GAP INC (Form: 10-Q, Received: 08/31/2012 14:32:23)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 28, 2012

¨	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 or other jurisdiction of incorporation or organization)		(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

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

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 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 Exchange Act).

Yes ¨ No þ

The number of shares of the registrant’s common stock outstanding as of August 20, 2012 was 480,935,170.

THE GAP, INC.

TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements		3

	Condensed Consolidated Balance Sheets as of July 28, 2012, January 28, 2012, and July 30, 2011		3

	Condensed Consolidated Statements of Income for the Thirteen and Twenty-Six Weeks Ended July 28, 2012 and July 30, 2011		4

	Condensed Consolidated Statements of Comprehensive Income for the Thirteen and Twenty-Six Weeks Ended July 28, 2012 and July 30, 2011		5

	Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended July 28, 2012 and July 30, 2011		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28

Item 4.	Controls and Procedures		28

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		28

Item 1A.	Risk Factors		29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29

Item 6.	Exhibits		29

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements.

THE GAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


($ and shares in millions except par value)	July 28, 2012			January 28, 2012			July 30, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	2,039		$	1,885		$	2,104
Short-term investments		75			—			75
Merchandise inventory		1,668			1,615			1,750
Other current assets		758			809			752

Total current assets		4,540			4,309			4,681
Property and equipment, net of accumulated depreciation of $5,297, $5,260, and $5,166		2,521			2,523			2,560
Other long-term assets		600			590			565

Total assets	$	7,661		$	7,422		$	7,806

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	48		$	59		$	43
Accounts payable		1,201			1,066			1,161
Accrued expenses and other current liabilities		977			998			952
Income taxes payable		12			5			2

Total current liabilities		2,238			2,128			2,158

Long-term liabilities:
Long-term debt		1,566			1,606			1,606
Lease incentives and other long-term liabilities		959			933			918

Total long-term liabilities		2,525			2,539			2,524

Commitments and contingencies (see Note 11)
Stockholders’ equity:
Common stock $0.05 par value
Authorized 2,300 shares and Issued 1,106 shares for all periods presented; Outstanding 479, 485, and 527 shares		55			55			55
Additional paid-in capital		2,816			2,867			2,874
Retained earnings		12,719			12,364			12,063
Accumulated other comprehensive income		224			229			214
Treasury stock at cost (627, 621, and 579 shares)		(12,916	)		(12,760	)		(12,082	)

Total stockholders’ equity		2,898			2,755			3,124

Total liabilities and stockholders’ equity	$	7,661		$	7,422		$	7,806

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	13 Weeks Ended						26 Weeks Ended
($ and shares in millions except per share amounts)	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Net sales	$	3,575		$	3,386		$	7,062		$	6,681
Cost of goods sold and occupancy expenses		2,148			2,135			4,260			4,126

Gross profit		1,427			1,251			2,802			2,555
Operating expenses		1,002			917			1,982			1,835

Operating income		425			334			820			720
Interest expense		22			22			45			28
Interest income		(2	)		(1	)		(3	)		(2	)

Income before income taxes		405			313			778			694
Income taxes		162			124			302			272

Net income	$	243		$	189		$	476		$	422


Weighted-average number of shares - basic		486			542			487			562
Weighted-average number of shares - diluted		491			545			493			567

Earnings per share - basic	$	0.50		$	0.35		$	0.98		$	0.75
Earnings per share - diluted	$	0.49		$	0.35		$	0.97		$	0.74

Cash dividends declared and paid per share	$	0.125		$	0.1125		$	0.250		$	0.225

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	13 Weeks Ended						26 Weeks Ended
($ in millions)	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Net income	$	243		$	189		$	476		$	422

Other comprehensive income (loss), net of tax:
Foreign currency translation		(2	)		14			(9	)		47
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $1, $(6), $3, and $(21)		1			(8	)		5			(32	)
Reclassification adjustment for realized losses on derivative financial instruments, net of tax benefit of $-, $6, $-, and $10		(1	)		8			(1	)		14

Other comprehensive income (loss), net of tax		(2	)		14			(5	)		29

Comprehensive income	$	241		$	203		$	471		$	451

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	26 Weeks Ended
($ in millions)	July 28, 2012			July 30, 2011
Cash flows from operating activities:
Net income	$	476		$	422
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		285			296
Amortization of lease incentives		(40	)		(41	)
Share-based compensation		53			34
Tax benefit from exercise of stock options and vesting of stock units		16			10
Excess tax benefit from exercise of stock options and vesting of stock units		(17	)		(11	)
Non-cash and other items		2			33
Deferred income taxes		2			51
Changes in operating assets and liabilities:
Merchandise inventory		(56	)		(115	)
Other current assets and other long-term assets		60			2
Accounts payable		142			98
Accrued expenses and other current liabilities		(13	)		(98	)
Income taxes payable, net of prepaid and other tax-related items		(5	)		(178	)
Lease incentives and other long-term liabilities		65			56

Net cash provided by operating activities		970			559


Cash flows from investing activities:
Purchases of property and equipment		(297	)		(261	)
Purchases of short-term investments		(125	)		(50	)
Maturities of short-term investments		50			75
Change in other assets		(6	)		(3	)

Net cash used for investing activities		(378	)		(239	)


Cash flows from financing activities:
Payments of short-term debt		(11	)		—
Proceeds from issuance of long-term debt		—			1,646
Payments of long-term debt issuance costs		—			(11	)
Payments of long-term debt		(40	)		—
Proceeds from issuances under share-based compensation plans, net of withholding tax payments		91			40
Repurchases of common stock		(369	)		(1,360	)
Excess tax benefit from exercise of stock options and vesting of stock units		17			11
Cash dividends paid		(121	)		(126	)

Net cash provided by (used for) financing activities		(433	)		200

Effect of foreign exchange rate fluctuations on cash		(5	)		23

Net increase in cash and cash equivalents		154			543
Cash and cash equivalents at beginning of period		1,885			1,561

Cash and cash equivalents at end of period	$	2,039		$	2,104


Non-cash investing activities:
Purchases of property and equipment not yet paid at end of period	$	52		$	56

Supplemental disclosure of cash flow information:
Cash paid for interest during the period	$	42		$	2
Cash paid for income taxes during the period	$	288		$	386

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The Condensed Consolidated Balance Sheets as of July 28, 2012 and July 30, 2011, the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Comprehensive Income for the thirteen and twenty-six weeks ended July 28, 2012 and July 30, 2011, and the Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended July 28, 2012 and July 30, 2011 have been prepared by The Gap, Inc. (the “Company,” “we,” and “our”), without audit. In the opinion of management, such statements include all adjustments (which include only normal recurring adjustments) considered necessary to present fairly our financial position, results of operations, and cash flows as of July 28, 2012 and July 30, 2011 and for all periods presented. The Condensed Consolidated Balance Sheet as of January 28, 2012 has been derived from our audited financial statements.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted from these interim financial statements. We suggest that you read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

The results of operations for the thirteen and twenty-six weeks ended July 28, 2012 are not necessarily indicative of the operating results that may be expected for the fifty-three-week period ending February 2, 2013.

