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 August 2, 1997 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) 427-2000 _______________________ 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 Stock 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, 268,114,161 shares as of August 25, 1997 <TABLE> PART 1 THE GAP, INC. AND SUBSIDIARIES ITEM 1 CONDENSED CONSOLIDATED BALANCE SHEETS <CAPTION> ($000) August 2, February 1, August 3, 1997 1997 1996 (Unaudited) (See Note 1) (Unaudited) <S> <C> <C> <C> ASSETS Current Assets: Cash and equivalents $ 220,148 $ 485,644 $ 514,213 Short-term investments 37,454 135,632 74,061 Merchandise inventory 791,925 578,765 573,080 Prepaid expenses and other 151,562 129,214 142,549 Total Current Assets 1,201,089 1,329,255 1,303,903 Property and equipment (net) 1,234,384 1,135,720 1,018,729 Long-term investments 5,465 36,138 53,963 Lease rights and other assets 135,811 125,814 82,705 Total Assets $ 2,576,749 $ 2,626,927 $ 2,459,300 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable 90,245 40,050 67,196 Accounts payable 384,464 351,754 313,866 Accrued expenses 264,499 282,494 218,655 Income taxes payable 31,402 91,806 32,877 Deferred lease credits and other current liabilities 11,905 8,792 8,902 Total Current Liabilities 782,515 774,896 641,496 Long-term Liabilities: Deferred lease credits and other liabilities 234,273 197,561 166,395 234,273 197,561 166,395 Stockholders' Equity: Common stock $.05 par value Authorized 500,000,000 shares Issued 318,561,437, 317,864,090 and 317,312,752 shares Outstanding 268,045,522, 274,517,331 and 283,396,874 shares 15,929 15,895 15,866 Additional paid-in capital 477,052 442,049 415,135 Retained earnings 2,051,955 1,938,352 1,674,266 Foreign currency translation adjustment (6,490) (5,187) (7,468) Restricted stock plan deferred compensation (38,068) (47,838) (46,903) Treasury stock, at cost (940,417) (688,801) (399,487) 1,559,961 1,654,470 1,651,409 Total Liabilities and Stockholders' Equity $ 2,576,749 $ 2,626,927 $ 2,459,300 See accompanying notes to consolidated financial statements. </TABLE> <TABLE> <CAPTION> THE GAP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS Thirteen Weeks Ended Twenty-six Weeks Ended Unaudited August 2, August 3, August 2, August 3, ($000 except per share amounts) 1997 1996 1997 1996 <S> <C> <C> <C> <C> Net sales $ 1,345,221 $ 1,120,335 $ 2,576,407 $ 2,233,489 Costs and expenses Cost of goods sold and 883,086 720,165 1,672,212 1,419,479 occupancy expenses Operating expenses 352,462 295,381 664,373 578,008 Net interest income (1,459) (3,956) (6,197) (7,574) Earnings before income taxes 111,132 108,745 246,019 243,576 Income taxes 41,674 42,955 92,257 96,213 Net earnings $ 69,458 $ 65,790 $ 153,762 $ 147,363 Weighted average number of shares 269,687,093 286,179,138 271,581,001 287,092,901 Earnings per share $ 0.26 $ 0.23 $ 0.57 $ 0.51 Cash dividends per share $ 0.075 $ 0.075 $ 0.15 $ 0.15 See accompanying notes to consolidated financial statements. </TABLE> <TABLE> <CAPTION> THE GAP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited ($000) Twenty-six Weeks Ended August 2, 1997 August 3, 1996 <S> <C> <C> Cash Flows from Operating Activities: Net earnings $ 153,762 $ 147,363 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization (a) 126,540 105,986 Tax benefit from exercise of stock options by employees and from vesting of restricted stock 12,707 43,526 Change in operating assets and liabilities: Merchandise inventory (213,821) (90,068) Prepaid expenses and other (25,251) (14,973) Accounts payable 36,366 50,131 Accrued expenses (17,525) 24,035 Income taxes payable (60,321) (33,385) Deferred lease credits and other long-term liabilities 36,310 17,392 Net cash provided by operating activities 48,767 250,007 Cash Flows from Investing Activities: Net maturity of short-term investments 137,263 23,463 Purchase of long-term investments (49,188) (31,611) Sale of long-term investments 40,810 - Purchase of property and equipment (211,383) (151,033) Acquisition of lease rights and other assets (10,681) (8,428) Net cash used for investing activities (93,179) (167,609) Cash Flows from Financing Activities: Net increase in notes payable 50,279 44,639 Issuance of common stock 20,782 26,565 Purchase of treasury stock (251,616) (177,427) Cash dividends paid (40,160) (42,444) Net