agreement for consultants under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended October 31, 1998, Commission File No. 1-7562.

10.38		Form of Non-Qualified Stock Option Agreement for employees in France under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.5 to Registrant’s Form 10-Q for the quarter ended October 31, 1998, Commission File No. 1-7562.

10.39		Form of Non-Qualified Stock Option Agreement for international employees under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.6 to Registrant’s Form 10-Q for the quarter ended October 31, 1998, Commission File No. 1-7562.

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10.40		Form of Non-Qualified Stock Option Agreement for employees in Japan under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.7 to Registrant’s Form 10-Q for the quarter ended October 31, 1998, Commission File No. 1-7562.

10.41		Form of Stock Option Agreement for employees under the UK Sub-plan to the U.S. Stock Option and Award Plan, filed as Exhibit 10.8 to Registrant’s Form 10-Q for the quarter ended October 31, 1998, Commission File No. 1-7562.

10.42		Form of Non-Qualified Stock Option Agreement for directors effective April 3, 2001 under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended May 5, 2001, Commission File No. 1-7562.

10.43		Form of Non-Qualified Stock Option Agreement under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended November 3, 2001, Commission File No. 1-7562.

10.44		Form of Stock Award Agreement under Registrant’s 1996 Stock Option and Award Plan filed as Exhibit 10.2 to Registrant’s Form 8-K on January 27, 2005, Commission File No. 1-7562.

10.45		Form of Stock Award Agreement under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.2 to Registrant’s Form 8-K on March 16, 2005, Commission File No. 1-7562.

10.46		Form of Stock Award Agreement under Registrant’s 1996 Stock Option and Award Plan, filed as Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended October 29, 2005, Commission File No. 1-7562.

10.47		UK Employee Stock Purchase Plan, filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, Commission File No. 333-47508.

10.48		2002 Stock Option Plan, as amended, (formerly the 1999 Stock Option Plan as amended and Stock Up On Success, The Gap, Inc.’s Stock Option Bonus Program) filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, Commission File No. 333-103128.

10.49		Form of Non-Qualified Stock Option Agreement under Registrant’s 2002 Stock Option Plan (formerly the 1999 Stock Option Plan as amended), filed as Exhibit 4.6 to Registrant’s Registration Statement on Form S-8, Commission File No. 333-76523.

10.50		Form of Domestic Non-Qualified Stock Option Agreement under Registrant’s 2002 Stock Option Plan, as amended, filed as Exhibit 4.6 to Registrant’s Registration Statement on Form S-8, Commission File No. 333-72921.

10.51		Form of International Non-Qualified Stock Option Agreement under Registrant’s 2002 Stock Option Plan, as amended, filed as Exhibit 4.7 to Registrant’s Registration Statement on Form S-8, Commission File No. 333-72921.

10.52		Non-Employee Director Retirement Plan, dated October 27, 1992, filed as Exhibit 10.43 to Registrant’s Annual Report on Form 10-K for the year ended January 30, 1993, Commission File No. 1-7562.

10.53		Amendment, authorized as of August 20, 2008, to Nonemployee Director Retirement Plan, dated October 27, 1992, filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended November 1, 2008, Commission File No. 1-7562.

10.54		Statement Regarding Non-Employee Director Retirement Plan, filed as Exhibit 10.25 to Registrant’s Form 10-K for the year ended January 31, 1998, Commission File No. 1-7562.

10.55		Nonemployee Director Deferred Compensation Plan, filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, Commission File No. 333-36265.

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10.56		Amendment Number 1 to Registrant’s Nonemployee Director Deferred Compensation Plan, filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended October 31, 1998, Commission File No. 1-7562.

10.57		Amendment Number 2 to Registrant’s Nonemployee Director Deferred Compensation Plan, filed as Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended July 29, 2000, Commission File No. 1-7562.

10.58		Amendment Number 3 to Registrant’s Nonemployee Director Deferred Compensation Plan, filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended May 5, 2001, Commission File No. 1-7562.

10.59		Nonemployee Director Deferred Compensation Plan, as amended and restated on October 30, 2001, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended November 3, 2001, Commission File No. 1-7562.

10.60		Nonemployee Director Deferred Compensation Plan, as amended and restated on December 9, 2003, filed as Exhibit 10.35 to Registrant’s Form 10-K for the year ended January 31, 2004, Commission File No. 1-7562.

10.61		Form of Discounted Stock Option Agreement under the Nonemployee Director Deferred Compensation Plan, filed as Exhibit 4.5 to Registrant’s Registration Statement on Form S-8, Commission File No. 333-36265.

10.62		Form of Non-Qualified Stock Option Agreement for directors effective April 3, 2001 under Registrant’s Nonemployee Director Deferred Compensation Plan, filed as Exhibit 10.5 to Registrant’s Form 10-Q for the quarter ended May 5, 2001, Commission File No. 1-7562.

10.63		Nonemployee Director Deferred Compensation Plan – Suspension of Plan Effective January 6, 2005, filed as Exhibit 10.1 to Registrant’s Form 8-K on January 7, 2005, Commission File No. 1-7562.

10.64		Nonemployee Director Deferred Compensation Plan – Termination of Plan Effective September 27, 2005, filed as Exhibit 10.1 to Registrant’s Form 8-K on September 28, 2005, Commission File No. 1-7562.

10.65		2006 Long-Term Incentive Plan, filed as Appendix B to Registrant’s definitive proxy statement for its annual meeting of stockholders held on May 9, 2006, Commission File No. 1-7562.

10.66		2006 Long-Term Incentive Plan, as amended and restated effective August 20, 2008, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended November 1, 2008, Commission File No. 1-7562.

10.67		Amendment No. 1 to Registrant’s 2006 Long-Term Incentive Plan, filed as Exhibit 10.62 to Registrant’s Form 10-K for the year ended February 3, 2007, Commission File No. 1-7562.

10.68		2011 Long-Term Incentive Plan, filed as Appendix A to Registrant’s definitive proxy statement for its annual meeting of stockholders held on May 17, 2011, Commission File No. 1-7562.

10.69		Form of Non-Qualified Stock Option Agreement for Executives under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.1 to Registrant’s Form 8-K on March 23, 2006, Commission File No. 1-7562.

10.70		Form of Non-Qualified Stock Option Agreement under the 2011 Long-Term Incentive Plan, filed as Exhibit 10.8 to Registrant’s Form 10-Q for the quarter ended April 30, 2011, Commission File No. 1-7562.

10.71		Form of Non-Qualified Stock Option Agreement under the 2011 Long-Term Incentive Plan, filed as Exhibit 10.9 to Registrant’s Form 10-Q for the quarter ended July 28, 2012, Commission File No. 1-7562.

10.72*		Form of Non-Qualified Stock Option Agreement under the 2011 Long-Term Incentive Plan.

10.73		Form of Stock Award Agreement for Executives under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.2 to Registrant’s Form 8-K on March 23, 2006, Commission File No. 1-7562.

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10.74		Form of Non-Qualified Stock Option Agreement for Chief Executive Officer under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.3 to Registrant’s Form 8-K on March 23, 2006, Commission File No. 1-7562.

10.75		Form of Stock Award Agreement for Chief Executive Officer under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.4 to Registrant’s Form 8-K on March 23, 2006, Commission File No. 1-7562.

10.76		Form of Stock Unit Agreement and Stock Unit Deferral Election Form for Nonemployee Directors under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.5 to Registrant’s Form 8-K on March 23, 2006, Commission File No. 1-7562.

10.77		Form of Stock Unit Agreement and Stock Unit Deferral Election Form for Nonemployee Directors under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended July 29, 2006, Commission File No. 1-7562.

10.78		Form of Performance Share Agreement for Executives under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.2 to Registrant’s Form 8-K on July 26, 2007, Commission File No. 1-7562.

10.79		Form of Performance Share Agreement under the 2011 Long-Term Incentive Plan, filed as Exhibit 10.9 to Registrant’s Form 10-Q for the quarter ended April 30, 2011, Commission File No. 1-7562.

10.80		Form of Performance Share Agreement under the 2011 Long-Term Incentive Plan, filed as Exhibit 10.8 to Registrant’s Form 10-Q for the quarter ended July 28, 2012, Commission File No. 1-7562.

10.81		Form of Performance Unit Award Agreement under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended November 3, 2007, Commission File No. 1-7562.

10.82		Form of Performance Share Agreement under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended November 3, 2007, Commission File No. 1-7562.

10.83		Form of Performance Share Agreement under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.5 to Registrant’s Form 10-Q for the quarter ended May 1, 2010, Commission File No. 1-7562

10.84		Form of Performance Share Agreement under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.1 to Registrant’s Form 8-K on March 11, 2011, Commission File No. 1-7562.

10.85*		Form of Performance Share Agreement under the 2011 Long-Term Incentive Plan.

10.86		Form of Restricted Stock Unit Award Agreement under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended November 3, 2007, Commission File No. 1-7562.

10.87		Form of Restricted Stock Unit Award Agreement under the 2011 Long-Term Incentive Plan, filed as Exhibit 10.7 to Registrant’s Form 10-Q for the quarter ended April 30, 2011, Commission File No. 1-7562.

10.88		Form of Restricted Stock Unit Award Agreement under the 2011 Long-Term Incentive Plan, filed as Exhibit 10.10 to Registrant’s Form 10-Q for the quarter ended July 28, 2012, Commission File No. 1-7562.

10.89*		Form of Restricted Stock Unit Award Agreement under the 2011 Long-Term Incentive Plan.

10.90		Form of Director Stock Unit Agreement and Stock Unit Deferral Election Form under the 2006 Long-Term Incentive Plan, filed as Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended November 3, 2007, Commission File No. 1-7562.

10.91		Form of Director Stock Unit Agreement and Stock Unit Deferral Election Form under the 2011 Long-Term Incentive Plan, filed as Exhibit 10.10 to Registrant’s Form 10-Q for the quarter ended April 30, 2011, Commission File No. 1-7562.

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10.92		Summary of Revised Timing of Annual Board Member Stock Unit Grants, effective August 20, 2008, filed as Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended November 1, 2008, Commission File No. 1-7562.

10.93		Agreement with Art Peck dated January 31, 2011, filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended April 30, 2011, Commission File No, 1-7562.

10.94		Amendment to Agreement with Art Peck dated November 4, 2011, and confirmed on November 15, 2011, filed as Exhibit 10.91 to Registrant's Form 10-K for the year ended January 28, 2012, Commission File No. 1-7562.

10.95		Amendment to Post-Termination Benefits with Art Peck dated May 31, 2012, filed as Exhibit 10.4 to Registrant's Form 10-Q for the quarter ended April 28, 2012, Commission File No. 1-7562.

10.96*		Agreement with Art Peck dated October 29, 2012, and confirmed on November 9, 2012.

10.97		Agreement with Eva Sage-Gavin dated March 16, 2007, and confirmed on March 27, 2007, filed as Exhibit 10.6 to Registrant’s Form 10-Q for the quarter ended May 5, 2007, Commission File No. 1-7562.

10.98		Amendment to Agreement with Eva Sage-Gavin dated November 23, 2008, and confirmed on November 10, 2008, filed as Exhibit 10.101 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

10.99		Amendment to Agreement with Eva Sage-Gavin dated November 4, 2011, and confirmed on January 3, 2012, filed as Exhibit 10.94 to Registrant's Form 10-K for the year ended January 28, 2012, Commission File No. 1-7562.

10.100		Amendment to Post-Termination Benefits with Eva Sage-Gavin dated May 24, 2012, filed as Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended April 28, 2012, Commission File No. 1-7562.

10.101		CEO Performance Share Agreement dated May 4, 2012, filed as Exhibit 10.1 to Registrant's Form 8-K on May 4, 2012, Commission File No. 1-7562.

10.102		Amended and Restated Employment Agreement by and between Glenn Murphy and the Company, dated December 1, 2008 and confirmed on December 1, 2008, filed as Exhibit 10.106 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

10.103		Modification to Amended and Restated Employment Agreement by and between Glenn Murphy and the Company dated February 9, 2009, filed as Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended May 2, 2009, Commission File No. 1-7562.

10.104		Agreement with Sabrina L. Simmons dated February 4, 2008, and confirmed on February 6, 2008, filed as Exhibit 10.1 to Registrant’s Form 8-K on February 12, 2008, Commission File No. 1-7562.

10.105		Amendment to Agreement with Sabrina Simmons dated November 23, 2008, and confirmed on December 22, 2008, filed as Exhibit 10.110 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

10.106		Amendment to Agreement with Sabrina L. Simmons dated November 4, 2011, and confirmed on January 5, 2012, filed as Exhibit 10.99 to Registrant's Form 10-K for the year ended January 28, 2012, Commission File No. 1-7562.

10.107		Agreement for Post-Termination Benefits with Sabrina Simmons dated May 31, 2012, filed as Exhibit 10.5 to Registrant's Form 10-Q for the quarter ended April 28, 2012, Commission File No. 1-7562.

10.108		Agreement with Tom Wyatt dated August 21, 2008, and confirmed on September 25, 2008, filed as Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended May 2, 2009, Commission File No. 1-7562.

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10.109		Amendment to Agreement with Tom Wyatt dated November 23, 2008, and confirmed on December 9, 2008, filed as Exhibit 10.112 to Registrant’s Form 10-K for the year ended January 31, 2009, Commission File No. 1-7562.

10.110		Amendment to Agreement with Tom Wyatt dated November 4, 2011 and confirmed on November 16, 2011, filed as Exhibit 10.102 to Registrant's Form 10-K for the year ended January 28, 2012, Commission File No. 1-7562.

10.111		Agreement with Tom Keiser dated November 18, 2009, and confirmed on November 20, 2009, filed as Exhibit 10.103 to Registrant's Form 10-K for the year ended January 28, 2012, Commission File No. 1-7562.

10.112		Amendment to Agreement with Tom Keiser dated November 4, 2011, and confirmed on December 7, 2011, filed as Exhibit 10.104 to Registrant's Form 10-K for the year ended January 28, 2012, Commission File No. 1-7562.

10.113		Agreement for Post-Termination Benefits with Tom Keiser dated May 31, 2012, filed as Exhibit 10.3 to Registrant's Form 10-Q for the quarter ended April 28, 2012, Commission File No. 1-7562.

10.114		Agreement with Stefan Larsson dated April 26, 2012, and confirmed on April 27, 2012, filed as Exhibit 10.1 to Registrant's Form 10-Q for the quarter ended October 27, 2012, Commission File No. 1-7562.

10.115		Amendment to Agreement with Stefan Larsson dated September 12, 2012, and confirmed on September 17, 2012, filed as Exhibit 10.2 to Registrant's Form 10-Q for the quarter ended October 27, 2012, Commission File No. 1-7562.

10.116		Amendment to Agreement with Stefan Larsson dated October 29, 2012, and confirmed on November 6, 2012, filed as Exhibit 10.3 to Registrant's Form 10-Q for the quarter ended October 27, 2012, Commission File No. 1-7562.

10.117*		Amended Service Agreement with Stephen Sunnucks dated June 10, 2009.

10.118*		Amendment to the Amended Service Agreement with Stephen Sunnucks dated August 25, 2011.

10.119*		Amendment to the Amended Service Agreement with Stephen Sunnucks dated May 30, 2012.

10.120*		Agreement with Stephen Sunnucks dated October 31, 2012, and confirmed on November 1, 2012.

10.121*		Agreement for Post-Termination Benefits with Jack Calhoun dated June 9, 2012.

10.122		Agreement for Post-Termination Benefits with Michelle Banks dated May 23, 2012, filed as Exhibit 10.6 to Registrant's Form 10-Q for the quarter ended April 28, 2012, Commission File No. 1-7562.

10.123		Agreement for Post-Termination Benefits with Colin Funnell dated June 3, 2012, filed as Exhibit 10.7 to Registrant's Form 10-Q for the quarter ended April 28, 2012, Commission File No. 1-7562.

10.124		Summary of Changes to Non-employee Director Compensation effective February 15, 2008, filed as Exhibit 10.6 to Registrant’s Form 10-Q for the quarter ended May 3, 2008, Commission File No. 1-7562.

10.125		Summary of Changes to Non-employee Director Compensation, filed as Exhibit 10.5 to Registrant’s Form 10-Q for the quarter ended May 2, 2009, Commission File No. 1-7562.

10.126		Summary of Changes to Executive Compensation Arrangements, filed as Exhibit 10.5 to Registrant’s Form 10-Q for the quarter ended May 3, 2008, Commission File No. 1-7562.

10.127		Summary of Changes to Executive Compensation Arrangements, filed as Exhibit 10.6 to Registrant’s Form 10-Q for the quarter ended May 2, 2009, Commission File No. 1-7562.

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10.128		Description of Arrangement with Glenn Murphy for Corporate Jet Usage and Reimbursement for Commercial Travel, filed as Exhibit 101 to Registrant’s Form 10-K for the year ended February 2, 2008, Commission File No. 1-7562.

12*		Ratio of Earnings to Fixed Charges

14		Code of Business Conduct, filed as Exhibit 14 to Registrant’s Form 10-K for the year ended January 30, 2010, Commission File No. 1-7562.

21*		Subsidiaries of Registrant

23*		Consent of Independent Registered Public Accounting Firm

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)

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)

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

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

101*		The following materials from The Gap, Inc.’s Annual Report on Form 10-K for the year ended February 2, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.

__________


(1)	Pursuant to a request for confidential treatment, portions of this Exhibit have been redacted and have been provided separately to the Securities and Exchange Commission.

* Filed herewith

Exhibit 10.72

Grant No.

THE GAP, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

The Gap, Inc. (the "Company") hereby grants to ________________ (the "Employee"), a stock option (“Option”) under The Gap, Inc. 2011 Long-Term Incentive Plan (the "Plan"), to purchase shares of common stock of the Company, $0.05 par value ("Shares"). This Option is subject to all of the terms and conditions contained in this Non-Qualified Stock Option Agreement, including the terms and conditions contained in the attached Appendix A and Appendix B (collectively, the “Agreement”). The date of this Agreement is _____________. Subject to the provisions of Appendix A and Appendix B of the Plan, the principal features of this Option are as follows:

Number of Shares Purchasable

with this Option : __________________________________

Price per Share: __________________________________

Date of Grant: __________________________________

Date(s) Stock Option is Scheduled to become Exercisable:

Number of Shares Latest Date

Vesting Date Vesting on Vesting Date Option Expires

As provided in the Plan and in this Agreement, this Option may terminate before the date written above, including before the Option becomes exercisable or is exercised. For example, if Employee has a Termination of Service before the date this Option becomes exercisable, this Option will terminate at the same time as such termination. See paragraphs 5 and 6 of Appendix A for further information concerning how changes in employment affect termination of this Option. PLEASE BE SURE TO READ ALL OF APPENDIX A, APPENDIX B AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION.

IN WITNESS WHEREOF, the Company and the Employee have agreed to the terms of this Agreement, to be effective as of the date first above written.

THE GAP, INC.

Dated: __________________________________

I understand that this Option is 1) subject to all of the terms and conditions of this Agreement (including the attached Appendix A and Appendix B) and of the Plan, 2) not considered salary, nor is it a promise for future grants of Options, 3) not a term or condition of my employment with the Company (or one of its Affiliates), and 4) made at the sole discretion of the Company.

APPENDIX A

TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION

1. Grant of Option . The Company hereby grants to Employee under the Plan, as a separate incentive in connection with his or her employment and not in lieu of any salary or other compensation for his or her services, a non-qualified stock Option to purchase, on the terms and conditions set forth in this Agreement and the Plan, all or any part of the number of Shares set forth on page 1 of this Agreement. The Option granted hereby is not intended to be an Incentive Stock Option within the meaning of Section 422 of the Code.

2. Exercise Price . The purchase price per Share (the "Exercise Price") shall be equal to the price set forth on page 1 of this Agreement. The Exercise Price shall be payable in the legal tender of the United States.

3. Number of Shares . The Option is subject to adjustment in accordance with Section 4.3 of the Plan. Subject to any required action of the stockholders of the Company, if the Company shall be the surviving corporation in any merger or consolidation, the Option granted hereunder (to the extent that it is still outstanding) shall pertain to and apply to the securities to which a holder of the same number of Shares that are then subject to the Option would have been entitled. To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Compensation and Management Development Committee of the Company's Board of Directors (the "Committee"), whose determination in that respect shall be final, binding and conclusive. No fractional shares shall be issued under this Agreement. To the extent a fractional share is earned or exercised, the number of Shares shall be rounded down to the nearest whole number.

4. Commencement of Exercisability . Except as otherwise provided in this Agreement, the right to exercise the Option awarded by this Agreement shall accrue as set forth on page 1 of this Agreement, assuming that Employee is still employed with, or providing consulting services to, the Company or an Affiliate through such date(s). If Employee is not employed with, or providing consulting services to, the Company or an Affiliate on such date(s), the Option shall terminate, as set out in paragraph 6.

5. Postponement of Exercisability . Notwithstanding paragraph 4 or any other provision of this Agreement, prior to the date this Option is scheduled to become exercisable, the Committee, in its sole discretion, may determine that the right to exercise the Option awarded by this Agreement shall accrue on a date later than such date. The Committee shall exercise its power to postpone the commencement of exercisability only if the Committee, in its sole discretion, determines that Employee has taken a personal leave of absence (as determined from time to time by the Committee and in accordance with applicable law) since the date of this Agreement and such postponement is in compliance with applicable local laws. The duration of the period of postponement shall equal the duration of the personal leave of absence (or shorter period if necessary to comply with applicable local laws). If Employee does not return from the personal leave of absence, the Option shall terminate as set out in paragraph 6 as of the date the Employee is scheduled to return from personal leave of absence.