We identify our operating segments based on the way we manage and evaluate our business activities. We have two reportable segments: Stores and Direct.

Beginning in the fiscal period ended October 29, 2011, we included short-term debt in current maturities of debt in the Condensed Consolidated Balance Sheets. Accordingly, short-term debt of $3 million that was included in accrued expenses and other current liabilities as of July 30, 2011 has been included in current maturities of debt to conform to the current period presentation.

Note 2. Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board issued an accounting standards update (“ASU”) to simplify the manner in which entities 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 do not expect the adoption of the ASU to have a material impact on our consolidated financial statements.

Note 3. Goodwill and Intangible Assets

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


($ in millions)	July 28, 2012			January 28, 2012			July 30, 2011
Goodwill	$	99		$	99		$	99

Trade name	$	54		$	54		$	54

Other indefinite-lived intangible assets	$	6		$	—		$	—

Intangible assets subject to amortization	$	15		$	15		$	15
Less: Accumulated amortization		(15	)		(14	)		(14	)

Intangible assets subject to amortization, net	$	—		$	1		$	1

During the thirteen and twenty-six weeks ended July 28, 2012 and July 30, 2011, there were no changes in the carrying amount of goodwill, which is allocated to the Direct reportable segment. The intangible assets subject to amortization were fully amortized in the thirteen weeks ended April 28, 2012 and as such, there was no amortization expense for intangible assets subject to amortization for the thirteen weeks ended July 28, 2012. Amortization expense for intangible assets subject to amortization was $1 million for the thirteen weeks ended July 30, 2011 and $1 million and $2 million for the twenty-six weeks ended July 28, 2012 and July 30, 2011, respectively. Amortization expense for intangible assets subject to amortization is recorded in operating expenses in the Condensed Consolidated Statements of Income.

Note 4. Debt and Credit Facilities

Long-term debt consists of the following:


($ in millions)	July 28, 2012			January 28, 2012			July 30, 2011
Notes	$	1,246		$	1,246		$	1,246
Term loan		360			400			400

Total long-term debt		1,606			1,646			1,646
Less: Current portion		(40	)		(40	)		(40	)

Total long-term debt, less current portion	$	1,566		$	1,606		$	1,606

As of July 28, 2012, January 28, 2012, and July 30, 2011, the estimated fair value of our $1.25 billion aggregate principal amount of 5.95 percent notes (“the Notes”) due April 2021 was $1.32 billion, $1.19 billion, and $1.23 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 quarter. In April 2012, we repaid $40 million related to our $400 million, five-year, unsecured term loan due April 2016. Repayments of $40 million are due in April of each year, with a final repayment of $240 million due in April 2016. The estimated fair value of the term loan was $360 million, $400 million, and $400 million as of July 28, 2012, January 28, 2012, and July 30, 2011, respectively. The carrying amount of the term loan approximates its fair value, as the interest rate varies depending on quoted market rates (level 1 inputs) and our credit rating.

In August 2012, we notified our lenders of our intent to repay the remaining $360 million balance of the term loan in the fiscal period ending October 27, 2012.

We have a $500 million, five-year, unsecured revolving credit facility (the “Facility”), which is scheduled to expire in April 2016. As of July 28, 2012, there were no borrowings under the Facility. The net availability of the Facility, reflecting $69 million of outstanding standby letters of credit, was $431 million as of July 28, 2012.

We also have two separate agreements that make unsecured revolving credit facilities available for our operations in China (the “China Facilities”). The 196 million Chinese yuan ($31 million as of July 28, 2012) China Facilities are scheduled to expire in September 2012 and we expect to renew under substantially similar terms. As of July 28, 2012, there were borrowings of $8 million (50 million Chinese yuan) at an interest rate of approximately 6.13 percent under the China Facilities, which are recorded in current maturities of debt in the Condensed Consolidated Balance Sheet. The net availability of the China Facilities, reflecting these borrowings and $2 million in bank guarantees related to store leases, was $21 million as of July 28, 2012.

As of January 28, 2012, and July 30, 2011, current maturities of debt in the Condensed Consolidated Balance Sheets includes borrowings under the China Facilities of $19 million and $3 million, respectively.

As of July 28, 2012, we had a $100 million, two-year, unsecured committed letter of credit agreement that was set to expire in September 2012. In August 2012, we renewed the terms of the letter of credit agreement to extend the expiration date to September 2014 and reduce the amount of the letter of credit agreement to $50 million. As of July 28, 2012, we had no material trade letters of credit issued under the then-existing $100 million letter of credit agreement.

Note 5. Fair Value Measurements

There were no purchases, sales, issuances, or settlements related to recurring level 3 measurements during the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011. There were no transfers into or out of level 1 and level 2 during the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 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)	July 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	$	1,027	$	216	$	811	$	—
Short-term investments		75		—		75		—
Derivative financial instruments		16		—		16		—
Deferred compensation plan assets		25		25		—		—

Total	$	1,143	$	241	$	902	$	—

Liabilities:
Derivative financial instruments	$	9	$	—	$	9	$	—


			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	$	—


			Fair Value Measurements at Reporting Date Using
($ in millions)	July 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,169	$	211	$	958	$	—
Short-term investments		75		—		75		—
Derivative financial instruments		2		—		2		—
Deferred compensation plan assets		25		25		—		—

Total	$	1,271	$	236	$	1,035	$	—

Liabilities:
Derivative financial instruments	$	68	$	—	$	68	$	—

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. Money market funds of $211 million as of July 30, 2011 have been reclassified from cash to cash equivalents and are included as level 1 measurements in the table above. This correction had no impact on the Condensed Consolidated Financial Statements for any period reported.

Derivative financial instruments primarily include foreign exchange forward contracts. The principal currencies hedged against changes in the U.S. dollar are the Euro, British pound, Japanese yen, and Canadian dollar. 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 Condensed Consolidated Balance Sheets. Derivative financial instruments in a liability position are recorded in accrued expenses and other current liabilities or lease incentives and other long-term liabilities in the Condensed 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 Condensed Consolidated Balance Sheets.

Nonfinancial Assets

We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.

There were no impairment charges recorded for goodwill or other indefinite-lived intangible assets for the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011. There were no material impairment charges recorded for other long-lived assets for the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011.

