1 Front Page 2 Memo TO: FROM: DATE: SUBJECT: <text follows> 3 Table of contents Appendix 1: Pro Forma FCF Page 4 Appendix 2 : Weighted Average Cost of Capital Page 5 Appendix 3 : Balance Sheets Page 6 Appendix 4 : Income Statements Page 8 Appendix 5 : Statements of Cash Flows Page 10 Appendix 6 : 10K Data Collection Page 11 Appendix 7: Market Return and Beta Page 12 4 Pro Format FCF Value Drivers Sales Growth 4.07% Directly related to sales Operating Expenses (excluding depreciation) 89.86% Operating Current Assets 17.16% Operating Current Liabilities 14.31% Capital Expenditures 4.22% Not directly related to sales Depreciation Rate 6.09% Interest Rate on Debt 5.53% Interest Rate on ST Investments 1.73% <-- 1-year treasury yield (https://www.federalreserve.gov/releases/h15/) Tax Rate 36.34% Long term growth rate 0.00% Unlevered Free Cash Flows Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26 Jan-27 Jan-28 Jan-29 Sales $17,255,546 $17,958,617 $18,690,334 $19,451,865 $20,244,425 $21,069,276 $21,927,736 $22,821,174 $23,751,014 $24,718,741 Operating Expenses $15,506,519 $16,138,326 $16,795,877 $17,480,219 $18,192,444 $18,933,688 $19,705,135 $20,508,013 $21,343,605 $22,213,242 Depreciation $620,940 $665,274 $711,414 $759,435 $809,412 $861,425 $915,557 $971,895 $1,030,529 $1,091,552 Earnings Before Interest And Taxes $1,128,087 $1,155,017 $1,183,043 $1,212,212 $1,242,569 $1,274,163 $1,307,044 $1,341,265 $1,376,881 $1,413,947 Taxes $409,958 $419,745 $429,930 $440,530 $451,562 $463,044 $474,993 $487,429 $500,372 $513,842 Net Income $718,129 $735,272 $753,114 $771,682 $791,007 $811,120 $832,051 $853,836 $876,509 $900,105 Depreciation $620,940 $665,274 $711,414 $759,435 $809,412 $861,425 $915,557 $971,895 $1,030,529 $1,091,552 Capital Expenditures $727,890 $757,548 $788,414 $820,538 $853,970 $888,765 $924,977 $962,665 $1,001,888 $1,042,710 ONWC $491,595 $511,625 $532,471 $554,166 $576,745 $600,245 $624,701 $650,155 $676,645 $704,215 Change in ONWC -$216,405 $20,030 $20,846 $21,695 $22,579 $23,499 $24,457 $25,453 $26,490 $27,570 Free Cash Flows $827,584 $622,968 $655,268 $688,884 $723,869 $760,280 $798,175 $837,613 $878,659 $921,377 Terminal Value $16,207,764 PV of FCFs $15,011,177 Equity Value $15,131,177 Fair price per share $39.00 5 Weighted Average Cost of Capital Gap WACC calculation Debt Average value $1,292,833 Cost of debt 5.53% Proportion of debt in capital structure 16.44% Equity # Shares outstanding 388,000 <----- Diluted weighted-average number of shares from 10-K Current price per share $16.94 <----- As of 11/3/2019 Market capitalization $6,572,720 Cost of equity 6.11% Beta 0.68 <----- Beta calculated using 3 years data (se Returns tab) Rf 1.73% Rm 8.21% <----- Annualized market return from Returns tab Proportion of debt in capital structure 83.56% WACC 5.68% 6 Balance Sheets Gap Ba.