cash used for financing activities (220,715) (148,667) Effect of exchange rate changes on cash (369) 916 Net decrease in cash and equivalents (265,496) (65,353) Cash and equivalents at beginning of year 485,644 579,566 Cash and equivalents at end of quarter $ 220,148 $ 514,213 See accompanying notes to consolidated financial statements. (a) Includes amortization of restricted stock. </TABLE> THE GAP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The condensed consolidated balance sheets as of August 2, 1997 and August 3, 1996, and the interim condensed consolidated statements of earnings and the interim condensed consolidated statements of cash flows for the thirteen and twenty-six weeks ended August 2, 1997 and August 3, 1996 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 August 2, 1997 and August 3, 1996, 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 February 1, 1997. The results of operations for the twenty-six weeks ended August 2, 1997 are not necessarily indicative of the operating results that may be expected for the year ending January 31, 1998. 2. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Year-to-date 1997 and 1996 gross interest payments were $1.7 million and $1.9 million respectively; income tax payments were $140.8 million and $85.7 million respectively. 3. DERIVATIVES 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. During the second quarter, the Company entered into various put option contracts to repurchase up to 2,000,000 shares of Gap stock. The contracts have exercise prices ranging from $36.77 to $42.67, with expiration dates ranging from September 1997 through November 1997. Also in the second quarter, the Company entered into interest rate swaps in order to reduce interest rate risk on a substantial portion of its intended issuance of its long-term debt. The Company intends to amortize any gain or loss associated with these swaps over the life of the debt securities. 4. RECLASSIFICATION OF INVESTMENTS Prior to July 1997, investments were classified as held to maturity and were carried at amortized cost. In July 1997 the Company sold short-and long-term debt securities prior to their maturity. The Company used the proceeds for general corporate purposes. Consequently, at August 2, 1997, all investments are classified as available for sale and are reported at fair market value. The gains and losses on investments are deferred and recorded in equity. 5. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statements of Accounting Standards No. 130, Reporting Comprehensive Income, which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from non-owner sources; and No. 131, Disclosures About Segments of an Enterprise and Related Information, which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Adoption of these standards will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. 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 August 2, 1997 and August 3, 1996 and the related condensed consolidated statements of earnings for the thirteen and twenty-six week periods ended August 2, 1997 and August 3, 1996 and condensed consolidated statements of cash flows for the twenty-six week periods ended August 2, 1997 and August 3, 1996. 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 February 1, 1997, 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, 1997, 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 February 1, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it was derived. /s/ Deloitte & Touche LLP San Francisco, California August 12, 1997 THE GAP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information below contains certain forward-looking statements which reflect the Company's current view 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, a continuation or exacerbation of the current over-capacity problem affecting the industry, and/or changes in the level of consumer spending or preferences in apparel, and other factors that may be described in the Company's filings with the Securities and Exchange Commission. Future economic and industry trends that could potentially impact revenues and profitability remain difficult to predict. 