Note 6. 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 significant portion of forecasted merchandise purchases for foreign operations, forecasted intercompany royalty payments, forecasted intercompany revenue transactions, intercompany obligations that bear foreign exchange risk, and the net assets of international subsidiaries using foreign exchange forward contracts. The principal currencies hedged against changes in the U.S. dollar are the Euro, British pound, Japanese yen, and Canadian dollar. We do not enter into derivative financial contracts for trading purposes. Cash flows from derivative financial instruments are classified as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows.

Cash Flow Hedges

We designate the following foreign exchange forward contracts as cash flow hedges: (1) forward contracts used to hedge forecasted merchandise purchases and related costs denominated 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 the thirteen weeks ended April 30, 2011, we entered into and settled treasury rate lock agreements in anticipation of issuing the 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 rate lock agreements is reported as a component of other comprehensive income (“OCI”) and is recognized in income over the life of the Notes.

There were no material amounts recorded in the Condensed Consolidated Statements of Income for the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011 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.

There were no amounts recorded in the Condensed Consolidated Statements of Income for the thirteen and twenty-six weeks ended July 28, 2012 or July 30, 2011 as a result of hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or the discontinuance of net investment hedges.

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 Condensed 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 July 28, 2012, January 28, 2012, and July 30, 2011, we had foreign exchange forward contracts outstanding to sell various currencies related to our forecasted merchandise purchases, forecasted intercompany royalty payments, and forecasted intercompany revenue transactions and to buy the following notional amounts:


(notional amounts in millions)	July 28, 2012		January 28, 2012		July 30, 2011
U.S. dollars (1)	$	1,112	$	796	$	1,081
British pounds	£	19	£	30	£	43

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

As of July 28, 2012, January 28, 2012, and July 30, 2011, we had foreign exchange forward contracts outstanding to hedge the net assets of our French subsidiary and our Japanese subsidiary in the following notional amounts:


(notional amounts in millions)	July 28, 2012		January 28, 2012		July 30, 2011
Euro	€	26	€	—	€	—
Japanese yen	¥	—	¥	—	¥	3,000

As of July 28, 2012, January 28, 2012, and July 30, 2011, we had foreign exchange forward contracts outstanding to buy the following currencies related to our intercompany balances that bear foreign exchange risk:


(notional amounts in millions)	July 28, 2012		January 28, 2012		July 30, 2011
U.S. dollars	$	84	$	77	$	7
British pounds	£	1	£	1	£	1
Japanese yen	¥	945	¥	2,564	¥	3,238
Euro	€	—	€	16	€	—

Contingent Features

We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of July 28, 2012, January 28, 2012, or July 30, 2011.

Quantitative Disclosures about Derivative Financial Instruments

The fair values of asset and liability derivative financial instruments are as follows:


	July 28, 2012
	Asset Derivatives			Liability Derivatives
($ in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Foreign exchange forward contracts	Other current assets	$	11	Accrued expenses and other current liabilities	$	5
Foreign exchange forward contracts	Other long-term assets		2	Lease incentives and other long-term liabilities		3

Total derivatives designated as cash flow hedges			13			8

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

Total derivatives designated as net investment hedges			1			—

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets		2	Accrued expenses and other current liabilities		1
Foreign exchange forward contracts	Other long-term assets		—	Lease incentives and other long-term liabilities		—

Total derivatives not designated as hedging instruments			2			1

Total derivative instruments		$	16		$	9


	January 28, 2012
	Asset Derivatives			Liability Derivatives
($ in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Foreign exchange forward contracts	Other current assets	$	9	Accrued expenses and other current liabilities	$	10
Foreign exchange forward contracts	Other long-term assets		1	Lease incentives and other long-term liabilities		—

Total derivatives designated as cash flow hedges			10			10

Derivatives designated as net investment hedges:
Foreign exchange forward contracts	Other current assets		—	Accrued expenses and other current liabilities		—
Foreign exchange forward contracts	Other long-term assets		—	Lease incentives and other long-term liabilities		—

Total derivatives designated as net investment hedges			—			—

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets		3	Accrued expenses and other current liabilities		4
Foreign exchange forward contracts	Other long-term assets		—	Lease incentives and other long-term liabilities		—

Total derivatives not designated as hedging instruments			3			4

Total derivative instruments		$	13		$	14


	July 30, 2011
	Asset Derivatives			Liability Derivatives
($ in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Foreign exchange forward contracts	Other current assets	$	—	Accrued expenses and other current liabilities	$	49
Foreign exchange forward contracts	Other long-term assets		—	Lease incentives and other long-term liabilities		9

Total derivatives designated as cash flow hedges			—			58

Derivatives designated as net investment hedges:
Foreign exchange forward contracts	Other current assets		—	Accrued expenses and other current liabilities		3
Foreign exchange forward contracts	Other long-term assets		—	Lease incentives and other long-term liabilities		—

Total derivatives designated as net investment hedges			—			3

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets		2	Accrued expenses and other current liabilities		7
Foreign exchange forward contracts	Other long-term assets		—	Lease incentives and other long-term liabilities		—

Total derivatives not designated as hedging instruments			2			7

Total derivative instruments		$	2		$	68

Substantially all of the unrealized gains and losses from designated cash flow hedges as of July 28, 2012 will be recognized in income within the next 12 months at the then-current values, which may differ from the fair values as of July 28, 2012 shown above.

See Note 5 of Notes to Condensed Consolidated Financial Statements for disclosures on the fair value measurements of our derivative financial instruments.

The effects of derivative financial instruments on OCI and the Condensed Consolidated Statements of Income, on a pre-tax basis, are as follows:


	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)
	13 Weeks Ended					26 Weeks Ended
($ in millions)	July 28, 2012		July 30, 2011			July 28, 2012		July 30, 2011
Derivatives in cash flow hedging relationships:
Foreign exchange forward contracts	$	2	$	(14	)	$	8	$	(54	)
Treasury rate lock agreements		—		—			—		1

	$	2	$	(14	)	$	8	$	(53	)


	Amount and Location of Gain (Loss) Reclassified from OCI into Income (Effective Portion)
	13 Weeks Ended					26 Weeks Ended
($ in millions)	July 28, 2012		July 30, 2011			July 28, 2012		July 30, 2011
Derivatives in cash flow hedging relationships:
Foreign exchange forward contracts - Cost of goods sold and occupancy expenses	$	1	$	(12	)	$	1	$	(21	)
Foreign exchange forward contracts - Operating expenses		—		(2	)		—		(3	)

	$	1	$	(14	)	$	1	$	(24	)


	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)
	13 Weeks Ended					26 Weeks Ended
($ in millions)	July 28, 2012		July 30, 2011			July 28, 2012		July 30, 2011
Derivatives in net investment hedging relationships:
Foreign exchange forward contracts	$	3	$	(2	)	$	3	$	(2	)


	Amount and Location of Gain (Loss) Recognized in Income on Derivatives
	13 Weeks Ended					26 Weeks Ended
($ in millions)	July 28, 2012		July 30, 2011			July 28, 2012		July 30, 2011
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts - Operating expenses	$	4	$	3		$	4	$	(2	)

For the thirteen and twenty-six weeks ended July 28, 2012 and July 30, 2011, 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.

