SECURITIES AND EXCHANGE COMMISSION 	Washington, D.C. 20549 	FORM 10-Q (Mark One) [ X ]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended October 31, 1998 or [ ]		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________ Commission File Number 1-7562 	THE GAP, INC. 	(Exact name of registrant as specified in its charter) Delaware 94-1697231 (State of Incorporation) (I.R.S. Employer Identification No.) 	One Harrison 	San Francisco, California 94105 	(Address of principal executive offices) 	Registrant's telephone number, including area code: (415) 952-4400 	_______________________ 	Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.05 par value New York Stock Exchange, Inc. (Title of class) Pacific Exchange, Inc. (Name of each exchange where registered) 	Securities registered pursuant to Section 12(g) of the Act: None 	_______________________ Indicate by check mark whether 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 X No Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, $0.05 par value, 380,597,122 shares as of November 27, 1998 GAP INC. PART 1 CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) ($000 and shares in thousands, except October 31, January 31, November 1, par value) 1998 1998 1997 ASSETS Current Assets: Cash and equivalents $ 271,518 $ 913,169 $ 627,760 Merchandise inventory 1,374,916 733,174 980,531 Prepaid expenses and other current assets 195,013 184,604 154,670 Total Current Assets 1,841,447 1,830,947 1,762,961 Property and equipment, net 1,748,840 1,365,246 1,319,462 Lease rights and other assets 164,474 141,309 142,653 Total Assets $ 3,754,761 $ 3,337,502 $ 3,225,076 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term notes payable $ 526,428 $ 84,794 $ 115,245 Accounts payable 536,408 416,976 433,313 Accrued expenses 570,363 389,412 349,999 Income taxes payable 42,008 83,597 93,395 Deferred lease credits and other 12,351 16,769 15,170 current liabilities Total Current Liabilities 1,687,558 991,548 1,007,122 Long-term Liabilities: Long-term debt 496,352 496,044 495,941 Deferred lease credits and other 314,855 265,924 249,151 liabilities Total Long-Term Liabilities 811,207 761,968 745,092 Shareholders' Equity: Common stock $.05 par value Authorized 1,500,000 shares Issued 663,488; 659,884; and 717,213 shares Outstanding 570,049; 589,700; and 592,744 shares 33,174 32,994 35,861 Additional paid-in capital 418,971 306,676 475,140 Retained earnings 2,845,441 2,392,750 2,196,647 Foreign currency translation adjustment (11,298) (15,230) (7,790) Deferred compensation (35,874) (38,167) (43,908) Treasury stock, at cost (1,994,418) (1,095,037) (1,183,088) Total Shareholders' Equity 1,255,996 1,583,986 1,472,862 Total Liabilities and Shareholders' $ 3,754,761 $ 3,337,502 $ 3,225,076 Equity See accompanying notes to condensed consolidated financial statements. GAP INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS Unaudited Thirteen Weeks Ended Thirty-nine Weeks Ended ($000 except per share amounts) October 31, November 1, October 31, November 1, 1998 1997 1998 1997 Net sales $ 2,399,948 $ 1,765,939 $ 6,024,630 $ 4,342,346 Costs and expenses Cost of goods sold and 1,376,005 1,044,673 3,542,174 2,716,885 occupancy expenses Operating expenses 636,745 453,977 1,659,017 1,118,350 Net interest (income)/expense 6,800 4,052 6,337 (2,145) Earnings before income taxes 380,398 263,237 817,102 509,256 Income taxes 142,649 98,714 306,413 190,971 Net earnings $ 237,749 $ 164,523 $ 510,689 $ 318,285 Weighted average number of 571,318,832 591,855,020 579,080,645 597,898,512 shares - basic Weighted average number of 597,431,414 613,436,672 605,073,243 617,202,378 shares - diluted Earnings per share - basic $ 0.42 $ 0.28 $ 0.88 $ 0.53 Earnings per share - diluted $ 0.40 $ 0.27 $ 0.84 $ 0.52 Cash dividends per share $ 0.03 $ 0.03 $ 0.10 $ 0.10 See accompanying notes to condensed consolidated financial statements. GAP INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited ($000) Thirty-nine Weeks Ended October 31, 1998 November 1, 1997 Cash Flows from Operating Activities: Net earnings $510,689 $318,285 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization (a) 236,413 194,571 Tax benefit from exercise of stock options by employees and from vesting of restricted stock 67,018 16,047 Change in operating assets and liabilities: Merchandise inventory (641,672) (401,827) Prepaid expenses and other (13,636) (32,789) Accounts payable 120,690 81,647 Accrued expenses 179,922 67,138 Income taxes payable (41,742) 1,598 Deferred lease credits and other long-term liabilities 37,404 52,462 Net cash provided by operating activities 455,086 297,132 Cash Flows from Investing Activities: Net proceeds from maturity of short-term inve - 174,709 Net purchase of