6. Termination of Option . In the event that Employee has a Termination of Service for any reason other than Retirement (as defined below) or death, this Option shall immediately thereupon terminate, except that Employee shall have three (3) months from such termination to exercise any unexercised portion of the Option which is then exercisable (or, if earlier, until the date that is ten (10) years from the date of this Agreement). In the event of Employee's Retirement, Employee may, within one (1) year after the date of such Retirement, or within ten (10) years from the date of this Agreement, whichever shall first occur, exercise any unexercised portion of the Option (whether or not exercisable). In the event that Employee shall die while in the employ of the Company or an Affiliate, any unexercised portion of the Option (whether or not exercisable) may be exercised by Employee's beneficiary or transferee, as hereinafter provided, for a period of one (1) year after the date of Employee's death or within ten (10) years from the date of this Agreement, whichever shall first occur. Notwithstanding the preceding two sentences, in the event that within one year of the date of this Agreement, Employee dies or has a Termination of Service due to Retirement, this Option shall immediately thereupon terminate. For purposes of this Agreement, “Retirement” shall mean Employee’s Termination of Service for any reason (other than due to Employee’s misconduct as determined by the Company in its sole discretion) after Employee has attained age 60 and completed at least five (5) years of continuous service as an Employee of the Company or an Affiliate.

For purposes of this Agreement, Termination of Service shall have the meaning set forth in the Plan and be determined by reference to Employee’s active service without reference to any other agreement, written or oral, including Employee’s contract of employment (if any). Thus, in the event of Employee’s Termination of Service (whether or not in breach of local labor laws), unless otherwise expressly provided for under this Agreement, Employee’s right to vest in and exercise the Option, if any, will terminate effective on Employee’s Termination of Service and will not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of “garden leave” or similar period pursuant to local law); the

Committee shall have the exclusive discretion to determine when the Employee has incurred a Termination of Service.

7. Persons Eligible to Exercise . The Option shall be exercisable during Employee's lifetime only by Employee. The Option shall be non-transferable by Employee other than by a beneficiary designation made in a form and manner acceptable to the Committee (and provided the Committee allows for beneficiary designations), or by will or the applicable laws of descent and distribution.

8. Death of Employee . To the extent exercisable after Employee’s death, the Option shall be exercised only by Employee’s designated beneficiary or beneficiaries, or if no beneficiary survives Employee or no beneficiary is designated, by the person or persons entitled to the Option under Employee’s will or in accordance with applicable local law, or if Employee shall fail to make testamentary disposition of the Option, his or her legal representative. Any transferee exercising the Option must furnish the Company (a) written notice of his or her status as transferee, (b) evidence satisfactory to the Company to establish the validity of the transfer of the Option and compliance with any laws or regulations pertaining to said transfer, and (c) written acceptance of the terms and conditions of the Option as prescribed in this Agreement.

9. Exercise of Option . The Option may be exercised by the person then entitled to do so as to any Shares which may then be purchased (a) by giving written notice of exercise to the Company, specifying the number of full Shares to be purchased and accompanied by full payment of the purchase price thereof (and the amount of any income tax, social insurance, payroll tax, or other tax-related items related to Employee’s participation in the Plan and legally payable by the Employee (“Tax-Related Items”)), and (b) by giving satisfactory assurances in writing if requested by the Company, signed by the person exercising the Option, that the Shares to be purchased upon such exercise are being purchased for investment and not with a view to the distribution thereof. The Company reserves the right to restrict the methods of payment of the Exercise Price if necessary to comply with local law, as determined by the Company in its sole discretion.

10. Tax Withholding and Payment Obligations . Regardless of any action the Company or Employee’s employer (the “Employer”) takes with respect to any or all Tax-Related Items, Employee acknowledges and agrees that the ultimate liability for all Tax-Related Items legally due by Employee is and remains Employee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. Employee further acknowledges that the Company and/or the Employer (a) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting, or exercise of the Option, the subsequent sale of Shares acquired under the Plan and the receipt of dividends, if any; and (b) does not commit to and is under no obligation to structure the terms of the Option or any aspect of the Option to reduce or eliminate Employee’s liability for Tax-Related Items, or achieve any particular tax result. Further, if Employee has become subject to tax in more than one jurisdiction between the date of grant and the date of any relevant taxable event, Employee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

No payment will be made to Employee (or his or her estate or beneficiary) for an Option unless and until satisfactory arrangements (as determined by the Company) have been made by Employee with respect to the payment of any Tax-Related Items obligations of the Company and/or the Employer with respect to the Option. In this regard, Employee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:

(a) withholding from Employee’s wages or other cash compensation paid to Employee by the Company or the Employer; or

(b) withholding from proceeds of the sale of Shares acquired upon exercise of the Option, either through a voluntary sale or through a mandatory sale arranged by the Company (on Employee’s behalf pursuant to this authorization); or

(d) surrendering already-owned Shares having a Fair Market Value equal to the Tax-Related Items that have been held for such period of time to avoid adverse accounting consequences.

If the obligation for Tax-Related Items is satisfied by withholding Shares, for tax purposes, the Employee is deemed to have been issued the full number of Shares purchased, notwithstanding that a number of the Shares is held back solely for the purpose of paying the Tax-Related Items due as a result of the Employee’s participation in the Plan. Employee shall pay to the Company or Employer any amount of Tax-Related Items that the Company may be required to withhold as a result of Employee’s participation in the Plan that cannot be satisfied by one or more of the means previously described in this paragraph 10. Employee acknowledges and agrees that the

Company may refuse to honor the exercise and refuse to issue or deliver the Shares or the proceeds of the sale of Shares if Employee fails to comply with his or her obligations in connection with the Tax-Related Items.

11. Nature of Grant . In accepting the Option, Employee acknowledges that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time;

(b) the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of Options, or benefits in lieu of Options even if Options have been granted repeatedly in the past;

(d) Employee’s participation in the Plan is voluntary;

(e) the Option and the Shares subject to the Option are extraordinary items that do not constitute regular compensation for services rendered to the Company or the Employer, and that are outside the scope of Employee’s employment contract, if any;

(f) the Option and the Shares subject to the Option are not intended to replace any pension rights or compensation;

(g) the Option and the Shares subject to the Option are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, or end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer;

(h) the future value of the underlying Shares is unknown and cannot be predicted with certainty; further, if Employee exercises the Option and obtains Shares, the value of the Shares acquired upon exercise may increase or decrease in value, even below the Exercise Price;

(i) Employee also understands that neither the Company, nor any Affiliate is responsible for any foreign exchange fluctuation between local currency and the United States Dollar that may affect the value of the Option;

(j) in consideration of the grant of the Option, no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from termination of employment by the Employer (for any reason whatsoever and whether or not in breach of local labor laws), and Employee irrevocably releases the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, Employee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim; and

(k) the Option and the benefits under the Plan, if any, will not automatically transfer to another company in the case of a merger, take-over or transfer of liability.

12. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Employee’s participation in the Plan, or Employee’s acquisition or sale of the underlying Shares. Employee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding Employee’s participation in the Plan before taking any action related to the Plan.

13. Data Privacy . Employee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Employee’s personal data as described in this Agreement by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering and managing Employee’s participation in the Plan.

Employee understands that the Company and its Affiliates may hold certain personal information about Employee, including, but not limited to, Employee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company or any Affiliate, details of all Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Employee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Personal Data”). Employee understands that Personal Data may be transferred to

any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the United States, Employee’s country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Employee’s country. Employee understands that he or she may request a list with the names and addresses of any potential recipients of the Personal Data by contacting Employee’s local human resources representative. Employee authorizes the recipients to receive, possess, use, retain and transfer the Personal Data, in electronic or other form, for the purposes of implementing, administering and managing Employee’s participation in the Plan, including any requisite transfer of such Personal Data as may be required to a broker or other third party with whom Employee may elect to deposit any Shares received upon exercise of the Option. Employee understands that Personal Data will be held only as long as is necessary to implement, administer and manage Employee’s participation in the Plan. Employee understands that he or she may, at any time, view Personal Data, request additional information about the storage and processing of Personal Data, require any necessary amendments to Personal Data or refuse or withdraw the consents herein, without cost, by contacting in writing Employee’s local human resources representative. Employee understands that refusal or withdrawal of consent may affect Employee’s ability to participate in the Plan or to realize benefits from the Option. For more information on the consequences of Employee’s refusal to consent or withdrawal of consent, Employee understands that he or she may contact his or her local human resources representative.

14. No Rights of Stockholder . Neither Employee nor any person claiming under or through said Employee shall be or have any of the rights or privileges of a stockholder of the Company in respect of any of the Shares issuable upon the exercise of the Option, unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Employee.

15. No Right to Continued Employment . Employee understands and agrees that this Agreement does not impact in any way the right of the Employer to terminate or change the terms of the employment of Employee at any time for any reason whatsoever, with or without good cause provided in accordance with applicable local law. Employee understands and agrees that unless contrary to applicable local law or there is an employment contract in place providing otherwise, his or her employment is "at-will" and that either the Employer or Employee may terminate Employee's employment at any time and for any reason subject to applicable local law. Employee also understands and agrees that his or her "at-will" status (if applicable) can only be changed by an express written contract signed by an authorized officer of the Company and Employee if the Employee’s employer is the Company.

16. Addresses for Notices . Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company, in care of its Legal Department, at The Gap, Inc., 2 Folsom, 13 ^th Floor, San Francisco, California 94105, or at such other address as the Company may hereafter designate in writing. Any notice to be given to Employee shall be addressed to Employee at the address set forth beneath Employee's signature hereto, or at such other address as Employee may hereafter designate in writing. Any such notice shall be deemed to have been duly given if and when enclosed in a properly sealed envelope, addressed as aforesaid, registered or certified and deposited, postage and registry fee prepaid, in a United States post office or generally recognized international courier such as DHL or Federal Express.

17. Non-Transferability of Option . Except as otherwise herein provided, the Option herein granted and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of said Option, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, said Option and the rights and privileges conferred hereby shall immediately become null and void.

18. Maximum Term of Option . Notwithstanding any other provision of this Agreement, this Option is not exercisable after the expiration of ten (10) years from the date of this Agreement.

19. Binding Agreement . Subject to the limitation on the transferability of the Option contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

20. Plan Governs . This Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan shall govern. Terms used and not defined in this Agreement shall have the meaning set forth in the Plan.

21. Committee Authority . The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations

made by the Committee in good faith shall be final and binding upon Employee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

22. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

23. Modifications to this Agreement . This Agreement constitutes the entire understanding of the parties on the subjects covered. Employee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.

24. Agreement Severable . In the event that any provision in this Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement.

25. Notice of Governing Law and Venue . This Agreement shall be governed by, and construed in accordance with, the laws of the State of California without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this grant or the Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California and no other courts, where this grant is made and/or to be performed.

26. Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. Employee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

27. Language. If Employee has received this Agreement, including Appendices, or any other document related to the Plan translated into a language other than English, and the meaning of the translated version is different than the English version, the English version will control.

28. Appendix B . Notwithstanding any provisions in this Agreement, the Option grant shall be subject to any special terms and conditions set forth in Appendix B to this Agreement for Employee’s country. Moreover, if Employee relocates to one of the countries included in Appendix B, the special terms and conditions for such country will apply to Employee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan. As stated above, Appendix B constitutes part of this Agreement.

29. Imposition of Other Requirements . The Company reserves the right to impose other requirements on Employee’s participation in the Plan, on the Option and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require Employee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

* * *

APPENDIX B

ADDITIONAL TERMS AND CONDITIONS OF THE GAP, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

NON-U.S. EMPLOYEES

Terms and Conditions

This Appendix B includes special terms and conditions applicable to Employee if Employee resides in one of the countries listed below. These terms and conditions are in addition to or, if so indicated, in place of, the terms and conditions set forth in the Agreement. Unless otherwise provided below, capitalized terms used but not defined herein shall have the same meanings assigned to them in the Plan and the Agreement.

Notifications

This Appendix also includes country-specific information of which Employee should be aware with respect to his or her participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of May 2011. Such laws are often complex and change frequently. As a result, the Company strongly recommends that Employee does not rely on the information noted herein as the only source of information relating to the consequences of Employee’s participation in the Plan because the information may be out of date at the time that Employee exercises the Option or sell Shares acquired under the Plan.

In addition, the information is general in nature and may not apply to Employee’s particular situation, and the Company is not in a position to assure Employee of any particular result. Accordingly, Employee is advised to seek appropriate professional advice as to how the relevant laws in his or her country may apply to his or her situation. Finally, please note that if Employee is a citizen or resident of a country other than the country in which he or she is currently working, or transfers employment after grant, the information contained in this Appendix may not be applicable to Employee.

CANADA

Form of Payment . Notwithstanding anything to the contrary in the Plan or the Agreement, the Employee is prohibited from surrendering Shares that he or she already owns or attesting to the ownership of Shares to pay the Exercise Price or any Tax-Related Items in connection with the Option.

The following provisions will apply to Employees who are residents of Quebec:

Language Consent. The parties acknowledge that it is their express wish that this Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.

Les parties reconnaissent avoir exigé la redaction en anglais de cette convention (“Agreement”), ainsi que de tous documents exécutés, avis donnés et procedures judiciaries intentées, directement ou indirectement, relativement à la présente convention.

Authorization to Release and Transfer Necessary Personal Information. This provision supplements paragraph 13 of Appendix A of the Agreement:

Employee hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the Plan. Employee further authorizes the Company and its Affiliates and the Committee, which administers the Plan, to disclose and discuss the Plan with their advisors. Employee further authorizes the Company and any Affiliate to record such information and to keep such information in Employee’s employee file.

FRANCE

Taxation of Option. This Option is intended to be French tax-qualified.

Language Consent. In accepting the grant of the Option and the Agreement which provides for the terms and conditions of the Option, Employee confirms that he or she has read and understood the documents relating to the Option (the Plan and the Agreement), which were provided in the English language. Employee accepts the terms of these documents accordingly.

Consentement Relatif à la Langue Utilisée. En acceptant cette attribution d'Options et ce contrat qui contient les termes et conditions de cette attribution d'Options, l'employé confirme ainsi avoir lu et compris les documents relatifs à cette attribution (le Plan et le Contrat d’Attribution) qui lui ont été communiqués en langue anglaise. , L'employé en accepte les termes en connaissance de cause.

Exchange Control Information. Employee may hold Shares acquired under the Plan outside of France provided he or she declares all foreign accounts, whether open, current, or closed, in his or her income tax return. Furthermore, Employee must declare to the customs and excise authorities any cash or bearer securities he or she imports or exports without the use of a financial institution when the value of the cash or securities is equal to or exceeds €10,000 (for 2011).

HONG KONG

Securities Law Notice. The Option and Shares issued upon exercise of the Option do not constitute a public offering of securities under Hong Kong law and are available only to Employees of the Company and its Affiliates. The Agreement, including this Appendix B, the Plan and other incidental communication materials have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong. Nor have the documents been reviewed by any regulatory authority in Hong Kong. The Option is intended only for the personal use of each eligible Employee of the Company or its Affiliates and may not be distributed to any other person. If Employee is in any doubt about any of the contents of the Agreement, including this Appendix, or the Plan, Employee should obtain independent professional advice.

Settlement of Option and Sale of Shares. In the event Employee’s Option vests and Shares are issued to Employee within six months of the date of grant, Employee agrees that he or she will not dispose of any of such Shares prior to the six-month anniversary of the date of grant.

INDIA

Form of Payment. Notwithstanding anything to the contrary in the Plan or the Agreement, due to legal restrictions in India, Employee will not be permitted to pay the Exercise Price by using a cashless sell-to-cover method of exercise (under which method a number of Shares with a value sufficient to cover the Exercise Price, brokerage fees and any applicable Tax-Related Items would be sold upon exercise and Employee would receive only the remaining Shares subject to the exercised Option). The Company reserves the right to allow additional forms of payment depending on the development of local law.

Tax Information. The amount subject to tax at exercise may be dependent upon a valuation of Shares from a Merchant Banker in India. The Company has no responsibility or obligation to obtain the most favorable valuation possible nor obtain valuations more frequently than required under Indian tax law.

Exchange Control Obligations. Employee understands that he or she must repatriate any proceeds from the sale of Shares acquired under the Plan and any dividends received in relation to the Shares to India and convert the proceeds into local currency within ninety (90) days of receipt. Employee will receive a foreign inward remittance certificate (“FIRC”) from the bank where he or she deposits the foreign currency. Employee should maintain the FIRC as evidence of the repatriation of fund in the event the Reserve Bank of India or the Employer requests proof of repatriation.

INDONESIA

Form of Payment. Notwithstanding anything to the contrary in the Plan or the Agreement, due to local legal requirements, Employee will be required to pay the Exercise Price through the delivery of irrevocable

instructions to a Company-designated broker to immediately sell all of the Shares acquired upon exercise of the Option and to deliver promptly to the Company an amount out of the proceeds of such sale equal to the aggregate Exercise Price for the Shares being purchased (and any Tax-Related Items). The remaining proceeds of the sale of the Shares, less any Tax-Related Items and broker’s fees or commissions, will be remitted to Employee. The Company reserves the right to allow additional forms of payment depending on the development of local law.

Exchange Control Information. If Employee remits proceeds from the cashless exercise of the Option into Indonesia, the Indonesian Bank through which the transaction is made will submit a report on the transaction to the Bank of Indonesia for statistical reporting purposes. For transactions of US$10,000 or more, a description of the transaction must be included in the report. Although the bank through which the transaction is made is required to make the report, Employee must complete a “Transfer Report Form.” The Transfer Report Form should be provided to Employee by the bank through which the transaction is made.

KOREA

Exchange Control Information. If Employee remits funds out of Korea to pay the Exercise Price, his or her remittance must be “confirmed” by a foreign exchange bank in Korea. This is an automatic procedure, i.e. , the bank does not need to “approve” the remittance, and it should take no more than a single day to process. The following supporting documents evidencing the nature of the remittance must be submitted to the bank together with the confirmation application: (i) Agreement; (ii) the Plan; (iii) a document evidencing the type of Shares to be acquired and the amount; and (iv) Employee’s certificate of employment. This confirmation is not necessary for cashless exercises since there is no remittance out of Korea.

Additionally, exchange control laws require Korean residents who realize US$500,000 or more from the sale of Shares to repatriate the proceeds to Korea within 18 months of the sale.

PEOPLE’S REPUBLIC OF CHINA

Mandatory Cashless Exercise. By accepting the Option, the Employee acknowledges and agrees that the Company or the Committee, in its sole discretion, has the right to determine that one of the following sales mechanism will be pursued: (1) immediate sale of the Shares issued upon the exercise of the Option ("Immediate Sale"); or (2) granting the Employee the right to hold the Shares issued upon the exercise of the Option for a period of time and then sell the Shares on a future day at their own discretion ("Normal Sale"). . In the event of a Termination of Service, the Company or the Committee shall have the sole discretion to determine whether an Immediate Sale will occur. In any event, the Shares shall be sold within 6 months of a Termination of Service or before the expiration of the Plan (whichever is earlier). Such Shares will be transferred to a brokerage firm designated by the Company (the "Brokerage Firm"). The Brokerage Firm, on the Employee’s behalf, may, upon the Employee’s delivery of a properly executed written notice of exercise together with irrevocable instructions to the Brokerage Firm, thereafter immediately sell the Shares at the prevailing market price pursuant to any process for the sale set forth by the Company, and deliver the proceeds, less the Exercise Price, Tax-Related Items and any broker fees, to the Company or its designee, which would then remit the net proceeds to the Employee through the Company’s or Affiliate’s special purpose bank account in China. As a result of the immediate sale of Shares as set forth in this Appendix B, no Shares would be delivered to the Employee, and the Employee would not have any resulting rights as a shareholder of the Company.

Special Administration in China . The Employee’s ability to exercise the Option shall be contingent upon the Company or its Affiliate obtaining approval from the State Administration of Foreign Exchange (“SAFE”) for Employee’s participation in the Plan (to the extent required as determined by the Company in its sole discretion) and the establishment of a SAFE-approved bank account. Employee understands and agrees that he or she will be required to immediately repatriate the proceeds from the exercise/ immediate sale of Shares to China. Employee further understands that such repatriation of proceeds may need to be effected through a special foreign exchange account established by the Company or Affiliate and Employee hereby consents and agrees that the proceeds from the exercise/ immediate sale of Shares may be transferred to such special account prior to being delivered to Employee’s personal account. Furthermore, Employee understands that due to SAFE approval requirements, there may be delays in delivering the proceeds to Employee, Employee will bear any exchange rate risk during the period between exercise and when the proceeds are delivered to him or her, Employee may be required to open up a U.S. dollar bank account to receive the proceeds and Employee may be required to pay the Company or an Affiliate the taxes due on the exercise prior to receiving the proceeds from exercise/ immediate sale of Shares. Furthermore, the Company may shorten the post-termination exercise periods if required by SAFE.

Please note that these special administration procedures will not apply to non Chinese Nationals.

The Company has the sole discretion to determine the mechanism to sell the Shares issued to Employee upon exercise of the Option. The provisions above pursuant to which Employee agrees to sell all Shares issued to him or her upon Termination of Service or immediately when the Shares are issued to him or her upon exercise at the then current market price is intended to be a plan pursuant to Rule 10b5-1 of the U.S. Securities Exchange Act of 1934 to the extent Employee is subject to this Act. By signing the Agreement, Employee represents that he or she is not aware of any material non-public information about the Company at the time he or she is signing the Agreement.

SINGAPORE

Securities Law Notice . The grant of the Option is made in reliance on section 273(1)(f) of the Securities and Futures Act (Cap. 289) (“SFA”) for which it is exempt from the prospectus and registration requirements under the SFA.