Note 7. Share Repurchases

Share repurchase activity is as follows:


	13 Weeks Ended				26 Weeks Ended
($ and shares in millions except average per share cost)	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
Number of shares repurchased		13.1		42.5		13.8		67.3
Total cost	$	349	$	820	$	367	$	1,368
Average per share cost including commissions	$	26.65	$	19.31	$	26.51	$	20.33

Between August 2010 and November 2011, we announced that the Board of Directors authorized a total of $3.25 billion for share repurchases, of which $443 million under the November 2011 authorization was remaining as of January 28, 2012. In February 2012, we announced that the Board of Directors approved a new $1 billion share repurchase authorization that replaced the November 2011 authorization and cancelled the remaining $441 million under the November 2011 authorization as of February 23, 2012. As of July 28, 2012, there was $635 million remaining under the February 2012 authorization.

All except $2 million, $4 million, and $8 million of total share repurchases were paid for as of July 28, 2012, January 28, 2012, and July 30, 2011, respectively.

Note 8. Share-Based Compensation

Share-based compensation expense recognized in the Condensed Consolidated Statements of Income, primarily in operating expenses, is as follows:


	13 Weeks Ended						26 Weeks Ended
($ in millions)	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Stock units	$	19		$	12		$	43		$	24
Stock options		3			4			8			8
Employee stock purchase plan		1			1			2			2

Share-based compensation expense		23			17			53			34
Less: Income tax benefit		(9	)		(7	)		(20	)		(13	)

Share-based compensation expense, net of tax	$	14		$	10		$	33		$	21

Note 9. Income Taxes

The Company conducts business globally, and as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Canada, France, China, Hong Kong, Japan, the United Kingdom, and India. We are no longer subject to U.S. federal income tax examinations for fiscal years before 2008, 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 2003.

As of July 28, 2012, we do not anticipate any significant changes in total gross unrecognized tax benefits within the next 12 months.

Except 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 when we intend to utilize those earnings in foreign operations for an indefinite period of time.

Note 10. Earnings Per Share

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


	13 Weeks Ended				26 Weeks Ended
(shares in millions)	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
Weighted-average number of shares - basic		486		542		487		562
Common stock equivalents		5		3		6		5

Weighted-average number of shares - diluted		491		545		493		567

The above computations of weighted-average number of shares – diluted exclude 2 million and 13 million shares related to stock options and other stock awards for the thirteen weeks ended July 28, 2012 and July 30, 2011, respectively, and 2 million and 10 million shares related to stock options and other stock awards for the twenty-six weeks ended July 28, 2012 and July 30, 2011, respectively, as their inclusion would have an anti-dilutive effect on earnings per share.

Note 11. Commitments and Contingencies

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. As of July 28, 2012, 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 July 28, 2012, January 28, 2012, and July 30, 2011, we recorded a liability for an estimated loss if the outcome of an Action is expected to result in a loss that is considered probable and reasonably estimable. The liability recorded as of July 28, 2012, January 28, 2012, and July 30, 2011 was not material for any individual Action or in total. Subsequent to July 28, 2012 and through our filing date of August 31, 2012, no information has become available that indicates a material change to our estimate is required.

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 financial position, results of operations, or cash flows taken as a whole.

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 such 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 financial position, results of operations, or cash flows taken as a whole.

Note 12. 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. 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 for our online brands, including Piperlime and Athleta.

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


($ in millions) 13 Weeks Ended July 28, 2012	Gap			Old Navy			Banana Republic			Franchise (3)			Piperlime and Athleta			Total (4)			Percentage of Net Sales
U.S. (1)	$	756		$	1,156		$	517		$	—		$	—		$	2,429			68	%
Canada		78			95			47			—			—			220			6
Europe		156			—			17			15			—			188			5
Asia		248			2			39			20			—			309			9
Other regions		—			—			—			45			—			45			1

Total Stores reportable segment		1,238			1,253			620			80			—			3,191			89
Direct reportable segment (2)		96			138			50			—			100			384			11

Total	$	1,334		$	1,391		$	670		$	80		$	100		$	3,575			100	%

Sales growth		4	%		3	%		9	%		25	%		37	%		6	%

($ in millions) 13 Weeks Ended July 30, 2011	Gap			Old Navy			Banana Republic			Franchise (3)			Piperlime and Athleta			Total (4)			Percentage of Net Sales
U.S. (1)	$	734		$	1,133		$	489		$	—		$	—		$	2,356			70	%
Canada		76			95			43			—			—			214			6
Europe		169			—			13			16			—			198			6
Asia		226			—			35			19			—			280			8
Other regions		—			—			—			29			—			29			1

Total Stores reportable segment		1,205			1,228			580			64			—			3,077			91
Direct reportable segment (2)		77			122			37			—			73			309			9

Total	$	1,282		$	1,350		$	617		$	64		$	73		$	3,386			100	%

Sales growth		2	%		—	%		2	%		52	%		20	%		2	%

($ in millions) 26 Weeks Ended July 28, 2012	Gap			Old Navy			Banana Republic			Franchise (3)			Piperlime and Athleta			Total (4)			Percentage of Net Sales
U.S. (1)	$	1,513		$	2,292		$	1,001		$	—		$	—		$	4,806			68	%
Canada		151			178			92			—			—			421			6
Europe		309			—			32			33			—			374			6
Asia		471			2			69			40			—			582			8
Other regions		—			—			—			85			—			85			1

Total Stores reportable segment		2,444			2,472			1,194			158			—			6,268			89
Direct reportable segment (2)		206			301			98			—			189			794			11

Total	$	2,650		$	2,773		$	1,292		$	158		$	189		$	7,062			100	%

Sales growth		4	%		4	%		8	%		27	%		31	%		6	%

($ in millions) 26 Weeks Ended July 30, 2011	Gap			Old Navy			Banana Republic			Franchise (3)			Piperlime and Athleta			Total (4)			Percentage of Net Sales
U.S. (1)	$	1,477		$	2,230		$	949		$	—		$	—		$	4,656			70	%
Canada		146			183			86			—			—			415			6
Europe		330			—			24			31			—			385			6
Asia		416			—			59			35			—			510			7
Other regions		—			—			—			58			—			58			1

Total Stores reportable segment		2,369			2,413			1,118			124			—			6,024			90
Direct reportable segment (2)		173			262			78			—			144			657			10

Total	$	2,542		$	2,675		$	1,196		$	124		$	144		$	6,681			100	%

Sales growth (decline)		—	%		(2	)%		1	%		48	%		19	%		1	%

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

(2)

Online sales shipped from distribution centers located outside the U.S. were $30 million ($21 million for Canada and $9 million for Europe) and $24 million ($16 million for Canada and $8 million for Europe) for the thirteen weeks ended July 28, 2012 and July 30, 2011, respectively. Online sales shipped from distribution centers located outside the U.S. were $64 million ($43 million for Canada and $21 million for Europe) and $50 million ($34 million for Canada and $16 million for Europe) for the twenty-six weeks ended July 28, 2012 and July 30, 2011, respectively.