long-term investments - (2,939) Net purchase of property and equipment (591,056) (352,745) Acquisition of lease rights and other assets (20,474) (13,223) Net cash used for investing activities (611,530) (194,198) Cash Flows from Financing Activities: Net increase in notes payable 438,393 73,031 Issuance of long-term debt - 495,890 Issuance of common stock 32,462 23,838 Purchase of treasury stock net of reissuances (899,382) (494,287) Cash dividends paid (57,998) (59,990) Net cash used for financing activities (486,525) 38,482 Effect of exchange rate changes on cash 1,318 700 Net decrease in cash and equivalents (641,651) 142,116 Cash and equivalents at beginning of year 913,169 485,644 Cash and equivalents at end of quarter $271,518 $627,760 See accompanying notes to condensed consolidated financial statements. (a) Includes amortization of restricted stock, discounted stock options and discount on long-term debt. GAP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1.	BASIS OF PRESENTATION 	The condensed consolidated balance sheets as of October 31, 1998 and November 1, 1997 and the interim condensed consolidated statements of earnings for the thirteen and thirty-nine weeks ended October 31, 1998 and November 1, 1997 and cash flows for the thirty-nine week periods ended October 31, 1998 and November 1, 1997 have been prepared by the Company, without audit. In the opinion of management, such statements include all adjustments (which include only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows of the Company at October 31, 1998 and November 1, 1997, and for all periods presented. 	Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted from these interim financial statements. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 31, 1998. 	The condensed consolidated balance sheet as of January 31, 1998 was derived from the Company's January 31, 1998 balance sheet included in the 1997 Annual Report. 	The results of operations for the thirty-nine weeks ended October 31, 1998 are not necessarily indicative of the operating results that may be expected for the year ending January 30, 1999. 2.	THREE-FOR-TWO STOCK SPLIT 	On October 28, 1998, the Company's Board of Directors authorized a three- for-two split of its common stock effective November 30, 1998, in the form of a stock dividend for shareholders of record at the close of business on November 11, 1998. All share and per share amounts in the accompanying consolidated financial statements for all periods have been restated to reflect the stock split. 3.	COMPREHENSIVE EARNINGS 	During the first quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. This Statement requires that all components of comprehensive earnings be reported in the financial statements. For the Company, other comprehensive earnings includes only foreign currency translation adjustments. Total comprehensive earnings for the thirteen and thirty- nine weeks ended October 31, 1998 and November 1, 1997 were as follows (in thousands): Thirteen Thirteen Thirty-nine Thirty-nine Weeks Ended Weeks Ended Weeks Ended Weeks Ended October 31, November 1, October 31, November 1, 1998 1997 1998 1997 Net earnings $237,749 $164,523 $510,689 $318,285 Foreign currency translation adjustments 5,682 (1,300) 3,932 (2,603) Total comprehensive earnings $243,431 $163,223 $514,621 $315,682 4.	FINANCIAL INSTRUMENTS 	The Company enters into foreign exchange contracts to reduce exposure to foreign currency exchange risk. These contracts are primarily designated and effective as hedges of commitments to purchase merchandise. The market value gains and losses on these contracts are deferred and recognized as part of the underlying cost to purchase the merchandise. 	At the end of the third quarter, the Company held various put option contracts to repurchase up to 1,650,000 shares of Gap stock. The contracts have an exercise price of $40.00, with expiration dates extending through January 1999. 5.	EARNINGS PER SHARE 	Under SFAS No. 128, the Company provides dual presentation of EPS on a basic and diluted basis. The Company's granting of certain stock options and restricted stock resulted in potential dilution of basic EPS. The following summarizes the effects of the assumed issuance of dilutive securities on weighted-average shares for basic EPS. Thirteen Thirteen Thirty-nine Thirty-nine Weeks Ended Weeks Ended Weeks Ended Weeks Ended October 31, November 1, October 31, November 1, 1998 1997 1998 1997 Weighted-average number of shares - basic 571,318,832 591,855,020 579,080,645 597,898,512 Incremental shares from assumed issuance of: Stock options 23,042,775 16,023,132 22,246,213 13,165,906 Restricted stock 3,069,807 5,558,520 3,746,385 6,137,960 Weighted-average number of shares - diluted 597,431,414 613,436,672 605,073,243 617,202,378 	The number of incremental shares from the assumed issuance of stock options and restricted stock is calculated applying the treasury stock method. 	