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. <TABLE> RESULTS OF OPERATIONS Net Sales <CAPTION> Thirteen Weeks Ended Twenty-six Weeks Ended August 2, 1997 August 3, 1996 August 2, 1997 August 3, 1996 <S> <C> <C> <C> <C> <C> Net sales ($000) 1,345,221 1,120,335 2,576,407 2,233,489 Total net sales 20 29 15 30 growth percentage Comparable store sales 4 9 0 9 growth percentage Net sales per average 99 96 194 194 square foot ($) Square footage of gross store space at period end (000) 13,750 11,805 Fifty-two Fifty-three weeks ended weeks ended August 2, 1997 August 3, 1996 Number of New stores 254 219 Expanded stores 56 47 Closed stores 27 47 </TABLE> The increases in second quarter and the first half of 1997 net sales 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. Growth in comparable stores sales also contributed to the increase in net sales for the quarter. Cost of Goods Sold and Occupancy Expenses Cost of goods sold and occupancy expenses as a percentage of net sales increased to 65.6 percent for the second quarter of 1997 from 64.3 percent for the same period in 1996. The 1.3 percentage point decrease in gross margin net of occupancy expenses was attributable to a 2.0 percentage point decrease in merchandise margins as a percentage of net sales, offset by a .7 percentage point decrease in occupancy expenses as a percentage of net sales. For the first half of 1997, cost of goods sold and occupancy expenses as a percentage of net sales increased to 64.9 percent from 63.5 percent for the same period in 1996. The 1.4 percentage point decrease in gross margin net of occupancy expenses was attributable to a 1.6 percentage point decrease in merchandise margins as a percentage of net sales offset by a .2 percentage point decrease in occupancy expenses as a percentage of net sales. For the second quarter and first half of 1997, decreases in merchandise margins as a percentage of net sales resulted from a smaller percentage of merchandise sold at regular prices when compared to the same periods last year. Margin achieved on marked-down goods was also lower than that of last year. 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. For the second quarter and first half of 1997, occupancy expenses decreased as a percentage of net sales when compared to the same periods last year. The decrease in occupancy expenses as a percentage of net sales for the quarter was primarily attributable to leverage achieved through increases in comparable store sales. The growth of the Old Navy division, with lower occupancy expenses when compared to other divisions, primarily caused the decrease in the first half of 1997 from the same period in 1996. Operating Expenses Operating expenses as a percentage of net sales decreased to 26.2 percent for the second quarter of 1997 from 26.4 percent for the same period in 1996. The .2 percentage point decrease was primarily attributable to a .4 percentage point decrease in charitable contributions expense and a .5 percentage point decrease in incentive bonus accruals and stock-based compensation, offset by a planned .7 percentage point increase in advertising/marketing costs to support the Company's brands. The decrease in charitable contributions expense represents a beneficial comparison between 1997 and 1996, as the Company, in 1996, made an additional contribution to the Gap Foundation. Incentive bonus is accrued quarterly based on year-to-date performance measured against established targets. The rate of accrual in 1997 was lower than that in 1996. For the first half of 1997, operating expenses as a percentage of net sales were essentially flat at 25.8 percent when compared to the same period in 1996. A .7 percentage point increase in advertising/marketing costs offset a .5 percentage point decrease in incentive bonus accruals and stock-based compensation, and a .3 percentage point decrease in charitable contributions expense. Net Interest Income/Expense Net interest income was approximately $1.5 million for the second quarter and $6.2 million for the first half of 1997 compared to net interest income of $4.0 million and $7.6 million for the same periods in 1996. The change in 1997 from 1996 was due to a decrease in average investments for the quarter and year-to- date periods. Income Taxes The effective tax rate was 37.5 percent for the first half of 1997 compared to 39.5 percent for the first half of 1996. The decrease in the effective tax rate was a result of the impact from tax planning initiatives to support changing business needs. LIQUIDITY AND CAPITAL RESOURCES The following sets forth certain measures of the Company's liquidity: Twenty-six weeks ended August 2, 1997 August 3, 1996 Cash provided by operating activities ($000) $48,767 $250,007 Working capital ($000) $418,574 $662,407 Current ratio 1.5:1 2.0:1 For the twenty-six weeks ended August 2, 1997, the decrease in cash flows provided by operating activities was primarily attributable to an increased investment in inventory and the timing of certain payables and accrued expenses, including income taxes. 