(3)

Franchise sales were $80 million ($70 million for Gap and $10 million for Banana Republic) and $64 million ($55 million for Gap and $9 million for Banana Republic) for the thirteen weeks ended July 28, 2012 and July 30, 2011, respectively. Franchise sales were $158 million ($139 million for Gap and $19 million for Banana Republic) and $124 million ($108 million for Gap and $16 million for Banana Republic) for the twenty-six weeks ended July 28, 2012 and July 30, 2011, respectively.

(4)

Net sales outside of the U.S. and Canada (including Direct and franchise) were $551 million and $515 million for the thirteen weeks ended July 28, 2012 and July 30, 2011, respectively. Net sales outside of the U.S. and Canada (including Direct and franchise) were $1.1 billion and $969 million for the twenty-six weeks ended July 28, 2012 and July 30, 2011, respectively.

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.

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 information technology and distribution center assets, and the net book value of goodwill and trade name as a result of the acquisition of Athleta. 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.

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


	13 Weeks Ended				26 Weeks Ended
($ in millions)	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
Operating income:
Stores	$	342	$	277	$	640	$	581
Direct		83		57		180		139

Operating income	$	425	$	334	$	820	$	720


($ in millions)	July 28, 2012		January 28, 2012		July 30, 2011
Segment Assets:
Stores	$	3,223	$	3,315	$	3,350
Direct		651		591		591
Unallocated		3,787		3,516		3,865

Total assets	$	7,661	$	7,422	$	7,806

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:


	13 Weeks Ended				26 Weeks Ended
($ in millions)	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
U.S. (1)	$	2,783	$	2,641	$	5,536	$	5,263
Canada		241		230		464		449

Total North America		3,024		2,871		6,000		5,712
Other foreign		551		515		1,062		969

Total net sales	$	3,575	$	3,386	$	7,062	$	6,681

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

Item 2.

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements. Words such as “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “project,” and similar expressions also identify forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the following:

•

repaying the remaining balance on the term loan;

•

income recognition of unrealized gains and losses from designated cash flow hedges;

•

changes in total gross unrecognized tax benefits within the next 12 months;

•

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

•

the impact of losses due to indemnification obligations;

•

earnings per share for fiscal 2012;

•

improving sales with healthy merchandise margins;

•

investing in our business while maintaining discipline;

•

returning excess cash to shareholders;

•

improving comparable store sales;

•

growing revenues;

•

opening additional stores, including outlets, in Asia, Canada, and Europe;

•

continuing to open franchise stores worldwide;

•

opening additional Athleta stores;

•

the number of new store openings and store closings in fiscal 2012, including franchise stores;

•

square footage change in fiscal 2012;

•

operating margin and leveraging operating expenses in fiscal 2012;

•

the effective tax rate in fiscal 2012;

•

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

•

ability to supplement near-term liquidity, if necessary, with our $500 million revolving credit facility;

•

the impact of the seasonality of our operations on certain asset and liability accounts;

•

depreciation and amortization expense in fiscal 2012;

•

capital expenditures in fiscal 2012;

•

dividend payments in fiscal 2012; and

•

the impact of changes in internal controls.

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 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 their franchised 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 and our ability to service our debt while maintaining other 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 systems may disrupt our operations;

•

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 share 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 our Annual Report on Form 10-K for the fiscal year ended January 28, 2012 and our other filings with the U.S. Securities and Exchange Commission.

Future economic and industry trends that could potentially impact net sales and profitability are difficult to predict. These forward-looking statements are based on information as of August 31, 2012, 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.

We suggest that this document be read in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

OUR BUSINESS

We are a leading global specialty apparel company. We offer apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. We have 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 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. Our products are also available to customers online in about 90 countries through Company-owned websites and using third parties that provide logistics and fulfillment services. 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.

We identify our operating segments based on the way we manage and evaluate our business activities. We have two reportable segments: Stores and Direct.

OVERVIEW

Financial highlights for the second quarter of fiscal 2012 are as follows:

•

Net sales for the second quarter of fiscal 2012 increased 6 percent to $3.6 billion compared with $3.4 billion for the second quarter of fiscal 2011. Comparable sales for the second quarter of fiscal 2012, which include the associated comparable online sales, increased 4 percent compared with a 2 percent decrease for the second quarter of fiscal 2011.

•

Direct net sales for the second quarter of fiscal 2012 increased 24 percent to $384 million compared with $309 million for the second quarter of fiscal 2011. Our Direct reportable segment includes sales for each of our online brands, including Piperlime and Athleta.

•

Net sales outside of the U.S. and Canada (including Direct and franchise) increased 7 percent to $551 million for the second quarter of fiscal 2012 compared with $515 million for the second quarter of fiscal 2011.

•

Gross profit for the second quarter of fiscal 2012 was $1.4 billion compared with $1.3 billion for the second quarter of fiscal 2011. Gross margin for the second quarter of fiscal 2012 was 39.9 percent compared with 36.9 percent for the second quarter of fiscal 2011.

•

Operating expenses for the second quarter of fiscal 2012 were $1.0 billion compared with $917 million for the second quarter of fiscal 2011 and increased 0.9 percent as a percentage of net sales.

•

Net income for the second quarter of fiscal 2012 increased 29 percent to $243 million compared with $189 million for the second quarter of fiscal 2011, and diluted earnings per share increased 40 percent to $0.49 for the second quarter of fiscal 2012 compared with $0.35 for the second quarter of fiscal 2011. For fiscal 2012, we expect diluted earnings per share to be in the range of $1.95 to $2.00.

•

During the first half of fiscal 2012, we generated free cash flow of $673 million compared with free cash flow of $298 million during the first half of fiscal 2011. 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 measure, from a GAAP financial measure, see the Liquidity and Capital Resources section.

Our full-year business and financial priorities for fiscal 2012 remain as follows:

•

improve sales with healthy merchandise margins;

•

invest in our business while maintaining discipline; and

•

return excess cash to shareholders.