Director Notification Obligation. If Employee is a director, associate director or shadow director (i.e., a non-director who has sufficient control so that the directors act in accordance with the directions and instructions of this individual) of the Company’s local entity in Singapore, he or she is subject to notification requirements under the Singapore Companies Act. Some of these notification requirements will be triggered by Employee’s participation in the Plan. Specifically, Employee is required to notify the local Singapore company when he or she acquires or disposes an interest in the Company, including when Employee is granted the Option, receives Shares upon exercise and when Employee sells these Shares. The notification must be in writing and must be made within two days of acquiring or disposing of any interest in the Company (or within two days of initially becoming a director, associate director or shadow director of the Company’s local entity in Singapore). If Employee is unclear as to whether he or she is a director, associate director or shadow director of the Company’s local entity in Singapore or the form of the notification, he or she should consult with his or her personal legal advisor.

UNITED KINGDOM

Tax and National Insurance Contributions Acknowledgment. The following provision supplements paragraph 10 of the Agreement:

Employee agrees that if Employee does not pay or the Employer or the Company does not withhold from Employee the full amount of Tax-Related Items that Employee owes in connection with the exercise of the Option and/or the acquisition of Shares pursuant to the exercise of the Option, or the release or assignment of the Option for consideration, or the receipt of any other benefit in connection with the Option (the “ Taxable Event ”) within ninety (90) days after the Taxable Event, or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003, then the amount that should have been withheld shall constitute a loan owed by Employee to the Employer, effective ninety (90) days after the Taxable Event. Employee agrees that the loan will bear interest at the official rate of HM Revenue and Customs (“HMRC”) and will be immediately due and repayable by Employee, and the Company and/or the Employer may recover it at any time thereafter by withholding the funds from salary, bonus or any other funds due to Employee by the Employer, by withholding in Shares issued at exercise of the Option or from the cash proceeds from the sale of such Shares or by demanding cash or a cheque from Employee. Employee also authorizes the Company to withhold the transfer of any Shares unless and until the loan is repaid in full.

Notwithstanding the foregoing, if Employee is an officer or executive director (as within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), the terms of the immediately foregoing provision will not apply. In the event that Employee is an officer or executive director and Tax-Related Items are not collected from or paid by Employee within ninety (90) days of the Taxable Event, the amount of any uncollected Tax-Related Items may constitute a benefit to Employee on which additional income tax and National Insurance contributions may be payable. Employee will be responsible for reporting any income tax and National Insurance contributions due on this additional benefit directly to HMRC under the self-assessment regime.

* * *

Exhibit 10.85

Award No. _________

THE GAP, INC.

PERFORMANCE SHARE AGREEMENT

The Gap, Inc. (the "Company") hereby grants to ___________ (the "Employee"), an award (the “Award”) of Performance Shares, which represent the right to receive shares of the Company’s common stock, $0.05 par value (the “Shares”) subject to the fulfillment of performance and vesting conditions and the other conditions set forth in the attached Appendix A and Appendix B. This Award is granted pursuant to The Gap, Inc. 2011 Long-Term Incentive Plan (the “Plan”) and is subject to all of the terms and conditions contained in this Performance Share Agreement, the resolutions of the Compensation and Management Development Committee of the Board of Directors of the Company, dated [DATE] (the “Committee Resolutions”), and Appendix A and Appendix B hereto (collectively, the “Agreement”). The date of this Agreement is ________ (“Date of Grant”). Subject to the provisions of Appendix A, Appendix B and of the Plan, the principal features of this Award are as follows:

Number of Performance Shares at Threshold Performance: _____

Number of Performance Shares at Target Performance: _____

Maximum Number of Performance Shares: _____

Performance Goals: The actual number of Shares to be earned under this Award will be determined based on (1) attainment of annual, or other period, division or corporate earnings goals over 3 years, and (2) achievement of Company cumulative earnings goals for the same 3 years. In both cases, the earnings goals and the extent to which they have been achieved will be determined by the Compensation and Management Development Committee (the “Committee”) of the Board of Directors, in its sole discretion. In addition, the number of Shares earned under this Award may be further reduced at the Committee’s discretion.

Date(s) Performance Shares Scheduled to Vest: To the extent that the Performance Goals described above are achieved and Shares are earned, as determined and certified by the Committee, then (1) 50% of the earned Shares shall be paid on the date in [YEAR] that the Committee certifies attainment (the “Certification Date”), and (2) the remaining 50% of the earned Shares shall vest on the one year anniversary of the Certification Date. Notwithstanding the foregoing, if the Employee is demoted to a lower Company salary grade before the end of fiscal year _____ , Employee shall forfeit his or her Award.

As provided in the Plan and in this Agreement, this Award may terminate before the scheduled vest date(s) of the Performance Shares. For example, if Employee’s Termination of Service occurs before the date this Award vests, this Award will terminate at the same time as such termination. Important additional information on vesting and forfeiture of the Performance Shares covered by this Award including those due to changes in employment is contained in paragraphs 3 through 6 of Appendix A.

IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement to be effective as of the date first above written.

THE GAP, INC.

Dated: ________________ ____________________________

My signature below indicates that I understand that this Award is 1) subject to all of the terms and conditions of this Agreement (including the Committee Resolutions and the attached Appendix A and Appendix B) and of the Plan, 2) not considered salary, nor is it a promise for future grants of Performance Shares, 3) not a term or condition of my employment with the Company (or one of its Affiliates), and 4) made at the sole discretion of the Company.

EMPLOYEE

Dated: _________________ Signature: _________________

Address: _________________

_________________

APPENDIX A

TERMS AND CONDITIONS OF PERFORMANCE SHARES

1. Grant of Performance Shares . The Company hereby grants to the Employee as a separate incentive that is not in lieu of any salary or other compensation for his or her services, an Award with respect to the number of Performance Shares set forth on page 1 of this Agreement, subject to all the terms and conditions in this Agreement and the Plan. Employee understands and agrees that this Award does not guarantee any future Performance Share grants and that grants are made at the sole discretion of the Company.

1. Company’s Obligation to Pay . Unless and until a Performance Share has vested in accordance with the terms hereof, the Employee will have no right to payment of a Share with respect to the Performance Share. Prior to actual payment of any Shares pursuant to vested Performance Shares, each Performance Share represents an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. No Shares shall be issued until after the Performance Shares have vested in accordance with the terms hereof and shall be issued in accordance with the settlement terms hereof. Notwithstanding Section 9.6 of the Plan, the Performance Shares will only be settled, if at all, in Shares, provided that to the extent a fractional share is earned, the number of Shares paid shall be rounded down to the nearest whole number and no fractional Share shall be issued.

2. Vesting of Performance Shares and Issuance of Shares .

(a)

Subject to paragraphs 4, 5 and 6, the Performance Shares subject to this Agreement will vest (as to the number of Performance Shares determined by the Committee based on the extent to which the Performance Goals have been achieved) on the dates shown on the first page of this Agreement (each a “Vesting Date”), but in each case, only if the Employee has been continuously employed by, or providing consulting services to, the Company or one of its Affiliates from the date of this Award until the applicable Vesting Date of the Performance Shares. If Employee has had a Termination of Service prior to such date(s), the Award shall terminate as set forth in paragraph 6.


(b)	Subject to earlier issuance pursuant to paragraph 4 or 5, upon each Vesting Date, one Share shall be issued for each Performance Share that vests on such Vesting Date, subject to the terms and provisions of the Plan and this Agreement.

(c)

If the Committee, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Performance Shares, the payment of such accelerated Performance Shares nevertheless shall be made at the same time or times as if such Performance Shares had vested in accordance with the vesting schedule set forth on the first page of this Agreement (whether or not the Employee remains employed by the Company or by one of its Affiliates as of such date(s)).

(d)

Notwithstanding the foregoing, if the Committee, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Performance Shares in connection with Employee’s “separation from service" within the meaning of Section 409A) and if (i) Employee is subject to U.S. income tax, and (ii) Employee is a “specified employee” within the meaning of Section 409A at the time of such separation from service, then any such accelerated Performance Shares otherwise payable within the six (6) month period following Employee’s separation from service instead will be paid on the date that is six (6) months and one (1) day following the date of Employee’s separation from service, unless the Employee dies following his or her separation from service prior to such time, in which case, the Performance Shares will be paid to the Employee’s estate (or beneficiary) upon his or her death, subject to paragraph 7. Thereafter, such Performance Shares shall continue to be paid in accordance with the requirements of paragraph 3(c). For purposes of this Agreement, “Section 409A” means Section 409A of the U.S. Internal Revenue Code of 1986, as amended, and any final Treasury Regulations and other Internal Revenue Service guidance thereunder, as each may be amended from time to time (“Section 409A”). This paragraph 3(d) shall only apply to the extent necessary to avoid taxation under Section 409A.


(e)	It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the Performance Shares granted under this Agreement or the Shares issued in payment thereof will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply.


(f)	No fractional Shares shall be issued under this Agreement. To the extent a fractional share is earned, the number of Shares paid shall be rounded down to the nearest whole number and no fractional Share shall be issued.

4. Death . In the event of the Employee’s death after the end of the applicable performance period, the remaining Performance Shares shall automatically and with no exercise of discretion by the Committee become fully vested, and shall be settled, as soon as practicable in the calendar year of the Employee’s death to the extent that the Performance Goals have been achieved and certified by the Committee on the Certification Date.

5. Retirement .

(a) Except as would result in taxation under Section 409A, a portion of the remaining Performance Shares automatically and with no exercise of discretion by the Committee shall become fully vested, and shall be settled, and applicable taxes shall be withheld by the Company or its designated Affiliate in accordance with paragraph 7 at the following time: (i) if the Performance Goals have been achieved before the Employee becomes eligible for Retirement (as defined below), on the later of the date the Employee becomes eligible for Retirement or November 15 ^th of the year in which Employee becomes eligible for Retirement; or (ii) if Employee becomes eligible for Retirement before the Performance Goals are achieved, on the later of the date the Performance Goals are achieved or November 15 ^th of the year in which the Performance Goals are achieved. The portion of the remaining Performance Shares that vests and is settled in accordance with the preceding sentence shall have an aggregate market value sufficient to pay any taxes required to be withheld by the Company (or an Affiliate) solely as a result of (a) the Employee’s becoming eligible to receive shares of common stock upon Retirement pursuant to paragraph 5(b), and (b) the vesting and settlement of such portion of the remaining Performance Shares.

(b) In the event of Employee’s Retirement (as defined below) after the end of the applicable performance period that, in the case of U.S. taxpayers, qualifies as a "separation from service" within the meaning of Section 409A, the remaining Performance Shares automatically and with no exercise of discretion by the Committee shall become fully vested, and shall be settled, as soon as practicable in the calendar year of the Employee’s Retirement, to the extent that the Performance Goals have been achieved and certified by the Committee on the Certification Date. If (i) Employee is subject to U.S. income tax, and (ii) Employee is a “specified employee” within the meaning of Section 409A at the time of Employee’s Retirement then the payment of such accelerated Performance Shares will not be made until the date six (6) months and one (1) day following the date of Employee’s Retirement, unless the Employee dies following such Retirement prior to such time, in which case, the Performance Shares will be paid to the Employee’s estate upon his or her death, subject to paragraph 7.

For purposes of this Agreement, “Retirement” shall mean Employee’s Termination of Service for any reason (other than due to Employee’s misconduct as determined by the Company in its sole discretion) after Employee has attained age 60 and completed at least five (5) years of continuous service as an Employee of the Company or an Affiliate.

6. Termination of Service. Notwithstanding any contrary provision of this Agreement and except as set forth in paragraphs 3, 4 or 5, the balance of Performance Shares that have not vested will be forfeited and cancelled automatically at the time of the Employee’s Termination of Service. For purposes of this Agreement, Termination of Service shall have the meaning set forth in the Plan and be determined by reference to Employee’s active service without reference to any other agreement, written or oral, including Employee’s contract of employment (if any). Thus, in the event of Employee’s Termination of Service (whether or not in breach of local labor laws), unless otherwise expressly provided for under this Agreement, Employee’s right to vest in the Performance Shares under the Plan, if any, will terminate effective on Employee’s Termination of Service and will not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of “garden leave” or similar period pursuant to local law); the Committee shall have the exclusive discretion to determine when the Employee has incurred a Termination of Service.

7. Withholding Taxes . Regardless of any action the Company or Employee’s employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related items related to the Employee’s participation in the Plan and legally applicable to the Employee (“Tax-Related Items”), the Employee acknowledges and agrees that the ultimate liability for all Tax-Related Items legally due by the Employee is and remains the Employee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. Employee further acknowledges that the Company and/or the Employer (a) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Performance Shares, including the grant or vesting of the Performance Shares, the subsequent sale of Shares acquired under the Plan and the receipt of dividends, if any; and (b) does not commit to and is under no obligation to structure the terms of the Performance Shares or any aspect of the Performance Shares to reduce or eliminate the Employee’s liability for Tax-Related Items, or achieve any particular tax result. Further, if Employee has become subject to tax in more

than one jurisdiction between the date of grant and the date of any relevant taxable event, Employee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

No payment will be made to the Employee (or his or her estate) for the Performance Shares unless and until satisfactory arrangements (as determined by the Committee) have been made by the Employee with respect to the payment of any Tax-Related Items obligations of the Company and/or the Employer with respect to the Performance Shares. In this regard, the Employee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:

(a) withholding from Employee’s wages or other cash compensation paid to Employee by the Company or the Employer; or

(b) withholding from proceeds of the sale of Shares acquired upon vesting of the Performance Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on Employee’s behalf pursuant to this authorization); or

(d) surrendering already-owned Shares having a Fair Market Value equal to the Tax-Related Items that have been held for such period of time to avoid adverse accounting consequences.

If the obligation for Tax-Related Items is satisfied by withholding Shares, for tax purposes, the Employee is deemed to have been issued the full number of Shares subject to the Performance Shares, notwithstanding that a number of the Shares is held back solely for the purpose of paying the Tax-Related Items due as a result of the Employee’s participation in the Plan. The Employee shall pay to the Company or Employer any amount of Tax-Related Items that the Company may be required to withhold or account for as a result of the Employee’s participation in the Plan that cannot be satisfied by one or more of the means previously described in this paragraph 7. The Employee acknowledges and agrees that the Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if Employee fails to comply with his or her obligations in connection with the Tax-Related Items.

It is the Company’s current practice to withhold a portion of the Shares scheduled to be issued pursuant to vested Performance Shares that have an aggregate market value sufficient to pay the Tax-Related Items. The Company will only withhold whole Shares and therefore the Employee also authorizes deduction without notice from salary or other amounts payable to the Employee of cash in an amount sufficient to satisfy the Employer’s remaining tax withholding obligation. Notwithstanding the previous two sentences, the Employee, if the Company in its sole discretion so agrees, may elect to furnish to the Company written notice, no more than 30 days and no less than 5 days in advance of a scheduled Vesting Date (or other required withholding event), of his or her intent to satisfy the tax withholding requirement by remitting the full amount of the tax withholding to the Company on the scheduled Vesting Date (or other required withholding event). In the event that Employee provides such written notice and fails to satisfy the amounts required for the Tax-Related Items by the Vesting Date (or other required withholding event), the Company shall satisfy the tax withholding requirement pursuant to the first two sentences of this paragraph. However, the Company reserves the right to withhold for Tax-Related Items pursuant to any means set forth in this paragraph.

8. Vesting/ Foreign Taxes Due . If Employee is subject to tax in a country outside the U.S. (“Foreign Country”) and if pursuant to the tax rules in such Foreign Country, Employee will be subject to tax prior to the date that Employee is issued Shares pursuant to this Agreement, the Committee, in its discretion, may accelerate settlement of a portion of the Performance Shares (but only to the extent already earned and vested, including satisfaction of the Performance Goals, in the case of awards intended to comply with the performance-based compensation exception under Section 162(m) of the Code) to the extent necessary to pay the foreign taxes due (and any applicable U.S. income taxes due as a result of the acceleration of settlement) but only if such acceleration does not result in adverse consequences under Section 409A (as permitted under Treasury Regulation Section 1.409A-3(j)(4)(xi)) or loss of the performance-based compensation exception under Section 162(m) of the Code or otherwise cause any portion of the award to become subject to the deduction limits of Section 162(m).

9. Beneficiary Designation . Any distribution or delivery to be made to the Employee under this Agreement will, if the Employee is then deceased, be made to the Employee's designated beneficiary to the extent such designation is valid under applicable law, or if no such beneficiary survives the Employee or no beneficiary is designated, the person or persons entitled to such distribution or delivery under the Employee's will or, to the executor of his or her estate. In order to be effective, a beneficiary designation must be made by the Employee in a

form and manner acceptable to the Company and permitted by the Company. Any transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

10. Conditions to Issuance of Shares . The Shares deliverable to the Employee on the applicable settlement date may be either previously authorized but unissued Shares or issued Shares that have been reacquired by the Company. The Company shall not be required to issue any Shares hereunder so long as the Company reasonably anticipates that such issuance will violate Federal securities law, foreign securities law or other applicable law; provided however, that in such event the Company shall issue such Shares at the earliest possible date at which the Company reasonably anticipates that the issuance of the shares will not cause such violation. For purposes of the previous sentence, any issuance of Shares that would cause inclusion in gross income or the application of any penalty provision or other provision of the Internal Revenue Code or foreign tax law shall not be treated as a violation of applicable law.

11. Rights as Stockholder . Neither the Employee nor any person claiming under or through the Employee will have any of the rights or privileges of a stockholder of the Company in respect of any Performance Share unless and until Shares have been issued in accordance with paragraph 3, 4 or 5, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Employee. Except as provided in paragraph 12, after such issuance, recordation, and delivery, the Employee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

12. Adjustments . The Award is subject to adjustment in accordance with Section 4.3 of the Plan.

13. Nature of Grant . In accepting the grant of Performance Shares, the Employee acknowledges that:

(a) the grant of the Performance Shares is voluntary and occasional and does not create any contractual or other right to receive future grants of Performance Shares, or benefits in lieu of Performance Shares, even if Performance Shares have been granted repeatedly in the past;

(b) all decisions with respect to future Performance Share grants, if any, will be at the sole discretion of the Company;

(c) the Employee’s participation in the Plan shall not create a right to further employment with the Employer and shall not interfere with the ability of the Employer to terminate his or her employment relationship at any time;

(d) the Employee is voluntarily participating in the Plan;

(e) the Performance Shares are an extraordinary item that do not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which are outside the scope of the Employee’s employment contract, if any;

(f) the Performance Shares and the Shares subject to the Performance Shares are not intended to replace any pension rights or compensation;

(g) the Performance Shares are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer;

(h) the Performance Shares grant and the Employee’s participation in the Plan will not be interpreted to form an employment contract or relationship with the Company or any Affiliate;

(i) the future value of the Shares is unknown and cannot be predicted with certainty; further, neither the Company, nor any Affiliate is responsible for any foreign exchange fluctuation between local currency and the United States Dollar that may affect the value of the Performance Shares;

(j) in consideration of the grant of the Performance Shares, no claim or entitlement to compensation or damages shall arise from forfeiture of the Performance Shares resulting from Employee’s Termination of Service with the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and the Employee irrevocably releases the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Employee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim; and

(k) the Performance Shares and the benefits under the Plan, if any, will not automatically transfer to another company in the case of a merger, take-over or transfer of liability.

14. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Employee’s participation in the Plan, or his or her acquisition or sale of the underlying Shares. The Employee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding the Employee’s participation in the Plan before taking any action related to the Plan.

15. Data Privacy . The Employee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Employee’s personal data as described in this Agreement by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering and managing the Employee’s participation in the Plan.

The Employee understands that the Company and its Affiliates may hold certain personal information about the Employee, including, but not limited to, the Employee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company or any Affiliate, details of all Performance Shares or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Employee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Personal Data”).

The Employee understands that Personal Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the United States, the Employee’s country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Employee’s country. The Employee understands that he or she may request a list with the names and addresses of any potential recipients of the Personal Data by contacting the Employee’s local human resources representative. The Employee authorizes the recipients to receive, possess, use, retain and transfer the Personal Data, in electronic or other form, for the purposes of implementing, administering and managing the Employee’s participation in the Plan, including any requisite transfer of such Personal Data as may be required to a broker or other third party with whom the Employee may elect to deposit any Shares received upon vesting of the Performance Shares. The Employee understands that Personal Data will be held only as long as is necessary to implement, administer and manage the Employee’s participation in the Plan. The Employee understands that he or she may, at any time, view Personal Data, request additional information about the storage and processing of Personal Data, require any necessary amendments to Personal Data or refuse or withdraw the consents herein, without cost, by contacting in writing the Employee’s local human resources representative. The Employee understands that refusal or withdrawal of consent may affect the Employee’s ability to participate in the Plan or to realize benefits from the Performance Shares. For more information on the consequences of the Employee’s refusal to consent or withdrawal of consent, the Employee understands that he or she may contact his or her local human resources representative.

16. Plan Governs . This Agreement is subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern. Terms used in this Agreement that are not defined in this Agreement will have the meaning set forth in the Plan.

17. Committee Authority . The Committee will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any portion of the Performance Share has vested). All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

18. No Modification of At-Will Status . Employee understands and agrees that this Agreement does not impact in any way the right of the Employer to terminate or change the terms of the employment of Employee at any time for any reason whatsoever, with or without good cause provided in accordance with applicable local law. Employee understands and agrees that unless contrary to applicable local law or there is an employment contract in place providing otherwise, his or her employment is "at-will" and that either the Employer or Employee may terminate Employee's employment at any time and for any reason subject to applicable local law. Employee also understands and agrees that his or her "at-will" status (if applicable) can only be changed by an express written contract signed by an authorized officer of the Company and Employee if the Employee’s employer is the Company.

19. Non-Transferability of Award . Except as otherwise herein provided, the Performance Shares herein granted and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such Performance Share, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, such Performance Share and the rights and privileges conferred hereby will immediately become null and void.