Excluded from the above computation of weighted-average shares for diluted EPS were options to purchase 1,992,332 and 2,234,084 shares of common stock during the thirteen and thirty-nine weeks ended October 31, 1998 respectively, and 41,378 and 297,846 shares during the thirteen and thirty-nine weeks ended November 1, 1997, respectively. Issuance of these securities would have resulted in an antidilutive effect on EPS. 6.	NEW ACCOUNTING PRONOUNCEMENT 	In June 1998 the Financial Accounting Standards Board issued Statements of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which requires that all derivative instruments be recorded on the balance sheet at fair value, and that changes in the fair value of the derivative instruments be recorded in net earnings or comprehensive earnings. SFAS 133 must be adopted for fiscal years beginning after June 15, 1999, with earlier adoption permitted. Management has determined that adoption of SFAS 133 will not have a material impact on the Company's consolidated financial statements. Deloitte & Touche LLP 50 Fremont Street Telephone: (415) 247-4000 San Francisco, California 94105-2230 Facsimile: (415) 247-4329 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholders of The Gap, Inc.: We have reviewed the accompanying condensed consolidated balance sheets of The Gap, Inc. and subsidiaries as of October 31, 1998 and November 1, 1997 and the related condensed consolidated statements of earnings for the thirteen and thirty-nine week periods ended October 31, 1998 and November 1, 1997 and condensed consolidated statements of cash flows for the thirty-nine week periods ended October 31, 1998 and November 1, 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of The Gap, Inc. and subsidiaries as of January 31, 1998, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 27, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 31, 1998 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it was derived. /s/ Deloitte & Touche LLP November 10, 1998 Deloitte Touche Tohmatsu International GAP INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information below contains certain forward-looking statements which reflect the current view of Gap Inc. (the "Company") with respect to future events and financial performance. Wherever used, the words "expect," "plan," "anticipate," "believe," and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results of operations to differ materially from historical results or current expectations. Some of these risks include, without limitation, ongoing competitive pressures in the apparel industry, risks associated with challenging international retail environments, changes in the level of consumer spending or preferences in apparel, trade restrictions and political or financial instability in countries where the Company's goods are manufactured and/or disruption to operations from Year 2000 issues, and other factors that may be described in the Company's Annual Report on Form 10-K and/or other filings with the Securities and Exchange Commission. Future economic and industry trends that could potentially impact revenues and profitability remain difficult to predict. It is suggested that this document be read in conjunction with the Management's Discussion and Analysis included in the Company's 1997 Annual Report on Form 10-K. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. RESULTS OF OPERATIONS Net Sales Thirteen Weeks Ended Thirty-nine Weeks Ended October 31, November 1, October 31, November 1, 1998 1997 1998 1997 Net sales ($000) 2,399,948 1,765,939 6,024,630 4,342,346 Total net sales growth percentage 36 28 39 20 Comparable store sales growth percentage 13 9 16 4 Net sales per average square foot ($) 138 123 366 319 Square footage of gross store space at period end (000) 17,858 14,679 Fifty-two Fifty-two Weeks Ended Weeks Ended October 31, November 1, 1998 1997 Number of New stores 285 281 Expanded stores 134 76 Closed stores 18 27 The increases in net sales for the third quarter and year-to-date 1998 over the same periods last year were attributable to the increase in retail selling space, both through the opening of new stores (net of stores closed) and the expansion of existing stores, as well as to the increase in comparable store sales. The increases in net sales per average square foot were primarily attributable to the increases in comparable store sales. Cost of Goods Sold and Occupancy Expenses Cost of goods sold and occupancy expenses as a percentage of net sales decreased 1.9 and 3.8 percentage points