As we focus on improving comparable store sales in fiscal 2012, we also plan to grow revenues through the following:

•

opening additional stores, many of which will be outlets, in Asia, Canada, and Europe;

•

continuing to open franchise stores worldwide; and

•

opening additional Athleta stores.

RESULTS OF OPERATIONS

Net Sales

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

See Item 1, Financial Statements, Note 12 of Notes to Condensed 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:


	13 Weeks Ended						26 Weeks Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Gap North America		7	%		(3	)%		6	%		(3	)%
Old Navy North America		3	%		—	%		4	%		(1	)%
Banana Republic North America		7	%		(2	)%		6	%		(1	)%
International		(5	)%		(4	)%		(4	)%		(5	)%
The Gap, Inc.		4	%		(2	)%		4	%		(2	)%

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:


	13 Weeks Ended						26 Weeks Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Gap North America		5	%		(5	)%		5	%		(5	)%
Old Navy North America		2	%		(2	)%		2	%		(3	)%
Banana Republic North America		5	%		(3	)%		4	%		(3	)%
International		(5	)%		(6	)%		(5	)%		(7	)%
The Gap, Inc.		2	%		(4	)%		2	%		(4	)%

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 results for Athleta are excluded from the calculations of total Company Comp sales due to its small number of Comp stores compared to our other brands. The results for Piperlime are excluded from the calculations of total Company Comp sales, as Piperlime is an online-only brand.

A store is included in the Comp sales calculations when it has been open for at least one year and the selling square footage has not changed by 15 percent or more within the past year. A store is included in the Comp sales calculations on the first day it has comparable prior year sales. Stores in which the selling square footage has changed by 15 percent or more as a result of a remodel, expansion, or reduction are excluded from the Comp sales calculations until the first day they have comparable prior year sales.

A store is considered non-comparable (“Non-comp”) when it has been open for less than one year or has changed its selling square footage by 15 percent or more within the past year.

A store is considered “Closed” if it is temporarily closed for three or more full consecutive days or it is permanently closed. When a temporarily closed store reopens, the store will be placed in the Comp/Non-comp status it was in prior to its closure. If a store was in Closed status for three or more days in the prior year, the store will be in Non-comp status for the same days the following year.

Comparable online sales include sales through online channels and are reported based on the location of the distribution center.

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:


	13 Weeks Ended				26 Weeks Ended
	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
Net sales per average square foot (1)	$	85	$	80	$	166	$	156

(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		26 Weeks Ended July 28, 2012				July 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		1,043		9		38		1,014			10.4
Gap Europe		193		2		1		194			1.7
Gap Asia		152		15		2		165			1.6
Old Navy North America		1,016		8		14		1,010			17.8
Old Navy Asia		—		1		—		1			—
Banana Republic North America		581		10		5		586			4.9
Banana Republic Asia		31		4		2		33			0.2
Banana Republic Europe		10		—		—		10			0.1
Athleta North America		10		12		—		22			0.1

Company-operated stores total		3,036		61		62		3,035			36.8
Franchise		227		30		7		250			N/A

Total		3,263		91		69		3,285			36.8

Increase (decrease) over prior year								1.1	%		(2.4	)%

	January 29, 2011		26 Weeks Ended July 30, 2011				July 30, 2011
	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		8		28		1,091			11.1
Gap Europe		184		7		5		186			1.6
Gap Asia		135		6		1		140			1.3
Old Navy North America		1,027		12		17		1,022			18.5
Banana Republic North America		576		3		1		578			4.9
Banana Republic Asia		29		—		1		28			0.2
Banana Republic Europe		5		2		—		7			0.1
Athleta North America		1		—		—		1			—

Company-operated stores total		3,068		38		53		3,053			37.7
Franchise		178		18		1		195			N/A

Total		3,246		56		54		3,248			37.7

Increase (decrease) over prior year								0.7	%		(2.1	)%

Gap and Banana Republic outlet stores are reflected in each of the respective brands. 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.

In fiscal 2012, we expect to open about 160 new Company-operated store locations and close about 145 Company-operated store locations. We expect square footage for Company-operated stores to decrease about 1 percent at the end of fiscal 2012 compared with the end of fiscal 2011. We expect our franchisees to open about 50 to 75 new franchise stores in fiscal 2012.

Net Sales

Our net sales for the second quarter of fiscal 2012 increased $189 million, or 6 percent, compared with the prior year comparable period due to an increase in net sales of $114 million related to our Stores reportable segment and an increase in net sales of $75 million related to our Direct reportable segment.

•

For the Stores reportable segment, our net sales for the second quarter of fiscal 2012 increased $114 million, or 4 percent, compared with the prior year comparable period. The increase was primarily due to an increase in Comp store sales, excluding the associated comparable online sales, for the U.S. and Canada, incremental sales for new international stores, and higher franchise net sales; partially offset by the unfavorable impact of foreign exchange of $18 million. The foreign exchange impact is the translation impact if net sales for the second quarter of fiscal 2011 were translated at exchange rates applicable during the second quarter of fiscal 2012.

•

For the Direct reportable segment, our net sales for the second quarter of fiscal 2012 increased $75 million, or 24 percent, compared with the prior year comparable period. The increase was due to growth in our online business across all brands and the incremental sales related to new Athleta stores.

In the second quarter of fiscal 2012, our net sales for the U.S. and Canada (including Direct) were $3.0 billion, an increase of $153 million or 5 percent compared with $2.9 billion for the prior year comparable period. In the second quarter of fiscal 2012, our net sales outside of the U.S. and Canada (including Direct and franchise) were $551 million, an increase of $36 million or 7 percent compared with $515 million for the prior year comparable period.

Our net sales for the first half of fiscal 2012 increased $381 million, or 6 percent, compared with the prior year comparable period due to an increase in net sales of $244 million related to our Stores reportable segment and an increase in net sales of $137 million related to our Direct reportable segment.

•

For the Stores reportable segment, our net sales for the first half of fiscal 2012 increased $244 million, or 4 percent, compared with the prior year comparable period. The increase was primarily due to an increase in Comp store sales, excluding the associated comparable online sales, for the U.S. and Canada, incremental sales for new international stores, and higher franchise net sales.

•

For the Direct reportable segment, our net sales for the first half of fiscal 2012 increased $137 million, or 21 percent, compared with the prior year comparable period. The increase was due to growth in our online business across all brands and the incremental sales related to new Athleta stores.

In the first half of fiscal 2012, our net sales for the U.S. and Canada (including Direct) were $6.0 billion, an increase of $288 million or 5 percent compared with $5.7 billion for the prior year comparable period. In the first half of fiscal 2012, our net sales outside of the U.S. and Canada (including Direct and franchise) were $1.1 billion, an increase of $93 million or 10 percent compared with $969 million for the prior year comparable period.