20. Binding Agreement . Subject to the limitation on the transferability of the Performance Share contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the Employee and the Company.

21. Addresses for Notices . Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of its Legal Department, at The Gap, Inc., Two Folsom, San Francisco, California 94105, or at such other address as the Company may hereafter designate in writing. Any notice to be given to the Employee will be addressed to the Employee at the address set forth on the records of the Company. Any such notice will be deemed to have been duly given if and when enclosed in a properly sealed envelope, addressed as aforesaid, and deposited, postage prepaid, in a United States post office or generally recognized international courier such as DHL or Federal Express.

22. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

23. Agreement Severable . In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

24. Modifications to the Agreement . This Agreement constitutes the entire understanding of the parties on the subjects covered. The Employee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written agreement executed by a duly authorized officer of the Company.

25. Amendment, Suspension or Termination of the Plan . By accepting this Award, the Employee expressly warrants that he or she has received a right to an equity based award under the Plan, and has received, read, and understood a description of the Plan. The Employee understands that the Plan is discretionary in nature and may be modified, suspended, or terminated by the Company at any time.

26. Notice of Governing Law and Venue . This Agreement shall be governed by, and construed in accordance with, the laws of the State of California without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this grant or the Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California and no other courts, where this grant is made and/or to be performed.

27. Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Employee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

28. Language . If the Employee has received this Agreement, including Appendices, or any other document related to the Plan translated into a language other than English, and the meaning of the translated version is different than the English version, the English version will control.

29. Appendix B . Notwithstanding any provisions in this Agreement, the Performance Shares shall be subject to any special terms and conditions set forth in any Appendix to this Agreement for Employee’s country. Moreover, if the Employee relocates to one of the countries included in Appendix B, the special terms and conditions for such country will apply to the Employee, to the extent Company determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan. As stated above, Appendix B constitutes part of this Agreement.

30. Imposition of Other Requirements . The Company reserves the right to impose other requirements on Employee’s participation in the Plan, on the Performance Shares and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Employee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

* * *

APPENDIX B

ADDITIONAL TERMS AND CONDITIONS OF THE GAP, INC.

PERFORMANCE SHARE AGREEMENT

NON-U.S. EMPLOYEES

Terms and Conditions

Notifications

This Appendix also includes country-specific information of which Employee should be aware with respect to his or her participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of May 2011. Such laws are often complex and change frequently. As a result, the Company strongly recommends that Employee does not rely on the information noted herein as the only source of information relating to the consequences of Employee’s participation in the Plan because the information may be out of date at the time that Employee vests in Performance Shares or sells Shares acquired under the Plan.

CANADA

Settlement of Performance Shares. Notwithstanding any discretion or anything to the contrary in the Plan, the grant of the Performance Shares does not provide any right for Employee to receive a cash payment and the Performance Shares will be settled in Shares only.

The following provisions will apply to Employees who are residents of Quebec:

Authorization to Release and Transfer Necessary Personal Information. This provision supplements paragraph 15 of Appendix A of the Agreement:

Employee hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the Plan. Employee further authorizes the Company, its Affiliates and the Committee, which administers the Plan, to disclose and discuss the Plan with their advisors. Employee further authorizes the Company and any Affiliate to record such information and to keep such information in Employee’s employee file.

FRANCE

Taxation of Award. This Award is not intended to be French tax-qualified.

Language Consent. In accepting the grant of the Performance Shares and the Agreement which provides for the terms and conditions of the Performance Shares, Employee confirms that he or she has read and understood the documents relating to the Performance Shares (the Plan and the Agreement), which were provided in the English language. Employee accepts the terms of these documents accordingly.

Consentement Relatif à la Langue Utilisée. En acceptant cette attribution gratuite d’actions et ce contrat qui contient les termes et conditions de cette attribution gratuite d’actions, l’employé confirme ainsi avoir lu et compris les documents relatifs à cette attribution (le Plan et le Contrat d’Attribution) qui lui ont été communiqués en langue anglaise. , L’employé en accepte les termes en connaissance de cause.

HONG KONG

Securities Law Notice. The Performance Shares and Shares issued upon vesting (if any) do not constitute a public offering of securities under Hong Kong law and are available only to Employees of the Company and its Affiliates. The Agreement, including this Appendix B, the Plan and other incidental communication materials have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong. Nor have the documents been reviewed by any regulatory authority in Hong Kong. The Award is intended only for the personal use of each eligible Employee of the Company or its Affiliates and may not be distributed to any other person. If Employee is in any doubt about any of the contents of the Agreement, including this Appendix B, or the Plan, Employee should obtain independent professional advice.

Vesting of Performance Shares and Sale of Shares. In the event the Employee’s Performance Shares vest and Shares are issued to the Employee within six months of the date of grant, the Employee agrees that he or she will not dispose of any of such Shares prior to the six-month anniversary of the date of grant.

INDIA

Tax Information. The amount subject to tax at vesting may be dependent upon a valuation of Shares from a Merchant Banker in India. The Company has no responsibility or obligation to obtain the most favorable valuation possible nor obtain valuations more frequently than required under Indian tax law.

INDONESIA

Exchange Control Information. If Employee remits proceeds from the sale of Shares into Indonesia, the Indonesian Bank through which the transaction is made will submit a report on the transaction to the Bank of Indonesia for statistical reporting purposes. For transactions of US$10,000 or more, a description of the transaction must be included in the report. Although the bank through which the transaction is made is required to make the report, Employee must complete a “Transfer Report Form.” The Transfer Report Form should be provided to Employee by the bank through which the transaction is made.

KOREA

Exchange Control Information. Exchange control laws require Korean residents who realize US$500,000 or more from the sale of Shares to repatriate the proceeds to Korea within 18 months of the sale.

PEOPLE’S REPUBLIC OF CHINA

Mandatory Sale of Shares Upon Vesting. By accepting the Performance Shares, the Employee acknowledges and agrees that the that the Company or the Committee, in its sole discretion, has the right to determine that one of the following sales mechanism will be pursued: (1) immediate sale of the Shares issued upon the vesting of Performance Shares ("Immediate Sale"); or (2) granting the Employee the right to hold the Shares issued upon vesting of Performance Shares for a period of time and then sell the Shares on a future day at their own discretion ("Normal Sale").. In the event of a Termination of Service, the Company or the Committee shall have the sole discretion to determine whether an Immediate Sale will occur. In any event, the Shares shall be sold within 6 months of a Termination of Service or before the expiration of the Plan (whichever is earlier). Such Shares will be transferred to a brokerage firm designated by the Company (the "Brokerage Firm"). The Brokerage Firm, on the Employee’s behalf, may thereafter immediately sell the Shares at the prevailing market price pursuant to any process for the sale set forth by the Company, and deliver the proceeds less the Tax-Related Items and any broker fees, to the Company or its designee, which would then remit the net proceeds to the Employee through the Company’s or Affiliate’s special purpose bank account in China. As a result of the immediate sale of Shares as set forth in this Appendix B, no

Shares would be delivered to the Employee, and the Employee would not have any resulting rights as a shareholder of the Company.

Special Administration in China . The Employee’s ability to be issued Shares at vesting shall be contingent upon the Company or its Affiliate obtaining approval from the State Administration of Foreign Exchange (“SAFE”) for Employee’s participation in the Plan (to the extent required as determined by the Company in its sole discretion) and the establishment of a SAFE-approved bank account. If at the time of vesting, SAFE approval has not been obtained, the Company may cancel this award of Performance Shares with no liability, compensation or benefits in lieu of compensation due to Employee. Employee understands and agrees that he or she will be required to immediately repatriate the proceeds from the vesting/ immediate sale of Shares to China. Employee further understands that such repatriation of proceeds may need to be effected through a special foreign exchange account established by the Company or Affiliate and Employee hereby consents and agrees that the proceeds from the vesting/ immediate sale of Shares may be transferred to such special account prior to being delivered to Employee’s personal account. Furthermore, Employee understands that due to SAFE approval requirements, there may be delays in delivering the proceeds to Employee, Employee will bear any exchange rate risk during the period between vesting and when the proceeds are delivered to him or her, Employee may be required to open a U.S. dollar bank account to receive the proceeds and Employee may be required to pay the Company or an Affiliate the taxes due at vesting prior to receiving the proceeds from vesting/ immediate sale of Shares.

Please note that these special administration procedures will not apply to non Chinese Nationals.

The Company has the sole discretion to determine the mechanism to sell the Shares issued to Employee upon vesting of the Performance Shares. The provisions above pursuant to which Employee agrees to sell all Shares issued to him or her upon Termination of Service or immediately when the Shares are issued to him or her upon vesting at the then current market price is intended to be a plan pursuant to Rule 10b5-1 of the U.S. Securities Exchange Act of 1934 to the extent Employee is subject to this Act. By signing the Agreement, Employee represents that he or she is not aware of any material non-public information about the Company at the time he or she is signing the Agreement.

SINGAPORE

Securities Law Notice . The grant of the Award is made in reliance on section 273(1)(f) of the Securities and Futures Act (Cap. 289) (“SFA”) for which it is exempt from the prospectus and registration requirements under the SFA.

Director Notification Obligation. If Employee is a director, associate director or shadow director (i.e., a non-director who has sufficient control so that the directors act in accordance with the directions and instructions of this individual) of the Company’s local entity in Singapore, he or she is subject to notification requirements under the Singapore Companies Act. Some of these notification requirements will be triggered by Employee’s participation in the Plan. Specifically, Employee is required to notify the local Singapore company when he or she acquires or disposes an interest in the Company, including when Employee receives Shares upon vesting of this Award and when Employee sells these Shares. The notification must be in writing and must be made within two days of acquiring or disposing of any interest in the Company (or within two days of initially becoming a director, associate director or shadow director of the Company’s local entity in Singapore). If Employee is unclear as to whether he or she is a director, associate director or shadow director of the Company’s local entity in Singapore or the form of the notification, he or she should consult with his or her personal legal advisor.

UNITED KINGDOM

Tax and National Insurance Contributions Acknowledgment. The following provision supplements paragraph 10 of the Agreement:

Employee agrees that if Employee does not pay or the Employer or the Company does not withhold from Employee the full amount of Tax-Related Items that Employee owes in connection with the vesting of the Award and/or the acquisition of Shares pursuant to the vesting of the Award, or the release or assignment of the Award for consideration, or the receipt of any other benefit in connection with the Award (the “ Taxable Event ”) within ninety (90) days after the Taxable Event, or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003, then the amount that should have been withheld shall constitute a loan owed by Employee to the Employer, effective ninety (90) days after the Taxable Event. Employee agrees that the loan will bear interest at the official rate of HM Revenue and Customs (“HMRC”) and will be immediately due and repayable by Employee, and the Company and/or the Employer may recover it at any time thereafter by withholding the funds from salary, bonus or any other funds due to Employee by the Employer, by withholding in Shares issued upon vesting of the

Award or from the cash proceeds from the sale of such Shares or by demanding cash or a cheque from Employee. Employee also authorizes the Company to withhold the transfer of any Shares unless and until the loan is repaid in full.

* * *

Exhibit 10.89

Award No. _________

THE GAP, INC.

RESTRICTED STOCK UNIT AWARD AGREEMENT

The Gap, Inc. (the "Company") hereby grants to ___________ (the "Employee"), an award (the “Award”) of Restricted Stock Units (each Restricted Stock Unit shall be referred to as a “Stock Award”) which represent the right to receive shares of the Company’s common stock, $0.05 par value (the “Shares”) subject to the fulfillment of the vesting conditions and other conditions set forth in the attached Appendix A and Appendix B. This Award is granted pursuant to The Gap, Inc. 2011 Long-Term Incentive Plan (the “Plan”) and is subject to all of the terms and conditions contained in this Restricted Stock Unit Award Agreement (the “Agreement”), including the terms and conditions contained in the attached Appendix A, Appendix B and the Plan. The date of this Agreement is ________. Subject to the provisions of Appendix A, Appendix B and of the Plan, the principal features of this Award are as follows:

Number of Stock Awards: _____

Date of Grant: _____

Date(s) Stock Awards _____

Scheduled to Vest:

As provided in the Plan and in this Agreement, this Award may terminate before the scheduled vest date(s) of the Stock Awards. For example, if Employee’s Termination of Service occurs before the date this Award vests, this Award will terminate at the same time as such termination. Important additional information on vesting and forfeiture of the Stock Awards covered by this Award including those due to changes in employment is contained in paragraphs 3 through 6 of Appendix A.

IN WITNESS WHEREOF, the Company and the Employee have agreed to the terms of this Agreement, to be effective as of the date first above written.

THE GAP, INC.

Dated: _______________ ____________________________

I understand that this Award is 1) subject to all of the terms and conditions of this Agreement (including the attached Appendix A and Appendix B) and of the Plan, 2) not considered salary, nor is it a promise for future grants of Awards, 3) not a term or condition of my employment with the Company (or one of its Affiliates), and 4) made at the sole discretion of the Company.

Exhibit 10.89

APPENDIX A

TERMS AND CONDITIONS OF STOCK AWARD

1. Grant of Stock Awards . The Company hereby grants to the Employee as a separate incentive and not in lieu of any salary or other compensation for his or her services, an Award with respect to the number of Stock Awards set forth on page 1 of this Agreement, subject to all the terms and conditions in this Agreement and the Plan. Employee understands and agrees that this Award does not guarantee any future Stock Award grants and that grants are made at the sole discretion of the Company.

2. Company’s Obligation to Pay . Unless and until a Stock Award has vested in accordance with the terms hereof, the Employee will have no right to payment of a Share with respect to the Stock Award. Prior to actual payment of any Shares pursuant to vested Stock Awards, each Stock Award represents an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. No Shares shall be issued until after the Stock Awards have vested in accordance with the terms hereof and shall be issued in accordance with the settlement terms hereof. Notwithstanding Section 9.6 of the Plan, the Stock Awards will only be settled, if at all, in Shares, provided that to the extent a fractional share is earned, the number of Shares paid shall be rounded down to the nearest whole number and no fractional Share shall be issued.

3. Vesting of Stock Awards and Issuance of Shares .

(a)

Subject to paragraphs 4, 5 and 6, the Stock Awards subject to this Agreement will vest as to the number of Stock Awards, and on the dates shown, on the first page of this Agreement (each a “Vesting Date”), but in each case, only if the Employee has been continuously employed by, or providing consulting services to, the Company or one of its Affiliates from the date of this Award until the applicable Vesting Date of the Stock Awards. If Employee has had a Termination of Service prior to such date(s), the Award shall terminate, as set forth in paragraph 6.


(b)	Subject to earlier issuance pursuant to paragraph 4 or 5, upon each Vesting Date, one Share shall be issued for each Stock Award that vests on such Vesting Date, subject to the terms and provisions of the Plan and this Agreement.

(c)

If the Committee, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Stock Award, the payment of such accelerated portion of the Stock Award nevertheless shall be made at the same time or times as if such Stock Award had vested in accordance with the vesting schedule set forth on the first page of this Agreement (whether or not the Employee remains employed by the Company or by one of its Affiliates as of such date(s)).

(d)

Notwithstanding the foregoing, if the Committee, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Stock Award in connection with Employee’s “separation from service" within the meaning of Section 409A) and if (i) Employee is subject to U.S. income tax, and (ii) Employee is a “specified employee” within the meaning of Section 409A at the time of such separation from service, then any such accelerated Stock Awards otherwise payable within the six (6) month period following Employee’s separation from service instead will be paid on the date that is six (6) months and one (1) day following the date of Employee’s separation from service, unless the Employee dies following his or her separation from service prior to such time, in which case, the Stock Awards will be paid to the Employee’s estate upon his or her death, subject to paragraph 7. Thereafter, such Stock Awards shall continue to be paid in accordance with the requirements of paragraph 3(c). For purposes of this Agreement, “Section 409A” means Section 409A of the U.S. Internal Revenue Code of 1986, as amended, and any final Treasury Regulations and other Internal Revenue Service guidance thereunder, as each may be amended from time to time (“Section 409A”). This paragraph 3(d) shall only apply to the extent necessary to avoid taxation under Section 409A.


(e)	It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the Shares subject to the Stock Award granted under this Agreement will be

subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply.


(f)	No fractional Shares shall be issued under this Agreement. To the extent a fractional share is earned, the number of Shares paid shall be rounded down to the nearest whole number and no fractional Share shall be issued.

4. Death . In the event of the Employee’s death, the remaining Stock Awards shall automatically and with no exercise of discretion by the Committee become fully vested, and shall be settled, on the date of death. Notwithstanding the previous sentence, if in the event that within one year of the date of this Agreement, Employee dies, this Stock Award shall immediately thereupon terminate.

5. Retirement .

(a) Except as would result in taxation under Section 409A, a portion of the remaining Stock Awards automatically and with no exercise of discretion by the Committee shall become fully vested, and shall be settled, and applicable taxes shall be withheld by the Company or its designated Affiliate in accordance with paragraph 7 in the first year on or after the one-year anniversary of this Agreement that the Employee is eligible for Retirement (as defined below) on (1) the later of the date that the Employee is so eligible for Retirement or November 15 ^th of such year. The portion of the remaining Stock Awards that vests and is settled in accordance with the preceding sentence shall have an aggregate market value sufficient to pay any taxes required to be withheld by the Company (or an Affiliate) solely as a result of (a) the Employee’s becoming eligible to receive shares of common stock upon Retirement pursuant to paragraph 5(b), and (b) the vesting and settlement of such portion of the remaining Stock Awards.

(b) In the event of Employee's Retirement (as defined below) that, in the case of U.S. taxpayers, qualifies as a "separation from service" within the meaning of Section 409A, the remaining Stock Awards automatically and with no exercise of discretion by the Committee shall become fully vested, and shall be settled, on the date of such Retirement. Notwithstanding any other provision of this paragraph 5, if in the event that within one year of the date of this Agreement, Employee has a Termination of Service due to Retirement, no portion of this Stock Award will vest and this Stock Award shall immediately thereupon terminate. If (i) Employee is subject to U.S. income tax, and (ii) Employee is a “specified employee” within the meaning of Section 409A at the time of such Retirement then the payment of such accelerated Stock Awards will not be made until the date six (6) months and one (1) day following the date of such Retirement, unless the Employee dies following such Retirement prior to such time, in which case, the Stock Awards will be paid to the Employee’s estate (or beneficiary) upon his or her death, subject to paragraph 7.

6. Termination of Service. Notwithstanding any contrary provision of this Agreement and except as set forth in paragraphs 3, 4 or 5, the balance of the Stock Awards that have not vested will be forfeited and cancelled automatically at the time of the Employee’s Termination of Service. For purposes of this Agreement, Termination of Service shall have the meaning set forth in the Plan and be determined by reference to Employee’s active service without reference to any other agreement, written or oral, including Employee’s contract of employment (if any). Thus, in the event of Employee’s Termination of Service (whether or not in breach of local labor laws), unless otherwise expressly provided for under this Agreement, Employee’s right to vest in the Stock Awards under the Plan, if any, will terminate effective on Employee’s Termination of Service and will not be extended by any notice period mandated under local law ( e.g. , active employment would not include a period of “garden leave” or similar period pursuant to local law); the Committee shall have the exclusive discretion to determine when the Employee has incurred a Termination of Service.

aspect of the Stock Awards, including the grant or vesting of the Stock Awards, the subsequent sale of Shares acquired under the Plan and the receipt of dividends, if any; and (b) does not commit to and is under no obligation to structure the terms of the Stock Awards or any aspect of the Stock Awards to reduce or eliminate the Employee’s liability for Tax-Related Items, or achieve any particular tax result. Further, if Employee has become subject to tax in more than one jurisdiction between the date of grant and the date of any relevant taxable event, Employee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

No payment will be made to the Employee (or his or her estate) for the Stock Award unless and until satisfactory arrangements (as determined by the Committee) have been made by the Employee with respect to the payment of any Tax-Related Items obligations of the Company and/or the Employer with respect to the Stock Awards. In this regard, the Employee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:

(a) withholding from Employee’s wages or other cash compensation paid to Employee by the Company or the Employer; or

(b) withholding from proceeds of the sale of Shares acquired upon vesting of the Stock Awards, either through a voluntary sale or through a mandatory sale arranged by the Company (on Employee’s behalf pursuant to this authorization); or

(d) surrendering already-owned Shares having a Fair Market Value equal to the Tax-Related Items that have been held for such period of time to avoid adverse accounting consequences.

If the obligation for Tax-Related Items is satisfied by withholding Shares, for tax purposes, the Employee is deemed to have been issued the full number of Shares subject to the Stock Award, notwithstanding that a number of the Shares is held back solely for the purpose of paying the Tax-Related Items due as a result of the Employee’s participation in the Plan. The Employee shall pay to the Company or Employer any amount of Tax-Related Items that the Company may be required to withhold or account for as a result of the Employee’s participation in the Plan that cannot be satisfied by one or more of the means previously described in this paragraph 7. The Employee acknowledges and agrees that the Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if Employee fails to comply with his or her obligations in connection with the Tax-Related Items.

It is the Company’s current practice to withhold a portion of the Shares scheduled to be issued pursuant to vested Stock Awards that have an aggregate market value sufficient to pay the Tax-Related Items. The Company will only withhold whole Shares and therefore the Employee also authorizes deduction without notice from salary or other amounts payable to the Employee of cash in an amount sufficient to satisfy the Employer’s remaining tax withholding obligation. Notwithstanding the previous two sentences, the Employee, if the Company in its sole discretion so agrees, may elect to furnish to the Company written notice, no more than 30 days and no less than 5 days in advance of a scheduled Vesting Date (or other required withholding event), of his or her intent to satisfy the tax withholding requirement by remitting the full amount of the tax withholding to the Company on the scheduled Vesting Date (or other required withholding event). In the event that Employee provides such written notice and fails to satisfy the amounts required for the Tax-Related Items by the Vesting Date (or other required withholding event), the Company shall satisfy the tax withholding requirement pursuant to the first two sentences of this paragraph. However, the Company reserves the right to withhold for Tax-Related Items pursuant to any means set forth in this paragraph.

