The ratings on The Gap Inc. reflect management's challenge to improve business fundamentals in its three brands in an industry that will continue to experience intense competition, and to improve its weakened credit protection measures. These factors are partially offset by the company's strong business position in casual apparel, its geographic diversity, and strong cash flow before capital expenditures. The Gap's operating performance has been poor for the past two years. Operating margins have been declining since 1999, to 14.0% in 2001 from 19.9% in 2000 and 24.1% in 1999, and there has been a commensurate fall in return on capital to only 8.4% in 2001 versus an average of 32.0% from 1996 to 1999. Same-store sales had declined 16%