1. 1
Front Page
2
Memo
TO:
FROM:
DATE:
SUBJECT:
<text follows>
3

2. Table of contents
Appendix 1: Pro Forma FCF Page 4
Appendix 2 : Weighted Average Cost of Capital Page 5
Appendix 3 : Balance Sheets Page 6
Appendix 4 : Income Statements Page 8
Appendix 5 : Statements of Cash Flows Page 10
Appendix 6 : 10K Data Collection Page 11
Appendix 7: Market Return and Beta Page 12
4
Pro Format FCF
Value Drivers
Sales Growth 4.07%
Directly related to sales
Operating Expenses (excluding depreciation) 89.86%

3. Operating Current Assets 17.16%
Operating Current Liabilities 14.31%
Capital Expenditures 4.22%
Not directly related to sales
Depreciation Rate 6.09%
Interest Rate on Debt 5.53%
Interest Rate on ST Investments 1.73% <-- 1-year treasury
yield (https://www.federalreserve.gov/releases/h15/)
Tax Rate 36.34%
Long term growth rate 0.00%
Unlevered Free Cash Flows Jan-20 Jan-21 Jan-22 Jan-23 Jan-24
Jan-25 Jan-26 Jan-27 Jan-28 Jan-29
Sales $17,255,546 $17,958,617 $18,690,334 $19,451,865
$20,244,425 $21,069,276 $21,927,736 $22,821,174 $23,751,014
$24,718,741
Operating Expenses $15,506,519 $16,138,326 $16,795,877
$17,480,219 $18,192,444 $18,933,688 $19,705,135 $20,508,013
$21,343,605 $22,213,242
Depreciation $620,940 $665,274 $711,414 $759,435 $809,412
$861,425 $915,557 $971,895 $1,030,529 $1,091,552
Earnings Before Interest And Taxes $1,128,087 $1,155,017
$1,183,043 $1,212,212 $1,242,569 $1,274,163 $1,307,044
$1,341,265 $1,376,881 $1,413,947
Taxes $409,958 $419,745 $429,930 $440,530 $451,562
$463,044 $474,993 $487,429 $500,372 $513,842

4. Net Income $718,129 $735,272 $753,114 $771,682 $791,007
$811,120 $832,051 $853,836 $876,509 $900,105
Depreciation $620,940 $665,274 $711,414 $759,435 $809,412
$861,425 $915,557 $971,895 $1,030,529 $1,091,552
Capital Expenditures $727,890 $757,548 $788,414 $820,538
$853,970 $888,765 $924,977 $962,665 $1,001,888 $1,042,710
ONWC $491,595 $511,625 $532,471 $554,166 $576,745
$600,245 $624,701 $650,155 $676,645 $704,215
Change in ONWC -$216,405 $20,030 $20,846 $21,695 $22,579
$23,499 $24,457 $25,453 $26,490 $27,570
Free Cash Flows $827,584 $622,968 $655,268 $688,884
$723,869 $760,280 $798,175 $837,613 $878,659 $921,377
Terminal Value $16,207,764
PV of FCFs $15,011,177
Equity Value $15,131,177
Fair price per share $39.00
5
Weighted Average Cost of Capital
Gap WACC calculation
Debt Average value $1,292,833

5. Cost of debt 5.53%
Proportion of debt in capital structure 16.44%
Equity # Shares outstanding 388,000 <----- Diluted
weighted-average number of shares from 10-K
Current price per share $16.94 <----- As of 11/3/2019
Market capitalization $6,572,720
Cost of equity 6.11%
Beta 0.68 <----- Beta calculated using 3 years data (se Returns
tab)
Rf 1.73%
Rm 8.21% <----- Annualized market return from Returns tab
Proportion of debt in capital structure 83.56%
WACC 5.68%
6
Balance Sheets
Gap Balance Sheets (in $1,000) (in $1,000)
PERIOD ENDING Jan-19 Jan-18 Jan-17 Jan-16 Jan-15 Jan-14
Assets

6. Current Assets
Cash And Cash Equivalents 1,081,000 1,783,000 1,783,000
1,370,000 1,515,000 1,510,000
Short Term Investments 288,000 - - -
- -
Net Receivables 359,000 282,000 335,000 -
- -
Inventory 2,131,000 1,997,000 1,830,000 1,873,000
1,889,000 1,928,000
Other Current Assets 392,000 506,000 367,000
742,000 913,000 992,000
Total Current Assets 4,251,000 4,568,000 4,315,000
3,985,000 4,317,000 4,430,000
Long Term Investments - - -
Property Plant and Equipment 2,912,000 2,805,000
2,616,000 2,850,000 2,773,000 2,758,000
Goodwill 109,000 109,000 109,000
- - -
Intangible Assets 92,000 95,000 95,000
- - -
Other Assets 685,000 412,000 475,000
638,000 600,000 661,000
Total Assets 8,049,000 7,989,000 7,610,000
7,473,000 7,690,000 7,849,000
Liabilities
Current Liab ilities
Accounts Payable 1,126,000 1,181,000 1,243,000
2,114,000 2,213,000 2,420,000
Short/Current Long Term Debt - - 65,000

7. 421,000 21,000 25,000
Other Current Liabilities 1,048,000 1,280,000
1,145,000 - - -
Total Current Liabilities 2,174,000 2,461,000
2,453,000 2,535,000 2,234,000 2,445,000
Long Term Debt 1,249,000 1,249,000 1,248,000
1,310,000 1,332,000 1,369,000
Other Liabilities 1,073,000 1,135,000 1,005,000
1,083,000 1,141,000 973,000
Total Liabilities 4,496,000 4,845,000 4,706,000
4,928,000 4,707,000 4,787,000
Stockholders' Equity
Common Stock 19,000 19,000 20,000
20,000 21,000 55,000
Retained Earnings 3,481,000 3,089,000 2,830,000
2,440,000 2,797,000 14,218,000
Treasury Stock - -
- (14,245,000)
Capital Surplus - -
- 2,899,000
Other Stockholder Equity 53,000 36,000
54,000 85,000 165,000 135,000
Total Stockholder Equity 3,553,000 3,144,000
2,904,000 2,545,000 2,983,000 3,062,000
Total L&E 8,049,000 7,989,000 7,610,000 7,473,000
7,690,000 7,849,000
Total LT Debt 1,249,000 1,249,000 1,248,000 1,310,000
1,332,000 1,369,000

8. Average 1,292,833
Jan-20 Jan-19 Jan-18 Jan-17 Jan-16 Jan-15 Jan-14
Operating Current Assets 2,882,000 2,785,000 2,532,000
2,615,000 2,802,000 2,920,000 Average
% of Revenues 17.38% 17.57% 16.32% 16.55% 17.05% 18.08%
17.16%
Trend
17.89%
Operating Current Liabilities 2,174,000 2,461,000 2,388,000
2,114,000 2,213,000 2,420,000 Average
% of Revenues 13.11% 15.52% 15.39% 13.38% 13.47% 14.99%
14.31%
7
Balance Sheet Analysis
8

9. Income Statements
Gap Income statements (in $1,000)
PERIOD ENDING Jan-19 Jan-18 Jan-17 Jan-16 Jan-15 Jan-14
Total Revenue $16,580,000 $15,855,000 $15,516,000
$15,797,000 $16,435,000 $16,148,000
Cost of Revenue $10,258,000 $9,789,000 $9,876,000
$10,077,000 $10,146,000 $9,855,000
Gross Profit $6,322,000 $6,066,000 $5,640,000 $5,720,000
$6,289,000 $6,293,000
Selling General and Administrative $4,960,000 $4,587,000
$4,449,000 $4,196,000 $4,206,000 $4,144,000
Operating Income or Loss $1,362,000 $1,479,000 $1,191,000
$1,524,000 $2,083,000 $2,149,000
Other Income/Expenses $33,000 $19,000 $8,000 $6,000 $5,000
$5,000
Earnings Before Interest And Taxes $1,395,000 $1,498,000
$1,199,000 $1,530,000 $2,088,000 $2,154,000
Interest Expense $73,000 $74,000 $75,000 $59,000 $75,000
$61,000
Income Before Tax $1,322,000 $1,424,000 $1,124,000
$1,471,000 $2,013,000 $2,093,000
Income Tax Expense $319,000 $576,000 $448,000 $551,000
$751,000 $813,000
Net Income $1,003,000 $848,000 $676,000 $920,000
$1,262,000 $1,280,000
Interest on Debt 5.84% 5.93% 5.86% 4.47% 5.55%