in the third quarter and year-to-date 1998, respectively, from the same periods in 1997. The decreases were driven by increased merchandise margins and decreased occupancy expenses as a percentage of sales. The increase in merchandise margin for the quarter was driven by higher initial merchandise markup and higher margins achieved on marked-down goods. For the year-to-date period, the increase in merchandise margin as a percentage of net sales was due to a greater percentage of merchandise sold at regular price and higher margins from marked-down goods. For both the third quarter and year-to-date 1998, the decreases in occupancy expenses as a percentage of net sales were primarily driven by leverage achieved through the growth in comparable store sales and total sales growth. As a general business practice, the Company reviews its inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes) and uses markdowns to clear merchandise. Such markdowns may have an adverse impact on earnings depending upon the extent of the markdowns and amount of inventory affected. Operating Expenses Operating expenses as a percentage of net sales increased .8 and 1.8 percentage points for the third quarter and year-to-date 1998, respectively, from the comparable periods in 1997. The increases were driven by significantly higher advertising/marketing costs as part of the Company's continued brand development efforts. These were partially offset by decreased write-offs of leasehold improvements and fixtures of certain stores, and leverage from comparable store sales growth and total sales growth. A decrease in bonus as a percentage of sales also positively affected the operating expense rate in the quarter. Net Interest Income/Expense Net interest expense increased in the third quarter and year-to-date period from the same periods last year, primarily due to an increase in average borrowings. Income Taxes The effective tax rate was 37.5 percent for year-to-date 1998 and 1997. LIQUIDITY AND CAPITAL RESOURCES The following sets forth certain measures of the Company's liquidity: Thirty-nine Weeks Ended October 31, 1998 November 1, 1997 Cash provided by operating activities ($000) 455,086 297,132 Working capital ($000) 153,889 755,839 Current ratio 1.09:1 1.75:1 For the thirty-nine weeks ended October 31, 1998, the increase in cash flows provided by operating activities was primarily attributable to the increase in net earnings and timing of certain payables, partially offset by purchases of merchandise inventory. The decreases in working capital and current ratio are primarily due to a decrease in cash and increase in short-term borrowings. The Company issued approximately $500 million in short-term commercial paper during the third quarter to partially finance its increased capital expenditures and repurchases of its common stock. The Company funds inventory expenditures during normal and peak periods through a combination of cash flows provided by operations and normal trade credit arrangements. The Company's business follows a seasonal pattern, peaking over a total of about ten to twelve weeks during the Back-to-School and Holiday periods. The Company has committed credit facilities totaling $950 million, consisting of an $800 million, 364-day revolving credit facility, and a $150 million, 5- year revolving credit facility through June 30, 2002. These credit facilities provide for the issuance of up to $450 million in letters of credit. The Company has additional uncommitted credit facilities of $450 million for the issuance of letters of credit. At October 31, 1998, the Company had outstanding letters of credit of approximately $575 million. For the thirty-nine weeks ended October 31, 1998, capital expenditures, net of construction allowances and dispositions, totaled approximately $599 million. These expenditures resulted in a net increase in store space of approximately 2.5 million square feet due to the addition of 224 new stores, the expansion of 103 stores, and the remodeling of certain stores. For 1998, the Company expects capital expenditures to exceed $750 million, net of construction allowances. This represents the addition of 300 to 350 new stores, the expansion of approximately 100 stores, the remodeling of certain stores, as well as amounts for headquarters facilities, distribution centers, equipment, and a catalog facility. The Company expects to fund these capital expenditures with cash flows from operations and other sources of financing. New stores are generally expected to be leased. To further support its growth, the Company acquired land in 1998 in San Bruno and San Francisco on which to construct additional headquarter facilities. Construction commenced during the third quarter on the San Francisco property. During 1997 the Company commenced construction on a distribution center for an estimated cost at completion of $60 million. The majority of the expenditures for this facility will be incurred this fiscal year and is thus included in the projected capital expenditures above. The facility is expected to begin operations in early 1999. In October 1998, the Board of Directors approved a program under which the Company may purchase up to 45 million shares of its common stock. This program follows an earlier 67.5 million share repurchase program, under which the Company acquired 23.8 million shares for approximately $910 million during 1998. To date under the earlier program 66.1 million shares have been repurchased for approximately $1.7 billion. These amounts exclude approximately 1.65 million shares subject for repurchase under outstanding put option contracts. All share amounts reflect the three-for-two stock split effective November 30, 1998 described in the Notes to Condensed Consolidated Financial Statements (Note 2). During 1998, the Company entered into various put option contracts in connection with the share repurchase program to hedge against stock price fluctuations. The Company also continued to enter into foreign exchange forward contracts to reduce exposure to foreign currency exchange risk involved in its commitments to purchase merchandise for foreign operations. Additional information on these contracts and agreements is presented in the Notes to Condensed Consolidated Financial Statements (Note 4). YEAR 2000 ISSUE The Year 2000 issue is primarily the result of computer programs using a two- digit format, as opposed to four digits, to indicate the year. Such computer systems will be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to a disruption in the operation of such systems. In 1996, the Company established a project team to coordinate existing Year 2000 activities and address remaining Year 2000 issues. The team has focused its efforts on three areas: (1) information systems software and hardware; (2) facilities and distribution equipment; and (3) third-party relationships. The Program. The Company has adopted a five-phase Year 2000 program consisting of: Phase I - identification and ranking of the components of the Company's systems, equipment and suppliers that may be vulnerable to Year 2000 problems; Phase II - assessment of items identified in Phase I; Phase III - remediation or replacement of non-compliant systems and components and determination of solutions for non-compliant suppliers; Phase IV - testing of systems and components following remediation; and Phase V - developing contingency plans to address the most reasonably likely worst case Year 2000 scenarios. The Company has completed Phases I and II and continues to make progress according to plan on Phases III, IV and V. Information Systems Software and Hardware. The Company has completed Phase II and has made substantial progress in Phase III. Phase IV testing is being conducted concurrently with Phase III activities. The Company is on track to complete remediation, testing and implementation of its individual information systems by mid-1999. Facilities and Distribution Equipment. The Company has completed Phase II and is actively working on Phase III. Third-Party Relationships. The Company has completed Phase II and is actively working on Phase III. Risks / Contingency Plans. Based on the assessment efforts to date, the Company does not believe that the Year 2000 issue will have a material adverse effect on its financial condition or results of operations. The Company operates a large number of geographically dispersed stores and has a large supplier base and believes that this will mitigate any adverse impact. The Company's beliefs and expectations, however, are based on certain assumptions and expectations that ultimately may prove to be inaccurate. The Company believes that by the end of 1998, it will be able to fully determine its most reasonably likely worst case scenarios. Potential sources of risk include (a) the inability of principal suppliers to be Year 2000 ready, which could result in delays in product deliveries from such suppliers, and (b) disruption of the distribution channel, including ports, transportation vendors, and the Company's own distribution centers as a result of a general failure of systems and necessary infrastructure such as electricity supply. Phase V contingency plan development is in process. The Company does not expect the costs associated with its Year 2000 efforts to be substantial. Approximately $30 million has been allocated to address the Year 2000 issue, of which $10 million has been incurred through October 31, 1998. The Company's aggregate cost estimate does not include time and costs that may be incurred by the Company as a result of the failure of any third parties, including suppliers, to become Year 2000 ready or costs to implement any contingency plans. Item 3. Quantitative and Qualitative Disclosures About Market Risk The market risk of the Company's financial instruments as of October 31, 1998 has not significantly changed since January 31, 1998. The market risk profile on January 31, 1998 is disclosed in the Company's 1997 Annual Report. The net change in unrealized losses since January 31, 1998 for the Company's foreign exchange forward contracts and long-term debt was $13 million. PART II OTHER INFORMATION Item 5. Other Information On October 28, 1998, the Company's Board of Directors authorized a three- for-two split of its common stock effective November 30, 1998. The following selected financial data has been restated to reflect the stock split. 1997 1996 1995 1994 1993 Fiscal Year 52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks Earnings Per Share - basic $0.90 $0.72 $0.57 $0.51 $0.41 Earnings Per Share - diluted $0.87 $0.71 $0.55 $0.49 $0.40 Weighted-Average Shares - basic 594,269,963 625,719,947 626,577,596 632,466,639 626,858,004 Weighted-Average Shares - diluted 615,301,137 640,900,830 641,628,773 647,429,741 643,406,853 Number of shares outstanding 589,699,542 617,663,996 647,432,964 651,441,371 653,619,276 net of treasury shares Thirteen Thirteen Thirteen Weeks Ended Weeks Ended Weeks Ended Fiscal 1998 Quarter Ended May 2, 1998 August 1, 1998 October 31, 1998 Earnings Per Share - basic $0.23 $0.23 $0.42 Earnings Per Share - diluted $0.22 $0.22 $0.40 Weighted-Average Shares - basic 582,976,320 582,949,343 571,318,832 Weighted-Average Shares - diluted 607,500,656 609,708,908 597,431,414 Number of shares outstanding 589,081,187 582,405,242 570,048,782 net of treasury shares Thirteen Thirteen Thirteen Thirteen Weeks Ended Weeks Ended Weeks Ended Weeks Ended Fiscal 1997 Quarter Ended May 3, 1997 August 2, 1997 November 1, 1997 January 1, 1998 Earnings Per Share - basic $0.14 $0.12 $0.28 $0.37 Earnings Per Share - diluted $0.14 $0.11 $0.27 $0.36 Weighted-Average Shares - basic 604,205,309 597,621,705 591,855,020 583,357,655 Weighted-Average Shares - diluted 619,974,720 615,138,011 613,436,672 606,532,092 Number of shares outstanding 610,628,429 603,102,425 592,743,868 589,699,542 net of treasury shares Item 6. Exhibits and Reports on Form 8-K a) Exhibits (10.1) Amendment Number 3 to the Registrant's 1996 Stock Option and Award Plan (10.2) Amendment Number 1 to the Registrant's Non-employee Director Deferred Compensation Plan (10.3) The Gap, Inc. Executive Deferred Compensation Plan (10.4) Form of Nonqualified Stock Option Agreement for consultants under Registrant's 1996 Stock Option and Award Plan (10.5) Form of Nonqualified Stock Option Agreement for employees in France under Registrant's 1996 Stock Option and Award Plan (10.6) Form of Nonqualified Stock Option Agreement for international employees under Registrant's 1996 Stock Option and Award Plan (10.7) Form of Nonqualified Stock Option Agreement for employees in Japan under Registrant's 1996 Stock Option and Award Plan (10.8) Form of stock option agreement for employees under the UK Sub-plan to the U.S. Stock Option and Award Plan (15) Letter re: Unaudited Interim Financial Information (27) Financial Data Schedule b) The Company did not file any reports on Form 8-K during the three months ended October 31, 1998. 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: December 7, 1998 By /s/ Warren R. Hashagen Warren R. Hashagen Chief Financial Officer (Principal financial officer of the registrant) Date: December 7, 1998 By /s/ Millard S. Drexler Millard S. Drexler President and Chief Executive Officer EXHIBIT INDEX (10.1) Amendment Number 3 to the Registrant's 1996 Stock Option and Award Plan (10.2) Amendment Number 1 to the Registrant's Non-employee Director Deferred Compensation Plan (10.3) The Gap, Inc. Executive Deferred Compensation Plan (10.4) Form of Nonqualified Stock Option Agreement for consultants under Registrant's 1996 Stock Option and Award Plan. (10.5) Form of Nonqualified Stock Option Agreement for employees in France under Registrant's 1996 Stock Option and Award Plan. (10.6) Form of Nonqualified Stock Option Agreement for international employees under Registrant's 1996 Stock Option and Award Plan. (10.7) Form of Nonqualified Stock Option Agreement for employees in Japan under Registrant's 1996 Stock Option and Award Plan. (10.8) Form of stock option agreement for employees under the UK Sub-plan to the U.S. Stock Option and Award Plan (15) Letter re: Unaudited Interim Financial Information (27) Financial Data Schedule