9. Beneficiary Designation . Any distribution or delivery to be made to the Employee under this Agreement will, if the Employee is then deceased, be made to the Employee's designated beneficiary to

the extent such designation is valid under applicable law, or if no such beneficiary survives the Employee or no beneficiary is designated, the person or persons entitled to such distribution or delivery under the Employee's will or, to the executor of his or her estate. In order to be effective, a beneficiary designation must be made by the Employee in a form and manner acceptable to the Company and permitted by the Company. Any transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

11. Rights as Stockholder . Neither the Employee nor any person claiming under or through the Employee will have any of the rights or privileges of a stockholder of the Company in respect of any Stock Award unless and until Shares have been issued in accordance with paragraph 3, 4 or 5, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Employee. Except as provided in paragraph 12, after such issuance, recordation, and delivery, the Employee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

12. Adjustments . The Award is subject to adjustment in accordance with Section 4.3 of the Plan.

13. Nature of Grant . In accepting the grant of Stock Awards, the Employee acknowledges that:

(a) the grant of the Stock Awards is voluntary and occasional and does not create any contractual or other right to receive future grants of Stock Awards, or benefits in lieu of Stock Awards, even if Stock Awards have been granted repeatedly in the past;

(b) all decisions with respect to future Stock Award grants, if any, will be at the sole discretion of the Company;

(d) the Employee is voluntarily participating in the Plan;

(e) the Stock Awards are extraordinary items that do not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which are outside the scope of the Employee’s employment contract, if any;

(f) the Stock Awards and the Shares subject to the Stock Awards are not intended to replace any pension rights or compensation;

(g) the Stock Awards are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer;

(h) the Stock Awards grant and the Employee’s participation in the Plan will not be interpreted to form an employment contract or relationship with the Company or any Affiliate;

(j) in consideration of the grant of the Stock Awards, no claim or entitlement to compensation or damages shall arise from forfeiture of the Stock Awards resulting from Employee’s Termination of Service with the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and the Employee irrevocably releases the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Employee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim; and

(k) the Stock Awards and the benefits under the Plan, if any, will not automatically transfer to another company in the case of a merger, take-over or transfer of liability.

The Employee understands that the Company and its Affiliates may hold certain personal information about the Employee, including, but not limited to, the Employee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company or any Affiliate, details of all Stock Awards or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Employee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Personal Data”).

The Employee understands that Personal Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the United States, the Employee’s country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Employee’s country. The Employee understands that he or she may request a list with the names and addresses of any potential recipients of the Personal Data by contacting the Employee’s local human resources representative. The Employee authorizes the recipients to receive, possess, use, retain and transfer the Personal Data, in electronic or other form, for the purposes of implementing, administering and managing the Employee’s participation in the Plan, including any requisite transfer of such Personal Data as may be required to a broker or other third party with whom the Employee may elect to deposit any Shares received upon vesting of the Stock Awards. The Employee understands that Personal Data will be held only as long as is necessary to implement, administer and manage the Employee’s participation in the Plan. The Employee understands that he or she may, at any time, view Personal Data, request additional information about the storage and processing of Personal Data, require any necessary amendments to Personal Data or refuse or withdraw the consents herein, without cost, by contacting in writing the Employee’s local human resources representative. The Employee understands that refusal or withdrawal of consent may affect the Employee’s ability to participate in the Plan or to realize benefits from the Stock Awards. For more information on the consequences of the Employee’s refusal to consent or withdrawal of consent, the Employee understands that he or she may contact his or her local human resources representative.

17. Committee Authority . The Committee will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are

consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any portion of the Stock Award has vested). All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

19. Non-Transferability of Award . Except as otherwise herein provided, the Stock Awards herein granted and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such Stock Award, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, such Stock Award and the rights and privileges conferred hereby will immediately become null and void.

20. Binding Agreement . Subject to the limitation on the transferability of the Stock Award contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the Employee and the Company.

22. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

County, California, or the federal courts for the United States for the Northern District of California and no other courts, where this grant is made and/or to be performed.

29. Appendix B . Notwithstanding any provisions in this Agreement, the Stock Awards shall be subject to any special terms and conditions set forth in any Appendix to this Agreement for Employee’s country. Moreover, if the Employee relocates to one of the countries included in Appendix B, the special terms and conditions for such country will apply to the Employee, to the extent Company determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan. As stated above, Appendix B constitutes part of this Agreement.

30. Imposition of Other Requirements . The Company reserves the right to impose other requirements on Employee’s participation in the Plan, on the Stock Awards and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Employee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

* * *

APPENDIX B

ADDITIONAL TERMS AND CONDITIONS OF THE GAP, INC.

RESTRICTED STOCK UNIT AWARD AGREEMENT

NON-U.S. EMPLOYEES

Terms and Conditions

Notifications

This Appendix also includes country-specific information of which Employee should be aware with respect to his or her participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of May 2011. Such laws are often complex and change frequently. As a result, the Company strongly recommends that Employee does not rely on the information noted herein as the only source of information relating to the consequences of Employee’s participation in the Plan because the information may be out of date at the time that Employee vests in Share Awards or sells Shares acquired under the Plan.

CANADA

Settlement of Stock Awards. Notwithstanding any discretion or anything to the contrary in the Plan, the grant of the Stock Awards does not provide any right for Employee to receive a cash payment and the Stock Awards will be settled in Shares only.

The following provisions will apply to Employees who are residents of Quebec:

Authorization to Release and Transfer Necessary Personal Information. This provision supplements paragraph 15 of Appendix A of the Agreement:

FRANCE

Taxation of Award. This Award is not intended to be French tax-qualified.

Language Consent. In accepting the grant of the Stock Awards and the Agreement which provides for the terms and conditions of the Stock Awards, Employee confirms that he or she has read and understood the

documents relating to the Stock Awards (the Plan and the Agreement), which were provided in the English language. Employee accepts the terms of these documents accordingly.

HONG KONG

Securities Law Notice. The Stock Awards and Shares issued upon vesting (if any) do not constitute a public offering of securities under Hong Kong law and are available only to Employees of the Company and its Affiliates. The Agreement, including this Appendix B, the Plan and other incidental communication materials have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong. Nor have the documents been reviewed by any regulatory authority in Hong Kong. The Award is intended only for the personal use of each eligible Employee of the Company or its Affiliates and may not be distributed to any other person. If Employee is in any doubt about any of the contents of the Agreement, including this Appendix B, or the Plan, Employee should obtain independent professional advice.

Vesting of Stock Awards and Sale of Shares. In the event the Employee’s Stock Awards vest and Shares are issued to the Employee within six months of the date of grant, the Employee agrees that he or she will not dispose of any of such Shares prior to the six-month anniversary of the date of grant.

INDIA

INDONESIA

KOREA

Exchange Control Information. Exchange control laws require Korean residents who realize US$500,000 or more from the sale of Shares to repatriate the proceeds to Korea within 18 months of the sale.

PEOPLE’S REPUBLIC OF CHINA

Sale of Shares Upon Vesting. By accepting the Stock Awards, the Employee acknowledges and agrees that the Company or the Committee, in its sole discretion, has the right to determine that one of the following sales mechanism will be pursued: (1) immediate sale of the Shares issued upon the vesting of Stock Awards ("Immediate Sale"); or (2) granting the Employee the right to hold the Shares for a period of time and then sell the Shares on a future day at their own discretion ("Normal Sale"). In the event of a Termination of Service, the Company or the Committee shall have the sole discretion to determine whether an Immediate Sale will occur. . In any event, the Shares shall be sold within 6 months of a Termination of Service or before the expiration of the Plan (whichever is earlier). Such Shares will be transferred to a brokerage firm designated by the Company (the "Brokerage Firm"). The Brokerage Firm, on the Employee’s behalf, may: (a) immediately sell the Shares at the prevailing market price pursuant to any process for the sale set forth by the Company pursuant to the Immediate Sale of the Shares, or (b) sell the Shares at the prevailing market price, upon receipt of a properly executed notice together with irrevocable instructions from the Employee, pursuant to any process for the sale set forth by the Company pursuant to Normal Sale of the Shares; and deliver the proceeds less the Tax-Related Items and any broker fees, to the Company or its designee, which would then remit the net proceeds to the Employee through the Company’s or Affiliate’s special purpose bank account in China. As a result of the Immediate Sale of Shares as set forth in this Appendix B, no Shares would be delivered to the Employee, and the Employee would not have any resulting rights as a shareholder of the Company. However, as a result of the Normal Sale of Shares as set forth in this Appendix B, the Employees will have the rights as shareholders as provided in paragraph 11 of Appendix A.

Special Administration in China . The Employee’s ability to be issued Shares at vesting shall be contingent upon the Company or its Affiliate obtaining approval from the State Administration of Foreign Exchange (“SAFE”) for Employee’s participation in the Plan (to the extent required as determined by the Company in its sole discretion) and the establishment of a SAFE-approved bank account. If at the time of vesting, SAFE approval has not been obtained, the Company may cancel this Stock Award with no liability, compensation or benefits in lieu of compensation due to Employee. Employee understands and agrees that he or she will be required to immediately repatriate the proceeds from the Immediate Sale or Normal Sale of Shares to China. Employee further understands that such repatriation of proceeds may need to be effected through a special foreign exchange account established by the Company or Affiliate and Employee hereby consents and agrees that the proceeds from the Immediate Sale or Normal Sale of Shares may be transferred to such special account prior to being delivered to Employee’s personal account. Furthermore, Employee understands that due to SAFE approval requirements, there may be delays in delivering the proceeds to Employee, Employee will bear any exchange rate risk during the period between vesting and when the proceeds are delivered to him or her, Employee may be required to open a U.S. dollar bank account to receive the proceeds and Employee may be required to pay the Company or an Affiliate the taxes due at vesting prior to receiving the proceeds from vesting/ immediate sale of Shares.

Please note that these special administration procedures will not apply to non Chinese Nationals.

The Company has sole discretion to determine the mechanism to sell the Shares issued to Employee upon vesting. The provisions above pursuant to which Employee agrees to sell all Shares issued to him or her upon Termination of Service or immediately when the Shares are issued to him or her upon vesting at the then current market price is intended to be a plan pursuant to Rule 10b5-1 of the U.S. Securities Exchange Act of 1934 to the extent Employee is subject to this Act. By signing the Agreement, Employee represents that he or she is not aware of any material non-public information about the Company at the time he or she is signing the Agreement.

SINGAPORE

Securities Law Notice . The grant of Stock Awards is made in reliance on section 273(1)(f) of the Securities and Futures Act (Cap. 289) (“SFA”) for which it is exempt from the prospectus and registration requirements under the SFA.

within two days of acquiring or disposing of any interest in the Company (or within two days of initially becoming a director, associate director or shadow director of the Company’s local entity in Singapore). If Employee is unclear as to whether he or she is a director, associate director or shadow director of the Company’s local entity in Singapore or the form of the notification, he or she should consult with his or her personal legal advisor.

UNITED KINGDOM

Tax and National Insurance Contributions Acknowledgment. The following provision supplements paragraph 7 of the Agreement:

Employee agrees that if Employee does not pay or the Employer or the Company does not withhold from Employee the full amount of Tax-Related Items that Employee owes in connection with the vesting of the Stock Award and/or the acquisition of Shares pursuant to the vesting of the Stock Award, or the release or assignment of the Stock Award for consideration, or the receipt of any other benefit in connection with the Award (the “ Taxable Event ”) within ninety (90) days after the Taxable Event, or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003, then the amount that should have been withheld shall constitute a loan owed by Employee to the Employer, effective ninety (90) days after the Taxable Event. Employee agrees that the loan will bear interest at the official rate of HM Revenue and Customs (“HMRC”) and will be immediately due and repayable by Employee, and the Company and/or the Employer may recover it at any time thereafter by withholding the funds from salary, bonus or any other funds due to Employee by the Employer, by withholding in Shares issued upon vesting of the Award or from the cash proceeds from the sale of such Shares or by demanding cash or a cheque from Employee. Employee also authorizes the Company to withhold the transfer of any Shares unless and until the loan is repaid in full.

* * *

Exhibit 10.96

[Gap Inc. logo]

October 29, 2012

Art Peck

Dear Art:

This letter is to confirm our offer to you as President, Innovation, Digital Strategy & New Brands, Gap Inc. and to summarize certain compensation arrangements. Except as described below, the employment terms of your letter agreement dated January 31, 2011 and the Agreement for Post-Termination Benefits, dated May 31, 2012, will remain in effect.

Start Date. Your first day in your new position will be November 5, 2012.

Salary. Effective on your Start Date, your annual salary will be $900,000, payable every two weeks.

Annual Bonus. Effective at the beginning of fiscal 2013, your annual target bonus will be 100% of your base salary and will be based on achievement of Gap Inc. and/or Division financial objectives as well as key business goals and individual performance. Depending on results, your actual bonus, if any, may be higher or lower and can reach a maximum of 200%. Your annual bonus for fiscal 2013 is scheduled for payment in March 2014. For the remainder of fiscal 2012, your annual target bonus will continue to be 75% of base salary and will be based on achievement of Gap North America financial objectives, key business goals and individual performance. Bonuses for fiscal 2012 are scheduled for payment in March 2013. You must be employed by Gap Inc. on the payment date to receive an award. Gap Inc. has the right to modify the program at any time. Management discretion can be used to modify the final award amount. Bonus payments are subject to supplemental income tax withholding.

Special Stock Award. Subject to approval by the Compensation and Management Development Committee of the Board of Directors (“the Committee”) and the provisions of Gap Inc.'s stock plan, you will be granted stock awards covering 50,000 shares of Gap Inc. common stock on the date when the award is approved by the Committee in March 2013 (the “date of grant”). Awards are in the form of units that are paid in Gap Inc. stock upon vesting. The award will become vested as shown in the schedule below, provided you are employed by Gap Inc. on the vesting date. Awards are subject to income tax withholding upon vesting.

Stock Award of 25,000 shares vesting two years from date of grant.

Stock Award of 25,000 shares vesting three years from date of grant.

Long-Term Growth Program. You will continue to participate in the Long-Term Growth Program. Beginning with the fiscal 2013-2015 performance cycle, your target opportunity to earn performance shares will be 150% of your base salary.

Yours sincerely,

/s/ Eva Sage-Gavin ____________

Eva Sage-Gavin

Executive Vice President

Global HR & Corporate Affairs

Confirmed this 9th day of November, 2012

_ /s/ Art Peck ________________________________

Art Peck

Exhibit 10.117



	10 June 2009
(1) GPS (GREAT BRITAIN) LIMITED (2) STEPHEN SUNNUCKS
	AMENDED SERVICE AGREEMENT

CONTENTS

Clause Page


1	MEANING OF WORDS USED 3


2	PREVIOUS AGREEMENTS 4


3	APPOINTMENT, DURATION AND NOTICE 5


4	DUTIES 6


5	PLACE OF WORK 7


6	HOURS OF WORK 7


7	REMUNERATION 7


8	EXPENSES 8


9	PENSION AND OTHER BENEFITS 9


10	HOLIDAYS 9


11	INCAPACITY 10


12	CONFLICT OF INTERESTS 11


13	RESTRICTIVE COVENANTS 12

14 POST-TERMINATION SEVERANCE PERIOD 17


15	CONFIDENTIALITY 18


16	INTELLECTUAL PROPERTY RIGHTS 20


17	TERMINATION 21


18	DEDUCTIONS 24


19	DELIVERY OF DOCUMENTS AND PROPERTY 24


20	RESIGNATION AS DIRECTOR 25


21	RIGHTS FOLLOWING TERMINATION 26


22	THIRD PARTY RIGHTS 26


23	DATA PROTECTION 26


24	NOTICES 27


25	MISCELLANEOUS 27

THIS AGREEMENT is made the 10th day of June 2009

BETWEEN


(1)	GPS (GREAT BRITAIN) LIMITED whose registered office is at 10 Upper Bank Street, London E14 5JJ (“the Company”) and


(2)	STEPHEN SUNNUCKS of [_______________________________________] (“the Executive”)

WHEREBY IT IS AGREED as follows:


1.	Meaning of words used


1.1	In this Agreement the following expressions have the following meanings:



“Board”	the Board of Directors of the Company from time to time and any other person or persons authorised by the Board as its representative for the purposes of this Agreement including without limitation the Remuneration Committee;
“Commencement Date”	27 June 2005
“Group Company”	any holding company (including Gap Inc.) from time to time of the Company or any subsidiary or associated company from time to time of the Company or of any such holding company (for which purpose “holding company” and “subsidiary” have the meanings ascribed to them by Section 736 of the Companies Act 1985 as amended by the Companies Act 1989 and “associated company” means any company which any such holding company or subsidiary holds or controls more than 20 per cent. of the equity share capital);
“Group”	the Company and every Group Company wherever registered or incorporated;
“the 1996 Act”	The Employment Rights Act 1996;
“holiday year”	the period of 12 months from 1 April to 31 March;
“PAYE deductions”	deductions made to comply with or meet any liability of the Company to account for tax pursuant to regulations made under Chapter 2 of Part 11 Income Tax (Earnings and Pensions) Act 2003 and with any obligations to deduct national insurance contributions;
“recognised investment exchange”	has the meaning in Section 285 of the Financial Services and Markets Act 2000;
“Termination Date”	the date on which the Executive’s employment under this Agreement terminates and references to “from the Termination Date” mean from and including the date of termination.


1.2	References herein to “clauses” and “sub‑clauses” are to clauses and sub‑clauses of this Agreement unless otherwise specified.


1.3	Unless otherwise required words denoting the singular include the plural and vice versa.


1.4	References in this Agreement to statutory provisions include all modifications and re‑enactments of them and all subordinate legislation made under them.


1.5	Clause headings are included in this Agreement for convenience only and do not affect its construction.


2.	Previous agreements

2.1

This Agreement dated 10 June 2009 contains the entire and only agreement and will govern the relationship between the Company and the Executive from the Commencement Date in substitution for all previous agreements and arrangements whether written, oral or implied between the Company or any Group Company and the Executive relating to the services of the Executive all of which will terminate by consent with effect from the Commencement Date, including for the avoidance of doubt, the previous service agreement between the Executive and Company dated 25 June 2007.

2.2

The Executive and the Company acknowledge that in entering into this Agreement neither has relied on any representation or undertaking by the other whether oral or in writing except as expressly incorporated in this Agreement. The Company will not be liable for any misrepresentation by it or any Group Company before the Commencement Date made innocently or negligently and any remedy of the Executive in respect of any representation which is untrue made before the Commencement Date will be limited to damages for breach of contract.


2.3	The Executive warrants and represents to the Company that he will not breach any existing or former terms of employment applicable to him whether express or implied or any other obligation binding on him by reason of entering into this Agreement or performing any of his duties and obligations under it.


3.	Appointment, duration and notice


3.1	The Company will employ the Executive and the Executive will serve the Company as Division President, Europe and International Strategic Alliances, reporting to Glenn Murphy, Chairman and Chief Executive Officer, Gap Inc. The Company has the right in its absolute discretion to change the person or person to whom the Executive reports.


3.1	The said appointment will commenced on 27 June 2005 and will continue subject as follows unless and until the employment is terminated either by the Company giving to the Executive not less than six calendar months’ written notice or by the Executive giving to the Company not less than six calendar months’ written notice to expire at any time.

3.2

Without prejudice to clauses 17.1 and 17.2 at its absolute discretion the Company may terminate this Agreement and the Executive’s employment with immediate effect at any time by giving him written notice and paying him in full and final settlement of all claims which he has or may have against the Company, any Group Company or any director, employee or agent of the Company or any Group Company under or arising out of his employment with the Company or any such Group Company, the termination of his employment (including without limitation his right to notice pursuant to clause 3.2) or otherwise basic salary at the rate applicable at the Termination Date (less PAYE deductions) in lieu

of the notice period referred to in clause 3.2 or remainder of the notice period if at the Company’s request the Executive has worked (or been excluded pursuant to clause 17.2) during part of the notice period. For the avoidance of doubt the Executive’s employment will terminate on the date specified in the notice given by the Company pursuant to this clause.


3.3	The Executive’s continuous employment with the Company for the purposes of the 1996 Act commenced on 27 June 2005. No employment with a previous employer counts for the purposes of the 1996 Act as part of the Executive’s period of continuous employment.


4.	Duties

4.1

The Executive will carry out such duties and functions, exercise such powers and comply with such instructions in connection with the business of the Company and the Group as the Company reasonably determines from time to time. Except when prevented by illness, accident or holiday as provided below the Executive will devote the whole of his time and all of his attention and skill to the affairs of the Company and where appropriate the Group and use his best endeavours to promote their interests.


4.2	The Executive will if and so long as he is so required by the Company carry out duties for and/or act as a director, officer or employee of any other Group Company. The duties attendant on any such appointment will be carried out by the Executive as if they were duties to be performed by him on behalf of the Company under this Agreement.


4.3	The Executive will at all times promptly give to the Company (in writing if requested) all information, explanations and assistance that the Company may require in connection with the business or affairs of the Company and the Group and his employment under this Agreement.


4.4	Without prejudice to clause 17.2 the Company may at any time require the Executive to cease performing and exercising all or any of such duties, functions or powers and/or the Company may appoint any person or persons to act jointly with the Executive to discharge his duties and functions hereunder.


4.5	The Company is not obliged to ensure that the Executive remains a director of the Company within the meaning of Section 741 of the Companies Act 1985 as amended and the removal of the Executive from the Company in accordance with the Company’s Articles of Association or if required by law or otherwise will not be a breach of this Agreement by the Company.


5.	Place of work


5.1	The Executive will perform his duties at the European Headquarters currently located in London, U.K. and at such other place or places as the Company reasonably requires. The Executive may be required to travel both inside and outside the United Kingdom in the course of his duties.


6.	Hours of work

6.1

The Company’s normal office hours are from 9am to 6pm Monday to Friday but the Executive will be required to work outside these hours without additional remuneration in order to meet the requirements of the business and for the proper performance of his duties. In view of the Executive’s seniority and managerial duties and responsibilities, the Executive is regarded as a “managing executive” for the purposes of the Working Time Regulations 1998.


7.	Remuneration


7.1	The Company will pay the Executive a salary at the rate of £446,250 per annum with effect from the Commencement Date which salary will accrue from day to day and be payable in arrears by equal monthly instalments on the last day of each month.

7.2

The Executive’s salary will be subject to reviews by the Company which will be effective on and from April in each year during the Executive’s employment under this Agreement commencing from April 2006 provided that the increase (if any) of such salary will be a matter to be decided at the Company’s absolute discretion. The fact that the Executive’s salary may be increased in any year or years during his employment does not confer any right on the Executive to receive any increase in any subsequent year.


7.3	The salary referred to in clause 7.1 will be inclusive of any director’s fees to which the Executive may be entitled as a director of the Company or of any Group Company.

7.4

Based on the Executive’s position as Division President, Europe and International Strategic Alliances, he will participate in the Management Incentive Compensation Award Plan (MICAP) or such substitute scheme as may be applicable from time to time, if any. MICAP is a cash incentive programme that rewards achievement of Gap Inc. and/or Division financial objectives as well as individual performance. Under the current programme his annual target bonus will be 75% of the Executive's base salary. Depending on results, the Executive's actual bonus, if any, may be higher or lower and can reach a maximum of 150%. Bonus payments will be prorated based on time in position, divisional or country assignment and changes in base salary or incentive target that may occur during the fiscal year. The Gap, Inc. has the right to modify the programme at any time. Management discretion can be used to modify the final award amount.


7.5	As a participant in the Company’s Focal Review process, in addition to the stock option and stock awards set out in the offer letter dated April 18, 2005 from Gap Inc. to the Executive, the Executive may be eligible for future stock option awards provided that the Executive continues employment with the Company or any affiliated company of Gap Inc.

7.6

Based on his position as Division President, Europe and International Strategic Alliances, the Executive is eligible for performance stock awards. Performance stock awards reward achievement of Gap Inc. and/or division financial objectives. Under the current programme, his annual target for this program is equal to 100% of base salary. Depending on results, the Executive's actual performance stock award, if any, may be higher or lower and can reach a maximum of 200%. Performance stock awards will be prorated based on time in position, changes in base salary, or changes to the performance stock award target that may occur during the fiscal year. Awards are made in the form of performance units that are paid in Gap Inc. stock upon vesting. Awards are subject to approval by the Committee and the provisions of Gap Inc.’s stock plan. Gap Inc. has the right to modify the program at any time. Management discretion can be used to modify the final award amount. Awards are subject to income tax withholding upon vesting .


8.	Expenses


8.1	The Executive will be reimbursed all out of pocket expenses reasonably and properly incurred by him in the performance of his duties under this Agreement on hotel, travelling, entertainment and other similar items provided that he complies with the Company’s then current guidelines relating to expenses and produces to the Company satisfactory evidence of expenditure.


9.	Pension and other benefits


9.1	The Executive will be eligible to participate in a group personal pension scheme. The Company will match his contribution up to 10% of his annual base salary should he contribute a minimum of 5% of his annual base salary.


9.2	During his employment the Executive will be entitled to participate at the Company’s expense in the Company’s:


9.2.1	private medical expenses insurance scheme for the benefit of the Executive and his wife/partner and all dependent children in full time education under the age of 21;


9.2.2	permanent health insurance scheme

subject to the rules of the said schemes from time to time (and any replacement schemes provided by the Company) and subject to the Executive (and where appropriate his wife/partner and dependent children) being eligible to participate in or benefit from such schemes pursuant to their rules at a cost which is acceptable to the Company.


9.3	The Executive will be eligible for an employee discount and agrees to abide by the terms and conditions of the employee discount notice to be notified to the Executive separately.


9.4	The executive will be eligable for financial planning assistance valued at £10,000 (gross) per annum with effect from the date of this Agreement.


10.	Holidays


10.1	In addition to normal public holidays the Executive will be entitled to 30 working days’ paid holiday in each holiday year, such holiday to be taken at such time or times as may be approved by the Company.


10.2	In each holiday year (apart from the year in which the Executive’s employment commences or terminates) the Executive will be expected to take at least the 20 days’ holiday (including normal public holidays) to which he is entitled under the Working Time Regulations 1998.


10.3	Subject to clause 11.2, the Executive may carry forward to the following holiday year with the Company’s written approval up to 5 days’ unused holiday entitlement but he must take any holiday which is carried forward before the end of June in that year.


10.4	The Executive’s entitlement to paid holiday in the holiday year in which his employment terminates will be 2.5 days for each completed calendar month in that year.


10.5	Where the Executive has taken more or less than his holiday entitlement in the year his employment terminates, a proportionate adjustment will be made by way of addition to or deduction from (as appropriate) his final gross pay calculated on a pro‑rata basis.


11.	Incapacity


11.1	If the Executive is absent from his duties as a result of illness or injury he will notify the Company President as soon as possible and complete any self‑certification forms which are required by the Company. If the incapacity continues for a period of seven days or more he will produce to the Company a medical certificate to cover the duration of such absence.

11.2

Subject to the rest of clause 11 and to 17.1.7 and subject to the receipt of the appropriate certificates in accordance with clause 11.1, if the Executive is absent from his duties as a result of illness or injury he will be entitled to payment of his basic salary at the full rate and enjoy his benefits hereunder in respect of such illness or injury for a period (in total) of up to 26 weeks in any period of 12 months (whether the absence is intermittent or continuous). Thereafter during sickness absence the Executive will not be entitled to any further salary or benefits (other than any medical expenses or permanent health insurance provided by the Company) including without limitation provision of a car until he has returned to work and completed three months’ continuous service with no absences from work other than agreed holidays.

11.3

If the Executive is absent from work because of any injury or condition (physical or mental and whether or not sustained in the course of his duties) caused wholly or partly by any act or omission of any third party (other than the Company or any Group Company) and recovers damages or compensation from such party, the Executive will repay immediately to the Company a sum equivalent to the amount (if any) of any such damages or compensation which relates to any period of absence during which the Executive received salary from the Company pursuant to clause 11.2.

11.4

If the Executive has been absent from work because of any injury or condition (physical or mental) caused wholly or partly by the Company or any Group Company or any person for whom the Company or any Group Company is vicariously liable and for which the Executive may be or become entitled to recover damages or compensation, any such damages or compensation payable will be reduced by the amount of any salary (including Statutory Sick Pay) paid to him and by the pension received or receivable by him in the period in respect of which such damages or compensation are calculated.


11.5	The Executive’s basic salary paid under clause 11.2 will include any Statutory Sick Pay payable and when this is exhausted will be reduced by the amount of any Social Security Sickness Benefit or other benefits recoverable by the Executive (whether or not recovered).

11.6

The provisions of this clause and any right or prospective right the Executive has or may have to receive any benefits under the Company’s permanent health insurance scheme referred to in clause 9.2.2 will not prejudice or limit in any way the Company’s right to terminate this Agreement pursuant to its terms. In particular but without limitation the Company may terminate the Executive’s employment pursuant to clauses 3.2 or 3.3 for any reason and to clause 17.1 on the grounds set out in that clause even if such termination would prejudice or limit the Executive’s rights or prospective rights under the Company’s permanent health insurance scheme. The Company may terminate this Agreement pursuant to clause 17.1.1 to 17.1.8 inclusive even if at the time of such termination Company sick pay payable pursuant to clause 11.2 has not been exhausted.

11.7

Whether or not the Executive is absent by reason of sickness, injury or other incapacity the Executive will at the request of the Company agree to have a medical examination performed by a doctor appointed and paid for by the Company and the Executive hereby authorises the Company to have unconditional access to any report or reports (including copies) produced as a result of any such examination as the Company may from time to time require and entitlements to salary pursuant to clause 11.2 will be conditional on the Executive complying with the terms of this clause 11.7.


12.	Conflict of interests


12.1	The Executive will disclose promptly to the Company in writing all his interests in any business other than that of the Company and the Group and will notify the Company immediately of any change in his external interests. Except with the written consent of the Chief Compliance Officer of the Gap,

Inc. or as set forth herein the Executive will not during his employment under this Agreement be directly or indirectly engaged, concerned, interested or involved in any way, whether as director, officer, employee, shareholder, consultant, partner, principal, servant or agent or otherwise (on his own behalf or on behalf of or in association with any other person) in any other trade, business or occupation other than the business of the Company or any Group Company. This clause will not prevent the Executive from being interested for passive investment purposes only as a member, debenture holder, loan note holder or beneficial owner of any stock, shares or debentures, or loan notes, which are listed or dealt in on a recognised investment exchange and which do not represent more than one per cent of the total share or loan capital from time to time in issue in such company. This clause also will not prevent the Executive from being interested for passive investment purposes only as a member, debenture holder, loan note holder or beneficial owner of any stock, shares or debentures, or loan notes in Phase Eight and Fat Face in an amount not in excess of three percent of the total share or loan capital from time to time in each such company. To avoid any doubt, a passive investment purpose only as a member, debenture holder, loan note holder or beneficial owner of any stock, shares or debentures or loan notes means that the Executive cannot be a director, officer, employee, consultant, partner, principal, servant, or agent of such companies.

12.2

The Executive will not during his employment introduce to any other person, firm, company or organisation business of any kind with which the Company or any other Group Company for which he has performed services under this Agreement is able to deal and he will not have any financial interest in, or derive any financial or other benefit from, contracts or transactions entered into by the Company or any other Group Company for which he has performed services under this Agreement with any third party without first disclosing such interest or benefit to the Company and obtaining its written approval.


13.	Restrictive covenants


13.1	In this clause 13 the following expressions have the following meanings:



“Critical Person”	any person who was an employee, agent, director, consultant or independent contractor employed, appointed or engaged by the Company or any Relevant Group Company at any time within the Relevant Period who by reason of such employment, appointment or engagement and in particular his/her seniority and expertise or knowledge of trade secrets or confidential information of the Company or any Group Company or knowledge of or influence over the clients, customers or suppliers of the Company or any Group Company is likely to be able to assist or benefit a business in or proposing to be in competition with the Company or any Relevant Group Company;
“Products or Services”	products or services which are of the same kind as or of a materially similar kind to or competitive with any products or services sold or supplied by the Company or any Relevant Group Company within the Relevant Period;
“Relevant Customer”	any person, firm, company or organisation who or which at any time during the Relevant Period is or was:
	(i) negotiating with the Company or a Relevant Group Company for the sale or supply of Relevant Products or Services; or
	(ii) a client or customer of the Company or any Relevant Group Company for the sale or supply of Relevant Products or Services; or
	(iii) in the habit of dealing with the Company or any Relevant Group Company for the sale or supply of Relevant Products or Services
	and in each case with whom or which the Executive was directly concerned or connected or of whom or which the Executive had personal knowledge during the Relevant Period in the course of his employment hereunder;
“Relevant Group Company”	any Group Company (other than the Company) for which the Executive has performed services under this Agreement or for which he has had operational/management responsibility at any time during the Relevant Period;
“Relevant Period”	the period of 12 months immediately before the Termination Date or (where such provision is applied) the commencement of any period of exclusion pursuant to clause 16.2 if earlier;



“Relevant Products or Services”	Products or Services with which sale or supply the Executive was directly concerned or connected or of which he had personal knowledge during the Relevant Period in the course of his employment hereunder;
“Restricted Territory”	any area or territory in which the Executive worked or to which the Executive was assigned by the Company or any Relevant Group Company at any time during the Relevant Period


13.2	The Executive will not without the prior written consent of the Gap Inc. (such consent not to be unreasonably withheld) directly or indirectly and whether alone or in conjunction with or on behalf of any other person and whether as a principal, servant, shareholder, director, officer, employee, agent, consultant, partner or otherwise:

13.2.1

within the Restricted Territory for a period of 6 months from the Termination Date be employed, engaged, concerned or interested in or provide technical, commercial or professional advice to any other business which supplies Products or Services in competition with the Company or any Relevant Group Company provided that this restriction does not apply to prevent the Executive from: (i) undertaking duties or activities which are materially different from those undertaken by him during the Relevant Period in the performance of his duties hereunder; or (ii) holding shares or other securities in any company which is quoted, listed or otherwise dealt in on a recognised investment exchange or other securities market and which confer not more than four percent of the votes which could be cast at a general meeting of such company; or (iii) being interested for passive investment purposes only as a member, debenture holder, loan note holder or beneficial owner of any stock, shares or debentures, or loan notes, which are listed or dealt in on a recognised investment exchange and which do not represent more than one per cent of the total share or loan capital from time to time in issue in such company; or (iv) being interested for passive investment purposes only as a member, debenture holder, loan note holder or beneficial owner of any stock, shares or debentures, or loan notes in Phase Eight and Fat Face in an amount not in excess of three percent of the total share or loan capital from time to time in each such company. To avoid any doubt, a passive investment purpose only as a member, debenture holder, loan note holder or beneficial owner of any stock, shares, debentures or loan notes, means that the Executive cannot be a director, officer, employee, consultant, partner, principal, servant, or agent of such companies


13.2.2	within the Restricted Territory for a period of 6 months from the Termination Date be employed, engaged, concerned or interested in any business which at any time during the Relevant Period has supplied Products or Services to the Company or any Relevant Group Company and/or do or attempt to do anything which causes or may cause the supplier to cease, alter or materially

to reduce its supplies to the Company (or any Relevant Group Company as the case may be); or

13.2.3

within the Restricted Territory for a period of 6 months from the Termination Date be employed, engaged, concerned or interested in any business which is or was at any time during the Relevant Period a Relevant Customer of the Company or any Relevant Group Company and/or do or attempt to do anything which causes or may cause the Relevant Customer to cease or materially to reduce its orders or contracts with the Company or any Relevant Group Company; or


13.2.4	for a period of 12 months from the Termination Date so as to compete with the Company or any Relevant Group Company canvass, solicit or approach or cause to be canvassed, solicited or approached any Relevant Customer for the sale or supply of Relevant Products or Services or endeavour to do so; or


13.2.5	for a period of 12 months from the Termination Date so as to compete with the Company or any Relevant Group Company deal or contract with any Relevant Customer in relation to the sale or supply of any Relevant Products or Services, or endeavour to do so; or

13.2.6

for a period of 12 months from the Termination date solicit, induce or entice away from the Company or any Relevant Group Company or, in connection with any business in or proposing to be in competition with the Company or any Relevant Group Company, employ, engage or appoint or in any way cause to be employed, engaged or appointed a Critical Person whether or not such person would commit any breach of his or her contract of employment or engagement by leaving the service of the Company or any Relevant Group Company; or


13.2.7	use in connection with any business any name which includes the name of the Company or any Group Company or any colourable imitation of it.

13.3

Whilst the restrictions in this clause 13 (on which the Executive has had an opportunity to take independent advice as the Executive hereby acknowledges) are regarded by the parties as fair and reasonable, it is hereby declared that each of the restrictions in this clause 13 is intended to be separate and severable. If any restriction is held to be unreasonably wide but would be valid if part of the wording (including in particular but without limitation the defined expressions referred to in clause 13.1) were deleted, such restriction will apply with so much of the wording deleted as may be necessary to make it valid.


13.4	The parties agree that the periods referred to in sub-clauses 13.2.1, 13.2.2, 13.2.3, 13.2.4, 13.2.5 and 13.2.6 above will be reduced by one day for every day during which at the Company’s direction and

pursuant to clause 16.2 below the Executive has been excluded from the Company’s premises and/or has not carried out any duties or has carried out duties other than his normal duties.

13.5

If the Executive breaches any of the provisions in this clause 13 the Company will be entitled by written notice to the Executive to extend the period during which the provisions of clause 13 which have been breached apply by an equivalent period to that during which the breach or breaches have continued, such additional period to commence on the date on which the said period would have otherwise expired. The Executive hereby agrees that if the Company so extends the period of any such restriction, this will not prejudice the right of the Company to apply to the Courts for injunctive relief in order to compel the Executive to comply with the provisions of this clause 14 and/or damages, as the case may be.


13.6	For the purposes of clauses 13 and 14 the Company has entered into this Agreement as agent for and trustee of all Relevant Group Companies and all Group Companies respectively.


13.7	If the Executive applies for or is offered a new employment, appointment or engagement, before entering into any related contract the Executive will bring the terms of this clause 13 and clauses 3, 4, 14 ,15, 16 and 17.2 to the attention of a third party proposing directly or indirectly to employ, appoint or engage him.


14.	Post-Termination Severance Period


14.1	If the Executive’s employment is terminated by the Company other than in accordance with Clause 17.1, prior to 13 February 2012, the following shall apply in addition to your statutory notice of six months, or pay in lieu of such notice:

14.1.1 In consideration of a payment of an amount equivalent to one year’s salary to be paid in 12 equal installments on the last date of each month, as well as continued reimbursement for your costs at current levels to maintain financial counselling services during this same 12 month period, and continued coverage for health and welfare benefits for you and your eligible dependents, if any, of an equivalent of the Company’s then current contribution to the cost for up to 18 months, inclusive of any working notice period, from the date of notice of termination, the Executive agrees that for a period of 12 months from the termination of his employment (“the Post-Termination Severance Period”), he will comply with Clauses 14.1.2 - 14.1.6.

14.1.2 All payments under Clause 14.1.1 are conditional upon the Executive entering into a Compromise Agreement with the Company confirming his acceptance of those payments in full and final settlement of all claims of any nature, howsoever arising in all jurisdictions and whether under contract, tort, statute or otherwise which the Executive has or may have against the Company or any Group Company as at the termination of his employment.

14.1.3 The Executive shall not be entitled to any or any further payments under Clause 14.1.1 if he is in actual or potential breach of this Agreement, or if he accepts any other employment or professional relationship with another company primarily engaged in the apparel design or apparel retail business or any retailer with apparel sales in excess of US$500 million annually.

14.1.4 Any or any further payments under Clause 14.1.1 will be reduced by the amount of any payments the Executive receives during the Post-Termination Severance Period from any employment or professional relationship which is not with the Company or any Group Company. At the Company’s absolute discretion it may also seek to recover any over payment(s) in accordance with Clause 14.1.1 ..

14.1.5 During the Post-Termination Severance Period the Executive agrees that he will continue to provide the Company or any Group Company with any services requested by the Company or any Group Company.

14.1.6 For the avoidance of doubt, it is agreed and declared by the parties that this Clause 14 shall not apply if the Executive’s employment is terminated by reason of resignation.


15.	Confidentiality

15.1

The Executive acknowledges that in the ordinary course of his employment he will be exposed to information about the business of the Company and the Group and that of the Company’s and the Group’s suppliers and customers which amounts to a trade secret, is confidential or is commercially sensitive and which may not be readily available to others engaged in a similar business to that of the Company or any of the Group Companies or to the general public and which if disclosed will be liable to cause significant harm to the Company or such Group Companies. The Executive has therefore agreed to accept the restrictions in this clause 15.


15.2	For the purposes of this clause and by way of illustration and not limitation information will prima facie be secret and confidential if it relates to:

(i) raw materials;

(ii) research and development;

(iii) inventions;

(iv) formulae and formulations;


(v)	methods of treatment, processing, manufacture or production, process and production controls including quality controls;


(vi)	suppliers and their production and delivery capabilities;


(vii)	customers and details of their particular requirements;


(viii)	costings, profit margins, discounts, rebates and other financial information;


(ix)	marketing strategies and tactics;


(x)	current activities and current and future plans relating to all or any of development, production or sales including the timing of all or any such matters;


(xi)	the development of new products;


(xii)	production or design secrets;

(xiii) technical design or specifications of the Company’s products;


15.3	The Executive will not during the period of his employment with the Company obtain or seek to obtain any financial advantage (direct or indirect) from the disclosure of information acquired by him in the course of his employment with the Company.

15.4

The Executive will not either during his employment (including without limitation any period of absence or of exclusion pursuant to clause 17.2) or after its termination without limit in time for his own purposes or for any purposes other than those of the Company or any Group Company (for any reason and in any manner) use or divulge or communicate to any person, firm, company or organisation, except to officials of any Group Company who are entitled to know, any secret or confidential information or information constituting a trade secret acquired or discovered by him in the course of his employment with the Company relating to the private affairs or business of the Company or any Group Company or their suppliers, customers, management or shareholders.


15.5	The restrictions contained in this clause do not apply to:


(i)	any disclosure authorised by the Company or required in the ordinary and proper course of the Executive’s employment or required by the order of a court of competent jurisdiction or by an appropriate regulatory authority or as otherwise required by law;


(ii)	any information which the Executive can demonstrate was known to the Executive prior to the commencement of the Executive’s employment by the Company or by a Group Company or is in the public domain otherwise than as a result of a breach by him of this clause; or


(iii)	protected disclosures made pursuant to and in accordance with the Public Interest Disclosure Act 1998 and/or any policy on disclosure operated by the Company from time to time.

15.6

The provisions of this clause 15 are without prejudice to the duties and obligations of the Executive to be implied into this Agreement at common law. The Executive hereby agrees that at the request and expense of the Company he will enter into a direct agreement or undertaking with any other Group Company whereby he will accept restrictions and provisions corresponding to the restrictions and provisions in clauses 13 and 14 (or such of them as may be appropriate in the circumstances) in relation to such information and such area and for such period as such Group Company may reasonably require for the protection of its legitimate interests.