10. Average 5.53%
Tax Rate 24.13% 40.45% 39.86% 37.46% 37.31% 38.84%
Average 36.34%
Revenue Change YoY 4.57% 2.18% -1.78% -3.88% 1.78%
Trend (on % change) 4.07%
Operating Expenses (excluding depreciation)
Regression Ys $14,607,000 $13,858,000 $13,786,000
$13,740,000 $13,847,000 $13,524,000
Regression Xs $16,580,000 $15,855,000 $15,516,000
$15,797,000 $16,435,000 $16,148,000
Slope 51.73%
Intercept $5,587,662
R2 0.32 Too low value to accept Slope/Intercept as
valid value drivers
Operating Expenses (excluding depreciation) $14,607,000
$13,858,000 $13,786,000 $13,740,000 $13,847,000 $13,524,000
% of revenue 88.10% 87.40% 88.85% 86.98% 84.25% 83.75%
Average 86.56%
Trend 89.86%
9
Income Statement Analysis

11. 10
Statements of Cash Flows
Gap statements of Cash flows (in $1,000)
PERIOD ENDING Jan-19 Jan-18 Jan-17 Jan-16 Jan-15 Jan-14
Net Income 1,003,000 848,000 676,000 920,000
1,262,000 1,280,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation 578,000 499,000 531,000
527,000 500,000 470,000
Adjustments To Net Income 103,000 195,000
191,000 103,000 118,000 119,000
Changes In Accounts Receivables - -
- - - -
Changes In Liabilities (78,000) (53,000) 221,000
(83,000) 18,000 73,000
Changes In Inventories (154,000) (142,000) 46,000
(6,000) (9,000) (193,000)
Changes In Other Operating Activities (184,000) 33,000
54,000 133,000 240,000 (44,000)
Total Cash Flow From Operating Activities 1268000 1,380,000

12. 1,719,000 1,594,000 2,129,000 1,705,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures (705,000) (731,000) (521,000)
(726,000) (714,000) (670,000)
Investments (287,000) - -
- - 50,000
Other Cash flows from Investing Activities (9,000)
63,000 (5,000) (4,000) 118,000
(4,000)
Total Cash Flows From Investing Activities -1001000
(668,000) (526,000) (730,000) (596,000)
(624,000)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid (373,000) (361,000) (367,000)
(377,000) (383,000) (321,000)
Sale Purchase of Stock - (285,000) 29,000
(950,000) (1,089,000) (882,000)
Net Borrowings - (67,000) (421,000)
379,000 (21,000) 144,000
Other Cash Flows from Financing Activities (1,000)
(18,000) (18,000) (70,000) (52,000)
55,000
Total Cash Flows From Financing Activities (374,000)
(731,000) (777,000) (1,018,000) (1,545,000)
(1,004,000)
Effect Of Exchange Rate Changes (10,000) 19,000
16,000 (19,000) (21,000) (36,000)
Change In Cash and Cash Equivalents (107,000) (19,000)
416,000 (154,000) (12,000) 41,000
Capital Expenditures 4.25% 4.61% 3.36% 4.60% 4.34% 4.15%

13. Average 4.22%
Dividends Paid 37.19% 42.57% 54.29% 40.98% 30.35% 25.08%
Average 38.41%
11
10K Data Collection
Gap 2014 10K - Note 2. Additional Financial Statement
Information (p. 48)
Gap 2015 10K - Note 2. Additional Financial Statement
Information (p. 47)
Gap 2019 10K - Note 2. Additional Financial Statement
Information (p.51)
Gap 2018 10K - Note 2. Additional Financial Statement
Information (p.51)
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and consist of the following:
($ in millions) January 30, January 30, January 30, January 30,
January 31, January 31,
2018 2018 2017 2016 2015 2014

14. Leasehold improvements 3,104 3,140 3,099 3,252 3,220 3,211
Furniture and equipment 2,732 2,623 2,508 2,603 2,560 2,793
Software 1,525 1,703 1,600 1,433 1,349 1,173
Land, buildings, and building improvements 1,123 1,037 1,000
1,019 1,009 1,106
Construction-in-progress 183 264 222 187 167 176
Property and equipment, at cost 8,667 8,767 8,429 8,494 8,305
8,305
Depreciation rate 6.67% 5.69% 6.30% 6.20% 6.02% 5.66%
Average useful life (years) 16.4
Page 40Page 40
12
Time Series of T-Bills, S&P500, and Gap Inc.
T-Bills S&P500 Gap Inc.
Mean 0.22% 0.68% 1.25%
Median 0.20% 1.07% 0.58%
St. Dev. 0.0019 0.0411 0.1114