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 late summer and holiday periods. The Company has committed credit facilities totalling $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 $300 million for the issuance of letters of credit. At August 2, 1997, the Company had outstanding letters of credit of approximately $593 million. To ensure long-term financial flexibility, management plans to issue $500 million of 10-year debt securities in the third quarter. The Company is filing a registration statement with the Securities and Exchange Commission with respect to these securities. The proceeds from this issuance are intended to be used for general corporate purposes, including store expansion, brand investment, development of additional distribution channels and repurchases of the Company's common stock pursuant to its ongoing share repurchase program. No assurances can be given that the Company will issue these long-term debt securities. For the twenty-six weeks ended August 2, 1997, capital expenditures net of construction allowances and dispositions, totaled approximately $209 million. These expenditures included the addition of 141 new stores, the expansion of 36 stores and the remodeling of certain stores, resulting in a net increase in store space of approximately 1.1 million square feet or 9 percent since February 1, 1997. For 1997, the Company expects capital expenditures to total at least $450 million, net of construction allowances, representing the addition of at least 275 new stores, the expansion of at least 75 stores, and the remodeling of certain stores. Planned expenditures also include amounts for corporate offices, distribution centers, and equipment. The Company expects to fund such capital expenditures through a combination of cash flow from operations and other sources of financing. Square footage growth is expected to be approximately 18 percent before store closings. New stores are generally expected to be leased. The Company is nearing completion on corporate offices in San Bruno, California. The cost of completion is included above in the capital expenditures projected for 1997. The Company continues to explore alternatives for additional corporate offices in San Francisco and San Bruno, California. In October 1996, the Board of Directors approved a program under which the Company may repurchase up to 30 million shares of its outstanding common stock in the open market over a three-year period. During the second quarter, the Company acquired 3.5 million shares for approximately $131 million. To date under this program, 12.0 million shares have been repurchased for approximately $392 million. During the second quarter the Company entered into various put option contracts to repurchase up to 2,000,000 shares of Gap stock. The contracts have exercise prices ranging from $36.77 to $42.67, with expiration dates ranging from September 1997 through November 1997. 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. During the second quarter, the Company entered into interest rate swaps in order to reduce interest rate risk on a substantial portion of its intended issuance of its long-term debt. PART II OTHER INFORMATION Item 4. Submissions of Matters to a Vote of Security Holders a) On May 20, 1997, the Annual Meeting of Stockholders of the Company was held in San Francisco, California. There were 273,698,780 shares of common stock outstanding on the record date and entitled to vote at the Annual Meeting. b) The following directors were elected: Vote For Vote Withheld Adrian D.P. Bellamy 248,595,894 837,887 John G. Bowes 248,594,133 839,647 Millard S. Drexler 248,563,883 869,897 Donald G. Fisher 248,563,913 869,867 Doris F. Fisher 248,565,822 867,959 Robert J. Fisher 248,566,823 866,957 Lucie J. Fjeldstad 248,595,795 837,986 William A. Hasler 253,595,123 838,658 John M. Lillie 248,596,917 836,863 Charles R. Schwab 248,594,941 838,840 Brooks Walker, Jr. 248,595,105 838,676 There were no abstentions and no broker non-votes. c) The selection of Deloitte & Touche, LLP as independent auditors for the fiscal year ending January 31, 1998 was ratified with 249,115,349 votes in favor and 68,273 against. There were 250,158 abstentions. Item 6. Exhibits and Reports on Form 8-K a) Exhibits (10.1) Amendment Number 1 to the Registrant's 1996 Stock Option and Award Plan (10.2) Termination Agreement dated July 1, 1997 related to Credit Agreement dated August 1, 1995 between the Registrant and Citicorp USA Inc. (10.3) $800,000,000 Credit Agreement dated as of July 1, 1997 between the Registrant; Citicorp USA INC.; Bank Of America National; Trust & Savings Association; The Hongkong and Shanghai Banking Corporation Limited; Nationsbank Of Texas, N.A.; The Royal Bank Of Canada; Bank Of Montreal; Societe Generale; The Fuji Bank, Limited; Morgan Guaranty Trust Company Of New York; The Sumitomo Bank Limited; Deutsche Bank AG New York Branch And/Or Cayman Islands Branch; Union Bank Of Switzerland, New York Branch; U.S. National Bank Of Oregon; and Citibank, N.A. (10.4) $150,000,000 Credit Agreement dated as of July 1, 1997 between the Registrant; Citicorp USA INC.; Bank Of America National; Trust & Savings Association; The Hongkong and Shanghai Banking Corporation Limited; Nationsbank Of Texas, N.A.; The Royal Bank Of Canada; Bank Of Montreal; Societe Generale; The Fuji Bank, Limited; Morgan Guaranty Trust Company Of New York; The Sumitomo Bank Limited; Deutsche Bank AG New York Branch And/Or Cayman Islands Branch; Union Bank Of Switzerland, New York Branch; U.S. National Bank Of Oregon; and Citibank, N.A. (10.5) Form of Nonqualified Stock Option Agreement for employees under Registrant's 1996 Stock Option and Award Plan. (10.6) Form of Nonqualified Stock Option Agreement for directors under Registrant's 1996 Stock Option and Award Plan. (10.7) Form of Restricted Stock Agreement under Registrant's 1996 Stock Option and Award Plan. (11) Computation of Earnings per Share (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 August 2, 1997. 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 26, 1997 By /s/ Warren R. Hashagen Warren R. Hashagen Chief Financial Officer (Principal financial officer of the registrant) Date: August 26, 1997 By /s/ Millard S. Drexler Millard S. Drexler President and Chief Executive Officer EXHIBIT INDEX (10.1) Amendment Number 1 to the Registrant's 1996 Stock Option and Award Plan (10.2) Termination Agreement dated July 1, 1997 related to Credit Agreement dated August 1, 1995 between the Registrant and Citicorp USA Inc. (10.3) $800,000,000 Credit Agreement dated as of July 1, 1997 between the Registrant; Citicorp USA INC.; Bank Of America National; Trust & Savings Association; The Hongkong and Shanghai Banking Corporation Limited; Nationsbank Of Texas, N.A.; The Royal Bank Of Canada; Bank Of Montreal; Societe Generale; The Fuji Bank, Limited; Morgan Guaranty Trust Company Of New York; The Sumitomo Bank Limited; Deutsche Bank AG New York Branch And/Or Cayman Islands Branch; Union Bank Of Switzerland, New York Branch; U.S. National Bank Of Oregon; and Citibank, N.A. (10.4) $150,000,000 Credit Agreement dated as of July 1, 1997 between the Registrant; Citicorp USA INC.; Bank Of America National; Trust & Savings Association; The Hongkong and Shanghai Banking Corporation Limited; Nationsbank Of Texas, N.A.; The Royal Bank Of Canada; Bank Of Montreal; Societe Generale; The Fuji Bank, Limited; Morgan Guaranty Trust Company Of New York; The Sumitomo Bank Limited; Deutsche Bank AG New York Branch And/Or Cayman Islands Branch; Union Bank Of Switzerland, New York Branch; U.S. National Bank Of Oregon; and Citibank, N.A. (10.5) Form of Nonqualified Stock Option Agreement for employees under Registrant's 1996 Stock Option and Award Plan. (10.6) Form of Nonqualified Stock Option Agreement for directors under Registrant's 1996 Stock Option and Award Plan. (10.7) Form of Restricted Stock Agreement under Registrant's 1996 Stock Option and Award Plan. (11) Computation of Earnings per Share (15) Letter re: Unaudited Interim Financial Information (27) Financial Data Schedule