Cost of Goods Sold and Occupancy Expenses


	13 Weeks Ended						26 Weeks Ended
($ in millions)	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Cost of goods sold and occupancy expenses	$	2,148		$	2,135		$	4,260		$	4,126
Gross profit	$	1,427		$	1,251		$	2,802		$	2,555
Cost of goods sold and occupancy expenses as a percentage of net sales		60.1	%		63.1	%		60.3	%		61.8	%
Gross margin		39.9	%		36.9	%		39.7	%		38.2	%

Cost of goods sold and occupancy expenses as a percentage of net sales decreased 3.0 percent in the second quarter of fiscal 2012 compared with the prior year comparable period.

•

Cost of goods sold decreased 2.1 percent as a percentage of net sales in the second quarter of fiscal 2012 compared with the prior year comparable period. The decrease in cost of goods sold as a percentage of net sales was primarily due to improved product acceptance resulting in improved average unit selling price.

•

Occupancy expenses decreased 0.9 percent as a percentage of net sales in the second quarter of fiscal 2012 compared with the prior year comparable period. 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 as a percentage of net sales decreased 1.5 percent in the first half of fiscal 2012 compared with the prior year comparable period.

•

Cost of goods sold decreased 0.4 percent as a percentage of net sales in the first half of fiscal 2012 compared with the prior year comparable period. The decrease in cost of goods sold as a percentage of net sales was primarily driven by improved product acceptance resulting in improved average unit selling price partially offset by increased cost of merchandise primarily due to higher cotton prices.

•

Occupancy expenses decreased 1.1 percent as a percentage of net sales in the first half of fiscal 2012 compared with the prior year comparable period. The decrease in occupancy expenses as a percentage of net sales was primarily driven by higher net sales and a decrease in occupancy expenses.

Operating Expenses


	13 Weeks Ended						26 Weeks Ended
($ in millions)	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Operating expenses	$	1,002		$	917		$	1,982		$	1,835
Operating expenses as a percentage of net sales		28.0	%		27.1	%		28.1	%		27.5	%
Operating margin		11.9	%		9.9	%		11.6	%		10.8	%

Operating expenses increased $85 million, or 0.9 percent as a percentage of net sales, in the second quarter of fiscal 2012 compared with the prior year comparable period. The increase in operating expenses was primarily due to higher marketing expenses, driven largely by Gap brand marketing investments, and higher store payroll expenses.

Operating expenses increased $147 million, or 0.6 percent as a percentage of net sales, in the first half of fiscal 2012 compared with the prior year comparable period. The increase in operating expenses was primarily due to higher marketing expenses, driven largely by investments in customer relationship marketing and Gap brand marketing, and higher store payroll expenses.

Given our plans to continue to invest in our business, we expect operating expenses to deleverage in the second half of fiscal 2012.

For fiscal 2012, we expect operating margin to be about 11 percent.

Interest Expense


	13 Weeks Ended				26 Weeks Ended
($ in millions)	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
Interest expense	$	22	$	22	$	45	$	28

Interest expense primarily consists of interest related to our $1.25 billion long-term debt and our $400 million term loan, of which $360 million was outstanding as of July 28, 2012. The increase in interest expense for the first half of fiscal 2012 compared with the prior year comparable period was primarily due to the issuance of our $1.25 billion long-term debt in April 2011 and the funding of our $400 million term loan in May 2011.

Income Taxes


	13 Weeks Ended						26 Weeks Ended
($ in millions)	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Income taxes	$	162		$	124		$	302		$	272
Effective tax rate		40.0	%		39.6	%		38.8	%		39.2	%

The slight increase in the effective tax rate for the second quarter of fiscal 2012 compared with the prior year comparable period was primarily due to the unfavorable impact of a change in the mix of income as well as the more pronounced impact of operating losses in China and Hong Kong (for which no tax benefit has been provided) relative to Gap Inc. pre-tax income.

The slight decrease in the effective tax rate for the first half of fiscal 2012 compared with the prior year comparable period was primarily due to favorable reassessments of tax positions during the first quarter of fiscal 2012.

We currently expect the fiscal 2012 effective tax rate to be about 39.5 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, and payments of taxes.

As of July 28, 2012, cash and cash equivalents and short-term investments were $2.1 billion. As of July 28, 2012, the majority of our cash and cash equivalents was held in the U.S. and is 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 the first half of fiscal 2012 increased $411 million compared with the prior year comparable period, primarily due to the following:

•

a decrease in income tax payments in the first half of fiscal 2012 compared with the first half of fiscal 2011;

•

an increase in payments received for other receivables in the first half of fiscal 2012 compared with the first half of fiscal 2011;

•

a smaller increase in merchandise inventory balances from the end of fiscal 2011 to the end of the second quarter of fiscal 2012 compared with a larger increase in merchandise inventory balances from the end of fiscal 2010 to the end of the second quarter of fiscal 2011; and

•

an increase in net income in the first half of fiscal 2012 compared with the first half of fiscal 2011.

We fund merchandise 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 may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods.

For fiscal 2012, we expect depreciation and amortization expense, net of amortization of lease incentives, to be about $475 million.

Cash Flows from Investing Activities

Our cash outflows from 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 the first half of fiscal 2012 increased $139 million compared with the prior year comparable period, primarily due to the following:

•

$75 million of net purchases of short-term investments in the first half of fiscal 2012 compared with $25 million of net maturities in the first half of fiscal 2011; and

•

$36 million more property and equipment purchases in the first half of fiscal 2012 compared with the first half of fiscal 2011.

For fiscal 2012, we expect capital expenditures to be up to $675 million.

Cash Flows from Financing Activities

Our cash outflows from financing activities consist primarily of repurchases of our common stock, dividend payments, and repayments of debt. 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. In the first half of fiscal 2012, we used $433 million of cash for financing activities compared with a cash inflow of $200 million in the prior year comparable period. The change was primarily due to the following:

•

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

•

$991 million less repurchases of common stock in the first half of fiscal 2012 compared with the first half of fiscal 2011.

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.


	26 Weeks Ended
($ in millions)	July 28, 2012			July 30, 2011
Net cash provided by operating activities	$	970		$	559
Less: Purchases of property and equipment		(297	)		(261	)

Free cash flow	$	673		$	298

Long-Term Debt

Long-term debt as of July 28, 2012 consists of the following:


($ in millions)
Notes	$	1,246
Term loan		360

Total long-term debt		1,606
Less: Current portion		(40	)

Total long-term debt, less current portion	$	1,566

Our $1.25 billion aggregate principal amount of 5.95 percent Notes are due April 2021. For our $400 million, five-year, unsecured term loan due April 2016, repayments of $40 million are due in April of each year, with a final repayment of $240 million due in April 2016. In April 2012, we repaid $40 million related to our $400 million term loan.

