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, geographic diversity, and strong cash flow before capital expenditures. The Gap's operating trends are improving after almost three years of poor performance. Operating margins improved to 23.1% in the first quarter of 2003, from 17.3% the same quarter in 2002, and to 18.2% in 2002 from a weak 14% in 2001. Return on permanent capital increased to 16.5% in the first quarter of 2003 from 7.6% during the same period in