16.	Intellectual property rights


16.1	In this clause 16 “Intellectual Property” means any:


(i)	concept, discovery, invention, process, procedure, development or improvement in process or procedure;


(ii)	data, design, formula, model, plans, drawings, documentation, database, computer program or software (including related preparatory and design materials) whether registrable or not and whether or not copyright or design rights subsist in it; and


(iii)	idea, method, information or know-how

which is made, discovered, created or generated by the Executive whether alone or with others and whether or not in the course of his employment which relates to or affects the business of the Company or any Group Company or which is capable of being used or adapted for use in connection with any such company.


16.2	Without prejudice to the provisions of the Patents Act 1977, the Copyright Designs and Patents Act 1988 and any other applicable legislation:


16.2.1	the Executive must immediately disclose to the Company full details of any Intellectual Property;


16.2.2	if the rights in the Intellectual Property belong to the Company or are capable of doing so, the Executive will act as trustee for the Company in relation to them;


16.2.3	if requested by the Company whether during his employment or after the Termination Date the Executive will at the expense of the Company do everything necessary (including executing documents) to:


(i)	protect all current and future rights in the Intellectual Property (by applying for letters patent or other appropriate form of protection) in the United Kingdom or any other part of the world;


(ii)	vest, transfer or assign such protection or right as the case may be to the Company or its nominee with full title guarantee and the right to sue for past infringement and recover damages; and


(iii)	to provide all reasonable assistance as the Company may require to obtain, maintain or enforce rights to the Intellectual Property;


16.2.4	the Executive hereby irrevocably and unconditionally waives in favour of the Company the moral rights conferred on him by the Copyright Designs and Patents Act 1988 in respect of any Intellectual Property right in which the copyright is vested in the Company under this clause or otherwise;


16.2.5	the Executive hereby irrevocably authorises the Company to appoint a person to execute any documents and to do everything necessary to effect his obligations under this clause on his behalf.


17.	Termination


17.1	The Company may terminate the Executive’s employment immediately by summary notice in writing without compensation (notwithstanding that the Company may have allowed any time to elapse or on a former occasion may have waived its rights under this clause) if he:


17.1.6	commits, repeats or continues any serious breach of this Agreement or his obligations under it;


17.1.7	in the performance of his duties under this Agreement or otherwise commits any act of gross misconduct or serious incompetence;


17.1.8	prejudices or because of his behaviour is likely in the reasonable opinion of the Company to prejudice the interests or reputation of the Executive, the Company or any Group Company;


17.1.9	has committed/is charged with/is convicted of any criminal offence other than an offence which does not in the reasonable opinion of the Company affect his position under this Agreement;


17.1.10	becomes bankrupt or enters into or make any arrangement or composition with or for the benefit of his creditors generally;


17.1.11	becomes prohibited by law from being a director of a company;


17.1.12	becomes incapacitated from performing all or any of his duties under this Agreement by illness or injury (physical or mental) for a period exceeding (in total) 26 weeks (or such longer period as the Company may agree) in any period of 12 months; or


17.1.13	persistently fails to meet targets as performance criteria set for the Company.

17.2

Without prejudice to clause 4.1 after notice of termination has been given by either party pursuant to clause 3.2 or if the Executive seeks to or indicates an intention to resign as a director of the Company or any Group Company (if he is such at the time) or terminate his employment without notice, provided that the Executive continues to be paid and enjoys his full contractual benefits until his employment terminates in accordance with the terms of this Agreement, the Company may in its absolute discretion without breaking the terms of this Agreement or giving rise to any claim against the Company or any Group Company for all or part of the notice period required under clause 3.2:


(i)	exclude the Executive from the premises of the Company and/or any Group Company;


(ii)	require him to carry out specified duties (consistent with the Executive’s status, role and experience) for the Company or to carry out no duties;


(iii)	announce to employees, suppliers and customers that he has been given notice of termination or has resigned (as the case may be);


(iv)	instruct the Executive not to communicate orally or in writing with suppliers, customers, employees, agents or representatives of the Company or any Group Company until his employment hereunder has terminated.

For the avoidance of doubt, the Executive’s duties and obligations under clauses 4, 13, 14 and 15 and those to be implied into this Agreement at common law continue to apply during any period of exclusion pursuant to this clause.


17.3	On commencement of any period of exclusion pursuant to clause 17.2 the Executive will:


(i)	deliver up to the Company in accordance with clause 19 all property belonging to the Company or any Group Company; and


(ii)	resign in accordance with clause 19 from all offices and appointments he holds in the Company and any Group Company.

17.4

During any period of exclusion pursuant to clause 17.2 the Executive will not be entitled to accrue any bonus/ profit share/ performance-related pay under clause 7.4 or holiday other than his entitlement under the Working Time Regulations 1998 referred to in clause 11.2. Any untaken holiday entitlement accrued or likely to accrue up to the Termination Date should be taken during the leave period. The

Executive agrees to notify the Company of any day or days during the exclusion period when he will be unavailable due to holiday and will endeavour to agree convenient holiday dates in advance with the Company.


17.5	Before and after termination of the Executive’s employment, the Executive will provide the Company and/or any Group Company with reasonable assistance regarding matters of which he has knowledge and/or experience in any proceedings or possible proceedings in which the Company and/or Group Company is or may be a party.

17.6

The Executive agrees that at the expense and request of the Company and in any event on termination of his employment he will transfer or procure the transfer of all shares held by him in trust or as a nominee by virtue of his employment with the Company to such person or persons as the Company may direct. If the Executive fails to do so within seven days of any such request or the termination of his employment (as the case may be) the Company is irrevocably authorised to appoint a person or persons to execute all necessary transfer forms and other documentation on his behalf.


18.	Deductions


18.1	The Executive hereby authorises the Company to deduct from his remuneration (which for this purpose includes salary, pay in lieu of notice, commission, bonus, holiday pay and sick pay) all debts owed by the Executive to the Company or any Group Company, including but without limitation the balance outstanding of any loans (and interest where appropriate) advanced by the Company to the Executive.

18.2

The Executive undertakes to comply with the Company’s Recoupment Policy as in force from time to time. Without prejudice to the generality of the foregoing, the Executive hereby authorises the Company to deduct from his remuneration or (as is appropriate in the Company’s absolute discretion) cancel any bonus or other incentive, including without limitation, stock-based compensation, awarded to him after 1 April 2007 where:-


18.2.1	the payment to the Executive was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement by the Company;


18.2.2	in the Board’s view where the Executive engaged in fraud or intentional misconduct that was a substantial contributing cause to the need for the restatement referred to in Clause 18.2.1 ; and


18.2.3	where a lower award would have been made to the Executive based upon the restated financial results.

The Executive agrees that the said sum is recoverable by the Company or any Group Company as a debt, together with interest, if appropriate.


19.	Delivery of documents and property

19.1

On termination of his employment for any reason (or earlier if requested) the Executive will immediately deliver up to the Company all property (including but not limited to documents and software, credit cards, mobile telephone, computer equipment, facsimile machine, keys and security passes) belonging to it or any Group Company in the Executive’s possession or under his control. Documents and software include (but are not limited to) correspondence, diaries, address books, databases, files, reports, minutes, plans, records, documentation or any other medium for storing information. The Executive’s obligations under this clause include the return of all copies, drafts, reproductions, notes, extracts or summaries (however stored or made) of all documents and software.


20.	Resignation as director


20.1	The Executive will on termination of his employment for any reason at the request of the Company give notice resigning immediately without claim for compensation (but without prejudice to any claim he may have for damages for breach of this Agreement):


20.1.1	as a director of the Company (if he is such at the time) and all such Group Companies of which he is a director; and


20.1.2	all trusteeships held by him of any pension scheme or other trusts established by the Company or any Group Company or any other company with which the Executive has had dealings as a consequence of his employment with the Company.


20.2	If notice pursuant to clause 20.1 is not received by the relevant company within seven days of a request by the Company, the Company is irrevocably authorised to appoint a person to execute any documents and to do everything necessary to effect such resignation or resignations on the Executive’s behalf.

20.3

Except with the prior written agreement of the Company, the Executive will not during his employment under this Agreement resign his office as a director of the Company or any Group Company (if he is such at the time) and if he does so without the consent or concurrence of the Company, the Company will be entitled to terminate his employment pursuant to clause 16.1.6 or at the Company’s absolute discretion, to treat such resignation as notice of termination given by the Executive to the Company pursuant to clause 3.2 and to suspend the Executive pursuant to clause 17.2.


20.4	The Executive will not be required to retire by rotation in accordance with any provisions in the Articles of Association of the Company. In all other respects the Executive’s appointment as a director of the Company or any other Group Company will be subject to the Articles of Association from time to time of the relevant company.


21.	Rights following termination

21.1

The termination of the Executive’s employment under this Agreement will not affect any of the provisions of this Agreement which expressly operate or lawfully have effect after termination and will not prejudice any right of action already accrued to either party in respect of any breach of any terms of this Agreement by the other party (except in the case of termination by the Company pursuant to clause 3.3 in which case clause 3.3 will prevail in favour of the Company and the Group).


22.	Third party rights


22.1	Apart from the provisions of this Agreement which are expressly or impliedly entered into by the Company for itself and as agent of and trustee for any Group Company the parties do not intend that this Agreement should confer any right or benefit on any third party.


23.	Data protection


23.1	For the purposes of the Data Protection Act 1998 (as amended), the Executive gives his consent to the holding, processing and accessing of personal data provided by him to the Company and the Group for all purposes relating to the performance of this Agreement including but not limited to:


23.1.1	administering and maintaining personal records;


23.1.2	paying and reviewing salary and other remuneration and benefits;


23.1.3	providing and administering benefits (including, if relevant, pension, life assurance, permanent health insurance and medical insurance); undertaking performance appraisals and reviews;


23.1.4	maintaining sickness, holiday and other absence records;


23.1.5	equal opportunities matters including the operation of an equal opportunities policy;


23.1.6	taking decisions about the Executive’s fitness for work;


23.1.7	carrying out performance appraisals and development reviews;


23.1.8	providing references and information to future employers;


23.1.9	providing information to governmental and quasi-governmental bodies for social security and other purposes, the Inland Revenue and the Contributions Agency;


23.1.10	recording the commission or alleged commission of any offence;


23.1.11	providing information to future purchasers of the Company or and Group Company or of the business(es) in which the Executive works; and


23.1.12	transferring information concerning the Executive to a country or territory outside the EEA.


24.	Notices

24.1

Notices under this Agreement by the Executive to the Company should be addressed to the Gap, Inc.’s General Counsel’s Office, 2 Folsom Street, San Francisco, California 94105 and sent by first class post or by facsimile transmission or other form of electronic delivery to this Office and notices given by the Company to the Executive should be served personally or sent by first class post or sent by facsimile transmission or other form of electronic delivery to his usual or last known place of residence in England. In case of service by post, the day of service will be 48 hours after posting and in the case of facsimile transmission or other electronic delivery the day of service will be the day of transmission by the sender.

Miscellaneous


24.2	This Agreement will be governed by and interpreted in accordance with the law of England and Wales.


24.3	The parties to this Agreement submit to the exclusive jurisdiction of the English Courts in relation to any claim, dispute or matter arising out of or relating to this Agreement.


24.4	Any delay by the Company in exercising any of its rights under this Agreement will not constitute a waiver of such rights.


24.5	There are no collective agreements which directly affect the Executive’s terms and conditions of employment.

THIS AGREEMENT has been signed on behalf of the Company by a director and executed and delivered as a deed by the Executive on the date set out at the beginning.

SIGNED by )

for and on behalf of THE COMPANY ) /s/ Glenn Murphy

Director (Glenn Murphy)

/s/ Stephen Sunnucks

Stephen Sunnucks

Exhibit 10.118

[GPS (Great Britain) Limited Letterhead]

Strictly private and confidential

Addressee only

STEPHEN SUNNUCKS

25 August 2011

Dear Stephen:

Given your promotion to the role of Division President, International, this letter is to confirm the amendments as set out below to the Service Agreement between GPS (Great Britain) Limited and you dated 10 ^th June 2009.

Save for the provisions specifically set out below, all other terms and conditions set out in the Service Agreement shall remain unchanged and continue to apply and all defined terms used in this Letter shall have the same meaning as set out in the Service Agreement.

For your convenience, I set out the definitions used in this Letter which are the same as those in your Service Agreement:

GPS (Great Britain) Limited – the ‘Company’

You – the ‘Executive’

Paragraph 3.1 – amendment to reflect your new title and timing

The Company will employ the Executive and the Executive will serve the Company as Division President, International, reporting to Glenn Murphy, Chairman and Chief Executive Officer, Gap Inc., effective 1 April 2011. The Company has the right in its absolute discretion to change the person or person to whom the Executive reports.

Paragraph 7.1 – amending to reflect your new compensation and timing

The Company will pay the Executive a salary at the rate of £570,000 per annum less PAYE deductions with effect from 1 April 2011 which salary will accrue from day to day and be payable in arrears by equal monthly instalments on the last day of each month.

Paragraph 7.6 – amending to reflect the change to your participation in the Long Term Growth Plan as a result of your promotion. You have details of this separately.

Executive may be eligible for future Long-Term Incentive Awards as a participant in the Focal Review process and for other Long-Term Incentive programs in effect for members of the Executive Leadership team.

Paragraph 14.1 – amending to extend your severance protection as recently authorised by the Board for all ELT members.

The phrase “13 February 2012” shall be replaced by the phrase “13 February 2015”.

Yours sincerely,

/s/ Leah Swan

Leah Swan

Senior Vice President, International Human Resources

for and on behalf of GPS (Great Britain) Limited

Exhibit 10.119

[GPS (Great Britain) Limited Letterhead]

STEPHEN SUNNUCKS

30 May 2012

Dear Stephen:

The Compensation and Management Development Committee of the Board of Directors (“Board”) has approved your eligibility for additional post-termination benefits, which are reflected in amendments as set out below to the Service Agreement between GPS (Great Britain) Limited and you dated 10 June 2009.

For your convenience, I set out the definitions used in this Letter which are the same as those in your Service Agreement:

GPS (Great Britain) Limited – the ‘Company’

You – the ‘Executive’

Paragraph 14 – amending to enhance your severance protection as recently authorised by the Board for all ELT members.

Post-Termination Severance Period


14.1	If the Executive’s employment is terminated by the Company other than in accordance with Clause 17.1, prior to 13 February 2015, the following shall apply in addition to your statutory notice of six months, or pay in lieu of such notice:

14.1.2

In consideration of a payment of an amount equivalent to a prorated annual bonus as described in clause 7.4 for the fiscal year in which the termination occurs, on the condition that Executive has worked at least 3 months of the fiscal year in which Executive is terminated, based on actual financial results and 100% standard for the individual component, such bonus being paid in the year following termination at the time annual bonuses for the year of termination are paid, but in no event, later than the 15th day of the third month following the later of the end of the Company’s taxable year or the end of the calendar year in which such termination occurs, the Executive agrees that for the Post-Termination Severance Period, he will comply with Clauses 14.1.4, 14.1.7 and 14.1.8.

14.1.3

In consideration of the accelerated vesting (but not settlement) of restricted stock units (“RSUs”) and performance shares that remain subject only to time vesting conditions (excluding any performance shares that remain subject to performance-based vesting conditions) scheduled to vest prior to April 1 following the fiscal year of termination, shares of such Company stock in settlement of any vested RSUs and/or performance shares under this clause delivered on the applicable regularly scheduled vesting dates subject to the terms and conditions of the applicable award agreement, the Executive agrees that for the Post-Termination Severance Period, he will comply with Clauses 14.1.4, 14.1.7 and 14.1.8.

14.1.4 All payments under Clause 14.1.1 are conditional upon the Executive entering into a Compromise Agreement with the Company confirming his acceptance of those payments in full and final settlement of all claims of any nature, howsoever arising in all jurisdictions and whether under contract, tort, statute or otherwise which the Executive has or may have against the Company or any Group Company as at the termination of his employment.

14.1.5 The Executive shall not be entitled to any or any further payments under Clause 14.1.1 if he is in actual or potential breach of this Agreement, or if he accepts any other employment or professional relationship with another company primarily engaged in the apparel design or apparel retail business or any retailer with apparel sales in excess of US$500 million annually.

14.1.6 Any or any further payments under Clause 14.1.1 will be reduced by the amount of any payments the Executive receives during the Post-Termination Severance Period from any employment or professional relationship which is not with the Company or any Group Company. At the Company’s absolute discretion it may also seek to recover any over payment(s) in accordance with Clause 14.1.1 .

14.1.7 During the Post-Termination Severance Period the Executive agrees that he will continue to provide the Company or any Group Company with any services requested by the Company or any Group Company.

14.1.8 For the avoidance of doubt, it is agreed and declared by the parties that this Clause 14 shall not apply if the Executive’s employment is terminated by reason of resignation.

Yours sincerely,

/s/ Glenn Murphy

Glenn Murphy

CEO

for and on behalf of GPS (Great Britain) Limited

Agreed:

/s/ Stephen Sunnucks Date: June 12, 2012

Stephen Sunnucks

Exhibit 10.120

[Gap Inc. Letterhead] [GPS (Great Britain) Limited Letterhead]

31 October 2012

Stephen Sunnucks

Dear Stephen,

Congratulations on your new position and long-term assignment with Gap Inc. The anticipated length of this assignment is through 31 January 2015. The terms set out in this offer letter relate to your long-term international assignment in New York and include the regulation of your employment at the end of this assignment.

You will be considered a seconded employee from GPS (Great Britain) Limited to Gap Inc., based in New York, New York, United States, in accordance with Gap Inc.’s Long-Term Assignment (LTA) Policy (save where varied by this letter). For the duration of your assignment, you will be seconded to Gap Inc., performing services in such capacity as determined by Gap Inc. GPS (Great Britain) Limited does not derive any profit from the activities performed by you as a seconded employee to Gap Inc. Save where expressly varied by the terms of this letter (and where there is any conflict, the terms of this letter shall prevail), the terms of your service agreement with GPS (Great Britain) Limited dated 10 June 2009 and amended by side letters dated 25 August 2011 and 30 May 2012 (the “Service Agreement”) shall continue to apply during the Assignment Period (defined below).

This letter is to confirm our offer to you as Global President, Gap, and will serve to amend Clauses 3.1 and 3.2 of the Service Agreement only to reflect this new position, based in New York, effective 5 November 2012. (The remainder of Clauses 3.1. and 3.2 will be in effect.) In this position you will report to the CEO of Gap Inc. In this capacity, you will be required to carry out work that is reasonably required of you at Gap Inc.’s request and in Gap Inc.’s business.

References in this letter to “the Company” shall mean GPS (Great Britain) Limited.

Assignment Start Date . Your first day on assignment in New York, New York will be on 5 November 2012 (the “Assignment Start Date”), subject to obtaining valid work authorization for the United States .

Assignment Period. Your assignment will end on 31 January 2015 unless terminated earlier or extended (as notified to you in writing in advance) by GPS (Great Britain) Limited, in either case at its sole discretion (the “Assignment Period”). It is anticipated that should you remain in the role of Global President, Gap after 31 January 2015, save where it is by way of express written extension of the Assignment Period, that: you will become directly employed by Gap Inc. in the United States under U.S. terms and conditions to be agreed at the relevant time; your compensation and benefits will be determined by Gap Inc. U.S. policies and laws; you will become resident in the United States and you will cease being resident in the UK; and you will be subject to U.S. employment laws. Unless and until you and Gap Inc. enter into a new agreement related to your employment, the terms of the Service Agreement shall remain in effect. For the avoidance of doubt, if Gap Inc. and you have not reached agreement by 31 January 2015 to extend the assignment or localize, then the Service Agreement remains in effect.

Salary. Effective on the Assignment Start Date, your annual salary will be £640,000, which, as with all assignment-related costs, are ultimately borne by Gap Inc.

Annual Bonus . You will continue to be eligible for an Annual Bonus (“Annual Bonus”). Under the current program, the bonus is based on Gap Inc. and/or Division financial objectives (weighted at 75%) as well as key business goals and individual performance (weighted at 25%). For the remainder of fiscal 2012, your annual target bonus will continue to be 75% of base salary and will be based on achievement of International Division financial objectives, key business goals and individual performance. Beginning in fiscal 2013, the annual bonus target will be 100% of base salary. Depending on results, your actual bonus, if any, may be higher or lower and can reach a maximum of 200%. Bonuses for fiscal 2013 are scheduled for payment in March 2014. The determination of your final award amount is at the absolute discretion of the Compensation and Management Development Committee of Gap Inc. (“Committee”). In addition, Gap Inc. has the right to modify the program at any time and your participation, as well as the terms of your participation, targets and interpretation of targets is subject at all times to the absolute discretion of the Committee. Bonus payments are subject to applicable income and payroll tax withholding.

Stock Award. Subject to the approval of the Committee and the provisions of the Gap Inc. stock plan, you will be granted stock awards covering a number of shares of Gap Inc. stock equivalent to $3 million on the grant date. The number of shares will be determined by dividing $3 million by the closing stock price on the date of grant, rounded down to the nearest whole share. The grant will be made in or about March 2013 on the date the Committee approves stock grants to similarly situated executives (the “date of grant”) and will be subject always to the rules of the applicable plan or program. Awards are in the form of units that are paid in Gap Inc. stock upon vesting. The award will become vested as shown in the schedule below, provided you are employed by Gap Inc. or its affiliates on the vesting dates. Awards are subject to applicable income and payroll tax withholding.


i.	50% of the shares of the Stock Award vesting on the second anniversary of the date of grant.

ii. 50% of the shares of the Stock Award vesting on the third anniversary of the date of grant.

Long-Term Growth Program . Based on your position, you will continue to be eligible to participate in the Long-Term Growth Program that rewards achievement of Gap Inc. and/or Division financial objectives over a three year period. Beginning with the fiscal 2013-2015 performance cycle, your target opportunity to earn performance shares is 150% of your base salary. Depending on results, your actual performance shares, if any, may be higher or lower and can reach a maximum of 300% of your base salary. Awards are made in the form of performance shares that are paid in Gap Inc. stock upon vesting. The number of earned performance shares for the fiscal 2013-2015 performance cycle will be determined no later than March 2016. Awards are subject to approval by the Committee and the provisions of Gap Inc.’s stock plan. If the financial objectives are achieved, the award will vest 50% on the date the Committee certifies attainment and 50% one year from the certification date provided you are employed by Gap Inc. or its affiliates on the vesting dates. Awards are subject to applicable income and payroll tax withholding. Any eligibility prior to fiscal 2013-2015 performance cycle will continue to be governed by the terms of your Service Agreement and the applicable Long-Term Growth/Long-Term Incentive program; performance for fiscal 2012 will be based on International Division results.

You will be eligible for future Long-Term Incentive Awards on the same basis as other similarly situated Gap Inc. senior executives. All the Long-Term Incentive Awards earned will be paid or become exercisable, if applicable, in accordance with the time and form and other provisions of the applicable award agreement and plan document,

Benefits. You and your family will be enrolled in Gap Inc.’s global health plan while on assignment for medical and dental coverage. Benefit and coverage information will be provided to you by the Global Mobility team in San Francisco. You and your family will also continue to be covered under your current healthcare plan in the UK. You will continue to be eligible to participate in all other UK benefit programs while on assignment in New York. Your current vacation and sick days provisions detailed in the Service Agreement will continue to apply while on assignment, save that your public holiday entitlement will be based on the U.S. public holiday schedule.

Relocation Payment. The Company will pay you a special one-off relocation payment of £250,000 (the “Relocation Payment”), subject to deduction of applicable income and payroll tax withholding, conditional upon you having (a) signed a copy of this agreement, (b) signed a copy of the Gap Inc. International Relocation Payback Agreement (“Payback Agreement”) and (c) received valid work authorization for the United States. The Relocation Payment will be made as soon as reasonably practicable after you have satisfied such conditions but no later than 30 November 2012. As described below, the Relocation Payment is intended to substantially offset certain expenses incurred over the Assignment Period, such as personal travel between London and New York for you and/or family outside of normal international assignment policy provisions, incidental expenses and any cost of living differences while in New York, legal expenses associated with this offer, and financial planning (which replaces paragraph 9.4 of the Service Agreement for the term of this assignment).

Assignment Provisions: Pursuant to the LTA Policy and the Payback Agreement, you will be eligible for certain assignment benefits. However, in light of the Relocation Payment, you will not be eligible for the following benefits in the LTA Policy: Miscellaneous Allowances, Cost of Living Allowance, Hardship Premium, Travel for Dependent Children.

Qualification for UK Remuneration/Benefits Package . In consideration of your continued eligibility to participate in UK remuneration/benefits package, you unconditionally agree and acknowledge that:


•	you will not be entitled to any Gap Inc. benefits provided to U.S.-based employees, nor any employment rights and/or benefits payable under the laws of the United States, its states or other subdivisions; and

•

should you be entitled to any employment rights, wages, benefits and/or awards under United States law, these shall either (i) be offset against any remuneration payable in accordance with your employment terms with GPS (Great Britain) Limited and you agree to GPS (Great Britain) Limited deducting such sums without further recourse to you; or (ii) if no further remuneration is payable in accordance with your employment terms with GPS (Great Britain) Limited., you agree to reimburse GPS (Great Britain) Limited for the difference.

Employment Status. You understand that your employment continues to be governed by English employment law during the Assignment Period.

Post-Termination Severance Period. You will continue to be eligible for certain post-termination benefits pursuant to Clause 14 of the Service Agreement. In order to be eligible to receive such severance, you must sign the Compromise Agreement referenced in Clause 14.1.4 of the Service Agreement and it must become effective within 45 calendar days after your “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A” and such 45 ^th day, the “Release Deadline”). In the event you are eligible to receive such severance, the base salary installments referred to in Clause 14.1.1 of the Service Agreement shall commence on the first monthly payment date following the Release Deadline. To the extent that your severance payments are reduced in accordance with Clause 14.1.6 of the Service Agreement, such reductions will be made as the payments that are the basis of the reduction are received. The continued coverage for health and welfare benefits referred to in Clause 14.1.1 may be taxable income to you and subject to tax withholding, and the Company’s obligation to provide such coverage shall cease immediately if the Company determines in its discretion that providing such coverage would result in the Company being in violation of, or incurring any fine, penalty, or excise tax under, applicable law (including, without limitation, any penalty imposed for violation of the nondiscrimination requirements under the Patient Protection and Affordable Care Act or guidance issued thereunder).

Any severance payments under Clause 14 of your Service Agreement (or replacement provisions) will be based on your base salary only and will not include any LTA benefits.

If you qualify for and/or receive any additional compensation and/or damages required by local law at the time of termination, other payments or benefits due to you from the Company (or any group company or affiliate) under these guidelines will be reduced accordingly.

Governing Law: This Letter of Assignment and your employment shall be governed by and construed in accordance with laws of England and Wales and the parties agree to submit to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of or relating to this agreement and/or your assignment.

Abide by Gap Inc. Policies/Protection of Gap Inc. Information. You agree to abide by all Gap Inc. policies including, but not limited to, policies contained in the Code of Business Conduct.

Post-Termination Restrictions. In consideration for the Relocation Payment and this offer of assignment, you agree and undertake as follows:

Restrictive Covenants and Confidentiality. You will continue to abide by the restrictive covenants and confidentiality provisions detailed in clauses 13 and 15 of your Service Agreement and you agree and undertake that during and/or for the purposes of your Assignment Period:

(a) those restrictive covenants will be applied in relation to your role of Global President, Gap and for the benefit of Gap Inc. and any affiliate or subsidiary which constitutes a Relevant Group Company for the purposes of that clause and that they may be enforced directly by any such entity and/or by GPS (Great Britain) Limited on behalf of such entity; and

(b) the definition of Restricted Territory in clause 13 of your Service Agreement shall also include any area or territory in relation to which you have had material dealings and/or a level of management or operational responsibility during the Relevant Period.

Section 409A. The intent of the parties is that payments and benefits to you under this letter and otherwise comply with Section 409A and the regulations and guidance promulgated thereunder (or an exemption therefrom) and, accordingly, to the maximum extent permitted, they shall be interpreted to be in compliance therewith (or an exemption therefrom) and any provision that is ambiguous as to its compliance with Section 409A will be read in a manner to comply with Section 409A (or an exemption therefrom).

A termination of employment shall not be deemed to have occurred for purposes of payment of any amounts or benefits subject to (and not exempt from) Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any reference to a “termination,” “termination of employment” or like terms (whether hereunder or otherwise) shall mean “separation from service.” To the extent necessary to avoid taxation under Section 409A, a disability shall not be deemed to have occurred for purposes of any payment of any amounts or benefits subject to Section 409A upon or following a disability unless such condition qualifies as a “disability” within the meaning of Section 409A.

If you are a “specified employee” under Treas. Reg. Section 1.409A-1(i) on the date of your Separation from Service, then any payment or benefit due to you hereunder or otherwise as a result of your Separation from Service that is not exempt from Section 409A will be paid to you no earlier than the date which is six months after the date of such separation (or such earlier time permitted under Section 409A(a)(2)(B)(i) of the Internal Revenue Code). This delay will only be imposed to the extent required to avoid the tax for which you would otherwise be liable under Section 409A(a)(1)(B) of the Internal Revenue Code. Any delayed payment instead will be made on the first business day following the expiration of the six month period, as applicable (or such earlier time permitted under

Section 409A(a)(2)(B)(i) of the Internal Revenue Code). Payments that are not delayed will be paid in accordance with their terms determined without regard to such delay.

With respect to reimbursements or in-kind benefits provided to you hereunder or otherwise that are not exempt from Section 409A (other than tax equalization payments and tax gross-up payments, as described below), the following rules shall apply: (i) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any one of your taxable years shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, (ii) in the case of any reimbursements of eligible expenses, reimbursement shall be made on or before the last day of your taxable year following the taxable year in which the expense was incurred, (iii) the right to reimbursement or in-kind benefits shall not subject to liquidation or exchange for another benefit.

Each payment hereunder and under the Service Agreement shall, to the maximum extent permitted under Section 409A, be treated as a separate payment for purposes of Section 409A.

Any tax equalization payments (within the meaning of Treas. Reg. Section 1.409A-1(b)(8)(iii)) made to you hereunder or otherwise shall be made in accordance with such section to the extent necessary to avoid taxation under Section 409A. Any tax gross-up payments (within the meaning of Treas. Reg. Section 1.409A-3(i)(1)(v)) made to you hereunder or otherwise shall be made in accordance with such section to the extent necessary to avoid taxation under Section 409A.

Any offset of any payment or benefit hereunder or under your Service Agreement shall be done in a manner intended to avoid taxation under section 409A of the Internal Revenue Code of 1986 as amended. To the extent it is not possible to avoid such taxation, then no offset shall be made.

In the event you become entitled to payments or benefits under Clause 11.2 of your Service Agreement, such payments or benefits shall be made in accordance with the Company regular pay and benefit practices otherwise applicable to you and any reduction made in accordance with Clause 11.5 of your Service Agreement shall be made as the payments that are the basis of the reduction are received.

Notwithstanding anything the contrary herein or elsewhere, any taxes or other liabilities imposed on you by Section 409A are solely your responsibility, and you will not be indemnified by the Company or any other person therefore including, without limitation, under any tax equalization arrangement.

Entire Agreement. Please note that except for those agreements, letters or plans referenced in this letter and attachments, this letter contains the entire understanding of the parties with respect to this assignment and supersedes any other agreements, representations or understandings (whether oral or written and whether express or implied) with respect to this assignment. You acknowledge that you have been provided an opportunity to consult with legal and/or financial advisors regarding this assignment offer.

Again, Stephen, congratulations on your new position and assignment and this latest achievement in your career path at Gap Inc.

Yours sincerely,

/s/ Eva Sage-Gavin /s/ Jennifer Cho

Eva Sage-Gavin Jennifer Cho

Executive Vice President Director

Global HR & Corporate Affairs GPS (Great Britain) Limited

Gap Inc.

Agreed on this 1 ^st day of November, 2012

/s/ Stephen Sunnucks

Stephen Sunnucks

Exhibit 10.121

AGREEMENT FOR POST-TERMINATION BENEFITS

Gap Inc. (“Company”) and Jack Calhoun (referred to in the second person) hereby enter into this Agreement for eligibility for certain post-termination benefits. This Agreement expressly supersedes any and all prior agreements related to such post-termination or severance benefits, including those described in any offer letter under the section entitled “Termination/Severance.” Company and you hereby agree as follows:

In the event that your employment is involuntarily terminated by the Company for reasons other than For Cause (as defined below) prior to February 13, 2015, the Company will provide you the following after your "separation from service" within the meaning of Section 409A of the Internal Revenue Code (the "Separation from Service”), provided you sign a general release of claims in the form requested by the Company and it becomes effective within 45 calendar days after such Separation from Service (such 45 ^th day, the “Release Deadline”):

(1) Your then current salary, at regular pay cycle intervals, for eighteen months commencing in the first regular pay cycle following the Release Deadline (the “severance period”). Payments will cease if you accept other employment or professional relationship with a competitor of the Company (defined as another company primarily engaged in the apparel design or apparel retail business or any retailer with apparel sales in excess of $500 million annually), or if you breach your remaining obligations to the Company (e.g., your duty to protect confidential information, agreement not to solicit Company employees). Payments will be reduced by any compensation you receive (as received) during the severance period from other employment or professional relationship with a non-competitor.

(2) Through the end of the period in which you are receiving payments under paragraph (1) above, if you properly elect and maintain COBRA coverage, payment of a portion of your COBRA premium in a method as determined by the Company. This payment may be taxable income to you and subject to tax withholding. Notwithstanding the foregoing, the Company’s payment of the monthly COBRA premium shall cease immediately if the Company determines in its discretion that paying such monthly COBRA premium would result in the Company being in violation of, or incurring any fine, penalty, or excise tax under, applicable law (including, without limitation, any penalty imposed for violation of the nondiscrimination requirements under the Patient Protection and Affordable Care Act or guidance issued thereunder).

(3) Through the end of the period in which you are receiving payments under paragraph (1) above, reimbursement for your costs to maintain the same or comparable financial counseling program the Company provides to senior executives in effect at the time of your Separation from Service. The amount of expenses eligible for reimbursement during a calendar year shall not affect the expenses eligible for reimbursement in any other calendar year. Reimbursement shall be made on or before the last day of the calendar year following the calendar year in which the reimbursement is incurred but not later than the end of the second calendar year following the calendar year of your Separation from Service.

(4) Prorated Annual Bonus for the fiscal year in which the termination occurs, on the condition that you have worked at least 3 months of the fiscal year in which you are terminated, based on actual financial results and 100% standard for the individual component. Such bonus will paid in March of the year following termination at the time Annual Bonuses for the year of termination are paid, but in no event later than the 15th day of the third month following the later of the end of the Company’s taxable year or the end of the calendar year in which such termination occurs.

(5) Accelerated vesting (but not settlement) of restricted stock units (“RSUs”) and performance shares that remain subject only to time vesting conditions (excluding any performance shares that remain subject to performance-based vesting conditions) scheduled to vest prior to April 1 following the fiscal year of termination. Shares of the Company stock in settlement of any vested RSUs and/or performance shares under this section will be delivered on the applicable regularly scheduled vesting

dates subject to the terms and conditions of the applicable award agreement including, without limitation, the Internal Revenue Code Section 409A six-month delay language thereunder to the extent necessary to avoid taxation under Section 409A of the Internal Revenue Code.

The payments in (1), (3), (4) and (5) above are, and the payment described in (2) above may be, taxable income to you and are subject to tax withholding. If the aggregate amount that would be payable to you under paragraphs (1), (2), (3) and (4) above through the date which is six months after your Separation from Service (excluding amounts exempt from Section 409A of the Internal Revenue Code under the short-term deferral rule thereunder or Treas. Reg. Section 1.409A-1(b)(9)(v)) exceeds the limit under Treas. Reg. Section 1.409A-1(b)(9)(iii)(A) and you are a “specified employee” under Treas. Reg. Section 1.409A-1(i) on the date of your Separation from Service, then the excess will be paid to you no earlier than the date which is six months after the date of such separation (or such earlier time permitted under Section 409A(a)(2)(B)(i) of the Internal Revenue Code). This delay will only be imposed to the extent required to avoid the tax for which you would otherwise be liable under Section 409A(a)(1)(B) of the Internal Revenue Code. Any delayed payment instead will be made on the first business day following the expiration of the six month period, as applicable (or such earlier time permitted under Section 409A(a)(2)(B)(i) of the Internal Revenue Code). Payments that are not delayed will be paid in accordance with their terms determined without regard to such delay.

The term “For Cause” shall mean a good faith determination by the Company that your employment be terminated for any of the following reasons: (1) indictment, conviction or admission of any crimes involving theft, fraud or moral turpitude; (2) engaging in gross neglect of duties, including willfully failing or refusing to implement or follow direction of the Company; or (3) breaching Gap Inc.’s policies and procedures, including but not limited to the Code of Business Conduct.

At any time, if you voluntarily resign your employment from Gap Inc. or your employment is terminated For Cause, you will receive no compensation, payment or benefits after your last day of employment. If your employment terminates for any reason, you will not be entitled to any payments, benefits or compensation other than as provided in this letter.

EXECUTIVE

/s/ Jack Calhoun June 9, 2012

Jack Calhoun Date

THE GAP, INC.


/s/ Glenn Murphy	May 22, 2012

By: Glenn Murphy Date

Chairman and CEO

Exhibit 12

Ratio of Earnings to Fixed Charges



	53 Weeks Ended		52 Weeks Ended		52 Weeks Ended			52 Weeks Ended		52 Weeks Ended
($ in millions except ratios)	February 2, 2013		January 28, 2012		January 29, 2011			January 30, 2010		January 31, 2009
Earnings before income taxes and interest expense	$	1,948	$	1,443	$	1,974		$	1,822	$	1,585
Less: capitalized interest, net	(6)		(4)		—			—		(8)
Total fixed charges	675		644		534			537		536
Earnings for calculation	$	2,617	$	2,083	$	2,508		$	2,359	$	2,113
Fixed charges:
Gross interest incurred	$	87	$	74	$	(8	)	$	6	$	1
Interest portion of rent expense (1)	588		570		542			531		535
Total fixed charges	$	675	$	644	$	534		$	537	$	536
Ratio of earnings to fixed charges	3.9		3.2		4.7			4.4		3.9

__________

(1) The interest portion of rent expense is calculated as 48 percent of rent expense.

Exhibit 21

The Gap, Inc.

Subsidiary List as of February 2, 2013

Athleta (ITM) Inc. California

Athleta LLC Delaware

Athleta, Inc. Delaware

Banana Republic (Apparel), LLC California

Banana Republic (ITM) Inc. California

Banana Republic (Japan) Y.K. Tokyo, Japan

Banana Republic, LLC Delaware

Binome Inc. New York

Decarat International Inc. New York

Direct Consumer Services, LLC California

Forth & Towne (Apparel) LLC California

Forth & Towne (Japan) Y.K. Tokyo, Japan

Gap (Apparel), LLC California

Gap (Beijing) Commercial Co., Ltd. Beijing, China

Gap (Canada) Inc. Canada

Gap (France) S.A.S. Paris, France

Gap (Italy) Srl. Milan, Italy

Gap (ITM) Inc. California

Gap (Japan) K.K. Tokyo, Japan

Gap (Netherlands) B.V. Amsterdam, The Netherlands

Gap (Puerto Rico), Inc. Puerto Rico

Gap (RHC) B.V. Amsterdam, The Netherlands

Gap (Shanghai) Commercial Co., Ltd. Shanghai, China

Gap (UK Holdings) Limited England and Wales

Gap Europe Limited England and Wales

Gap International Sales, Inc. Delaware

Gap International Sourcing (Americas) LLC California

Gap International Sourcing (California), Inc. California

Gap International Sourcing (Holdings) Limited Hong Kong

Gap International Sourcing (Honduras) S.A. de C.V. Honduras

Gap International Sourcing (India) Private Limited New Delhi, India

Gap International Sourcing (JV), LLC California

Gap International Sourcing (Mexico) S.A. de C.V. Mexico

Gap International Sourcing (U.S.A.) Inc. California

Gap International Sourcing FZE Free Zone, United Arab Emirates

Gap International Sourcing Limited Hong Kong

Gap International Sourcing Pte. Ltd. Singapore

Gap International Sourcing, Inc. California

Gap Limited Hong Kong

Gap Services, Inc. California

Gap Stores (Ireland) Limited Dublin, Ireland

GPS (Bermuda) Insurance Services Limited Bermuda

GPS (Great Britain) Limited England and Wales

GPS Consumer Direct, Inc. California

GPS Corporate Facilities, Inc. California

GPS Real Estate, Inc. California

GPS Services, Inc. California

GPS Sourcing (South Africa) (Proprietary) Limited Durban, South Africa

GPS Strategic Alliances LLC Delaware

GPSDC (New York) Inc. Delaware

Hekz Ltd. New York

ICOB Inc. New York

Intermix Canada Inc. New Brunswick

Intermix Holdco Inc. Delaware

Intermix Inc. New York

Intermix LLC Delaware

Intermix (ITM) Inc. California

Old Navy (Apparel), LLC California

Old Navy (Canada) Inc. Canada

Old Navy (ITM) Inc. California

Old Navy (Japan) Y.K. Tokyo, Japan

Old Navy, LLC Delaware

Piperlime (Japan) G.K. Tokyo, Japan

WCB Twenty-Eight Limited Partnership Delaware

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements: No. 2-72586, No. 2-60029, No. 33-39089, No. 33-40505, No. 33-54686, No. 33-54690, No. 33-56021, No. 333-00417, No. 333-12337, No. 333-36265, No. 333-68285, No. 333-72921, No. 333-76523, No. 333-47508, No. 333-59292, No. 333-88470, No. 333-90414, No. 333-103128, No. 333-105934, No. 333-129986, No. 333-136295, No. 333-147986, No. 333-151560, and No. 333-173146 on Form S-8, and No. 333-173348 on Form S-3 of our report dated March 25, 2013, relating to the financial statements of The Gap, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the fiscal year ended February 2, 2013.

/s/ Deloitte & Touche LLP

San Francisco, California

March 26, 2013

Exhibit 31.1

CERTIFICATIONS

I, Glenn K. Murphy, certify that:


1.	I have reviewed this annual report on Form 10-K of The Gap, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 26, 2013

/s/ Glenn Murphy

Glenn K. Murphy

Chairman and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATIONS

I, Sabrina L. Simmons, certify that:


1.	I have reviewed this annual report on Form 10-K of The Gap, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 26, 2013

/s/ Sabrina L. Simmons

Sabrina L. Simmons

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

Certification of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of The Gap, Inc. (the “Company”) on Form 10-K for the period ended February 2, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glenn K. Murphy, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Glenn Murphy

Glenn K. Murphy

Chairman and Chief Executive Officer

March 26, 2013

Exhibit 32.2

Certification of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of The Gap, Inc. (the “Company”) on Form 10-K for the period ended February 2, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sabrina L. Simmons, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Sabrina L. Simmons

Sabrina L. Simmons

Executive Vice President and Chief Financial Officer

March 26, 2013