In August 2012, we notified our lenders of our intent to repay the remaining $360 million balance of the term loan in the third quarter of fiscal 2012.

Credit Facilities

We have a $500 million, five-year, unsecured revolving credit facility, which is scheduled to expire in April 2016. As of July 28, 2012, there were no borrowings under the Facility. The net availability of the Facility, reflecting $69 million of outstanding standby letters of credit, was $431 million as of July 28, 2012.

We also have two separate agreements that make unsecured revolving credit facilities available for our operations in China. The 196 million Chinese yuan ($31 million as of July 28, 2012) China Facilities are scheduled to expire in September 2012 and we expect to renew under substantially similar terms. As of July 28, 2012, there were borrowings of $8 million (50 million Chinese yuan) at an interest rate of approximately 6.13 percent under the China Facilities. The net availability of the China Facilities, reflecting these borrowings and $2 million in bank guarantees related to store leases, was $21 million as of July 28, 2012.

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 paid a dividend of $0.25 per share and $0.225 per share during the first half of fiscal 2012 and 2011, respectively. Including the dividends paid in the first half of fiscal 2012, we intend to pay an annual dividend per share of $0.50 for fiscal 2012, which is an increase of 11 percent compared with $0.45 for fiscal 2011.

Share Repurchases

Between August 2010 and November 2011, we announced that the Board of Directors authorized a total of $3.25 billion for share repurchases, of which $443 million under the November 2011 authorization was remaining as of January 28, 2012. In February 2012, we announced that the Board of Directors approved a new $1 billion share repurchase authorization that replaced the November 2011 authorization and cancelled the $441 million remaining under the November 2011 authorization as of February 23, 2012. As of July 28, 2012, there was $635 million remaining under the February 2012 authorization.

During the first half of fiscal 2012, we repurchased approximately 13.8 million shares for $367 million, including commissions, at an average price per share of $26.51.

Summary Disclosures about Contractual Cash Obligations and Commercial Commitments

There have been no significant changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of January 28, 2012, other than those which occur in the normal course of business. See Item 1, Financial Statements, Note 11 of Notes to Condensed Consolidated Financial Statements for disclosures on commitments and contingencies.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Our market risk profile as of July 28, 2012 has not significantly changed since January 28, 2012. Our market risk profile as of January 28, 2012 is disclosed in our Annual Report on Form 10-K. See Item 1, Financial Statements, Notes 4, 5, and 6 of Notes to Condensed Consolidated Financial Statements for disclosures on our debt, investments, and derivative financial instruments.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s second quarter of fiscal 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, employment, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance.

Item 1A.

Risk Factors.

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents information with respect to purchases of common stock of the Company made during the thirteen weeks ended July 28, 2012 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 (April 29 - May 26)		2,151,665	$	26.72		2,151,665	$	927 million
Month #2 (May 27 - June 30)		8,475,661	$	26.24		8,475,661	$	705 million
Month #3 (July 1 - July 28)		2,492,752	$	28.01		2,492,752	$	635 million

Total		13,120,078	$	26.65		13,120,078

(1)	On February 23, 2012, we announced that the Board of Directors approved a new $1 billion share repurchase authorization. This authorization has no expiration date.

Item 6.

Exhibits.


10.1		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.
10.2		Agreement for 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.
10.3		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.
10.4		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.
10.5		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.
10.6		Agreement for 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, Commission File No. 1-7562, Commission File No. 1-7562.
10.7		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.
10.8*		Form of Performance Share Agreement under the 2011 Long-Term Incentive Plan.
10.9*		Form of Non-Qualified Stock Option Agreement under the 2011 Long-Term Incentive Plan.
10.10*		Form of Restricted Stock Unit Award Agreement under the 2011 Long-Term Incentive Plan.
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 Quarterly Report on Form 10-Q for the quarter ended July 28, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.

*	Filed herewith.

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	THE GAP, INC.

Date: August 31, 2012	By	/s/ Glenn K. Murphy
		Glenn K. Murphy
		Chairman and Chief Executive Officer

Date: August 31, 2012	By	/s/ Sabrina L. Simmons
		Sabrina L. Simmons
		Executive Vice President and Chief Financial Officer

Exhibit Index


10.1		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.
10.2		Agreement for 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.
10.3		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.
10.4		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.
10.5		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.
10.6		Agreement for 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, Commission File No. 1-7562, Commission File No. 1-7562.
10.7		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.
10.8*		Form of Performance Share Agreement under the 2011 Long-Term Incentive Plan.
10.9*		Form of Non-Qualified Stock Option Agreement under the 2011 Long-Term Incentive Plan.
10.10*		Form of Restricted Stock Unit Award Agreement under the 2011 Long-Term Incentive Plan.
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 Quarterly Report on Form 10-Q for the quarter ended July 28, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.

*	Filed herewith.

Exhibit 10.8

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, in duplicate, 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.

2. 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.

3. 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

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 vests in Performance Shares or sells 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

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:

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 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.

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 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.

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

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 immediate sale of the Shares issued upon the vesting of Performance Shares is required unless the Company, in its sole discretion, determines otherwise. 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 also 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 provisions above pursuant to which Employee agrees to sell all Shares issued to him or her 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.

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 10.9

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:


Vesting Date	Number of Shares Vesting on Vesting Date	Latest 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

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.

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:

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.

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.

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 immediate sale of the Shares issued upon the exercise of the Option is required unless the Company, in its sole discretion, determines otherwise. 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 also 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 provisions above pursuant to which Employee agrees to sell all Shares issued to him or her 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.

* * *

Exhibit 10.10

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 executed this Agreement, in duplicate, to be effective as of the date first above written.

THE GAP, INC.

Dated:

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.

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.

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 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.

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.

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:

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 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

PEOPLE’S REPUBLIC OF CHINA

Mandatory Sale of Shares Upon Vesting. By accepting the Stock Awards, the Employee acknowledges and agrees that the immediate sale of the Shares issued upon the vesting of Stock Awards is required unless the Company, in its sole discretion, determines otherwise. 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 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 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 also 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.

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.

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 31.1

CERTIFICATIONS

I, Glenn K. Murphy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q 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;

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 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:

(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: August 31, 2012

/s/ Glenn K. 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 quarterly report on Form 10-Q 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;

(a)

(b)

(c)

(d)

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:

(a)

(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: August 31, 2012

/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 Quarterly Report of The Gap, Inc. (the “Company”) on Form 10-Q for the period ended July 28, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glenn 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 K. Murphy

Glenn K. Murphy

Chairman and Chief Executive Officer

Date: August 31, 2012

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 Quarterly Report of The Gap, Inc. (the “Company”) on Form 10-Q for the period ended July 28, 2012 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

Date: August 31, 2012

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents