Gap (GPS)

Cash Flows from Investing Activities

Our cash outflows from investing activities are primarily for capital expenditures, while cash inflows are primarily the result of proceeds from maturities of short-term investments. Net cash used for investing activities during the first quarter of 2009 was $45 million compared with net cash provided by investing activities of $65 million for the first quarter of fiscal 2008 primarily due to the following:

For fiscal 2009, we expect capital expenditures to be about $350 million. We expect to open about 50 new store locations and to close about 100 store locations, including repositions. As a result, we expect net square footage to decrease about 2 percent for fiscal 2009.

Cash Flows from Investing Activities

Our cash outflows from investing activities are primarily for capital expenditures and purchases of short-term investments, while cash inflows are primarily the result of proceeds from maturities of short-term investments. Net cash used for investing activities for fiscal 2008 increased $124 million compared with fiscal 2007 primarily due to the following:

Net cash used for investing activities for fiscal 2007 increased $124 million compared with fiscal 2006 primarily due to $110 million more purchases of property and equipment in fiscal 2007 compared with fiscal 2006.

For fiscal 2009, we expect capital expenditures to be about $350 million. We expect to open about 50 new store locations and to close about 100 store locations. As a result, we expect net square footage to decrease about 2 percent for fiscal 2009.

Cash Flows from Investing Activities

During the thirty-nine weeks ended November 1, 2008, we used $248 million more cash for investing activities than the prior comparable period. During the thirty-nine weeks ended November 1, 2008 and November 3, 2007, capital expenditures totaled $315 million and $519 million, respectively. We also used $147 million for the acquisition of Athleta as described in the Our Business section above. In the thirty-nine weeks ended November 1, 2008, we had net maturities of short-term investments of $102 million compared with net maturities of short-term investments of $405 million in the prior year comparable period. For fiscal 2008, we expect purchases of property and equipment to be about $450 million and expect to open about 100 new store locations and to close about 115 store locations. We do not expect any net square footage growth in fiscal 2008.

Cash Flows from Investing Activities

During the first half of fiscal 2008, we used $138 million less cash for investing activities than the prior comparable period. During the first half of fiscal 2008 and 2007, capital expenditures totaled $208 million and $322 million, respectively. In the first half of fiscal 2008, we had net maturities of short-term investments of $102 million compared with net maturities of short-term investments of $83 million in the prior year comparable period. For fiscal 2008, we expect purchases of property and equipment to be about $450 million and expect to open about 100 new store locations and to close about 115 store locations. These openings and closings include about 15 store repositions. We do not expect any net square footage growth in fiscal 2008.

Cash Flows from Investing Activities

Net cash provided by investing activities for the first quarter of fiscal 2008 was $65 million compared with net cash used for investing activities of $67 million in the first quarter of fiscal 2007. During the first quarters of fiscal 2008 and 2007, capital expenditures totaled $114 million and $122 million, respectively. In the first quarter of fiscal 2008, we had net maturities of short-term investments of $177 million compared with net maturities of short-term investments of $48 million in the prior

16

Table of Contents

year comparable period. For fiscal 2008, we expect purchases of property and equipment to be about $500 million and expect to open about 115 new store locations and to close about 115 store locations. These openings and closings include 15 store repositions. We do not expect any net square footage growth in fiscal 2008.

Cash Flows from Investing Activities

Our cash outflows from investing activities are primarily for purchases of short-term investments and capital expenditures, while cash inflows are primarily the result of proceeds from maturities of short-term investments. Net cash used for investing activities for fiscal 2007 increased $124 million compared with fiscal 2006. In fiscal 2007 and 2006, capital expenditures totaled $682 million and $572 million, respectively. The majority of these expenditures in both fiscal years were used for new store locations, store remodels and information technology. In fiscal 2007, we had net maturities of short-term investments of $393 million compared with net maturities of short-term investments of $381 million in fiscal 2006.

Net cash used for investing activities for fiscal 2006 was $150 million compared with net cash provided by investing activities of $286 million in fiscal 2005. This $436 million decrease was driven by the release of $959 million of restricted cash in fiscal 2005 as a result of the amendment to our letter of credit agreement, partially offset by $504 million more cash provided by net maturities of investments in fiscal 2006.

For fiscal 2008, we expect capital expenditures to be about $500 million. We expect to open about 115 new store locations and to close about 100 store locations. These openings and closings include 15 store repositions. As a result, we expect net square footage to increase less than half a percent for fiscal 2008.

Cash Flows from Investing Activities

During the thirty-nine weeks ended November 3, 2007, we used $55 million more cash for investing activities than the prior year comparable period. During the first three quarters of fiscal years 2007 and 2006, capital expenditures totaled $519 million and $406 million, respectively. For the thirty-nine weeks ended November 3, 2007, we had net maturities of short-term investments of $405 million compared with net maturities of short-term investments of $339 million in the prior year comparable period. For fiscal year 2007, we expect purchases of property and equipment to be about $700 million. We expect to open about 230 new store locations and to close about 200 store locations. This includes the conversion of 45 Old Navy Outlet stores to Old Navy, which are reflected in both openings and closings, and the closure of 19 Forth & Towne stores. As a result, we expect store square footage to increase about one percent as of February 2, 2008 over February 3, 2007.

Cash Flows from Investing Activities

During the first half of fiscal year 2007, we used $205 million more cash for investing activities than the prior year comparable period. In the first half of fiscal year 2007, we had net maturities of short-term investments of $83 million compared with net maturities of short-term investments of $204 million in the prior year comparable period.

In the first half of fiscal years 2007 and 2006, capital expenditures totaled approximately $322 million and $233 million, respectively. For fiscal year 2007, we expect capital expenditures to be about $700 million. We expect to open about 230 new store locations and to close about 200 store locations, which includes 19 Forth & Towne store locations that we closed in the second quarter of fiscal year 2007. Included in both the expected store openings and closings are approximately 45 Old Navy Outlet stores that are expected to be converted to Old Navy stores. As a result, we expect store square footage to increase about 1 percent for fiscal year 2007.

Cash Flows from Investing Activities

During the first quarter of fiscal year 2007, net cash used for investing activities decreased $61 million from the prior year comparable period. In the first quarter of fiscal year 2007, we had net maturities of short-term investments of $48 million compared with net purchases of short-term investments of $47 million in the prior year comparable period.

In the first quarters of fiscal years 2007 and 2006, capital expenditures totaled approximately $122 million and $91 million, respectively. For fiscal year 2007, we expect capital expenditures to be about $700 million. We expect to open about 230 new store locations and to close about 200 store locations, including 19 Forth & Towne store locations. Included in both the expected store openings and closings are approximately 45 Old Navy Outlet stores that are expected to be converted to Old Navy stores. As a result, we expect net square footage to increase about 1 percent for fiscal year 2007.

16

Table of Contents

Cash Flows from Investing Activities

Our cash outflows are primarily for purchases of short-term investments and capital expenditures, while cash inflows are primarily the result of proceeds from maturities of short-term investments. Net cash used for investing activities for fiscal 2006 was $150 million compared with net cash provided by investing activities of $286 million in fiscal 2005. This $436 million decrease was driven by the release of $959 million of restricted cash in fiscal 2005 as a result of the amendment to our letter of credit agreement, partially offset by $504 million more cash provided by net maturities of investments in fiscal 2006. For fiscal 2005, net cash provided by investing activities increased $103 million compared with fiscal 2004, as our release of restricted cash increased $622 million, offset by $382 million less cash provided by net maturities of investments and $181 million more in capital expenditures.

In fiscal 2006 and 2005, capital expenditures totaled approximately $572 million and $600 million, respectively. The majority of these expenditures in both fiscal years were used for new store locations, store remodels and information technology. For fiscal 2007, we expect capital expenditures to be about $700 million. We expect to open about 230 new store locations and to close about 200 store locations. Included in both the expected store openings and closings are 45 Old Navy Outlet stores that will be converted to Old Navy stores. As a result, we expect net square footage to increase about 1 percent for fiscal 2007.

24

Table of Contents

Cash Flows from Investing Activities

Net cash used for investing activities for the thirty-nine weeks ended October 28, 2006 was $50 million compared to net cash provided by investing activities of $530 million in the prior year. The decrease was driven by release of restricted cash as a result of the amendment to our letter of credit agreement in fiscal 2005. This was partially offset by $339 million of cash provided by net maturities of investments in the first thirty-nine weeks of fiscal 2006 compared to net purchases of $14 million in the first thirty-nine weeks of fiscal 2005.

During the first thirty-nine weeks of fiscal 2006, capital expenditures totaled $406 million. The majority of these expenditures were used for 160 new store locations, store remodels and information technology. Capital expenditures during the first thirty-nine weeks of fiscal 2005 were $448 million primarily for 180 new store locations, store remodels and information technology.

For fiscal 2006, we expect capital expenditures to be about $625 million. We expect to open about 190 new store locations and to close about 125 store locations. As a result, we expect net square footage to increase between 2 and 3 percent for the full fiscal 2006 year. We expect to fund these capital expenditures with cash flows from operations and available cash.

Cash Flows from Investing Activities

During the first half of fiscal 2006, net cash used for investing activities decreased $277 million compared with the first half of fiscal 2005. The decrease was driven by release of restricted cash as a result of the amendment to our letter of credit agreement in fiscal 2005. This was partially offset by lower investments in the first half of fiscal 2006 compared to the first half of fiscal 2005.

During the first half of fiscal 2006, capital expenditures totaled approximately $233 million. The majority of these expenditures were used for 75 new store locations, store remodels and information technology. Capital expenditures during the first half of fiscal 2005 were $275 million primarily for 81 new store locations, store remodels and information technology.

For fiscal 2006, we expect capital expenditures to be about $675 million. We expect to open about 190 new store locations and to close about 125 store locations. New store locations will be weighted toward Old Navy, while Gap stores will account for the majority of locations closed. As a result, we expect net square footage to increase 2 to 3 percent for the full fiscal 2006 year. We expect to fund these capital expenditures with cash flows from operations and available cash.

Cash Flows from Investing Activities

During the first quarter of fiscal 2006, net cash used for investing activities decreased $472 million compared with the first quarter of fiscal 2005. Maturities of short-term investments were greater and purchases of new investments were lower in the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005.

In the first quarter of 2006 and 2005, capital expenditures totaled approximately $91 million and $122 million, respectively. The majority of these expenditures in both fiscal periods were used for new store locations, store remodels and information technology.

For fiscal 2006, we expect capital expenditures to be about $675 million. We expect to open about 175 new store locations and to close about 135 store locations. New store locations will be weighted toward Old Navy, while Gap stores will account for the majority of locations closed. As a result, we expect net square footage to increase 1 to 2 percent for the full year fiscal 2006. We expect to fund these capital expenditures with cash flows from operations and available cash.

Cash Flows from Investing Activities

For fiscal 2005, net cash provided by investing activities increased $103 million compared with fiscal 2004, as we released $959 million of cash required as collateral to our letter of credit agreements. Maturities of short-term investments reinvested were less than purchases of new investments in fiscal 2005, compared to the prior year. For fiscal 2004, net cash used for investing activities decreased $2.5 billion compared with fiscal 2003. Maturities of short-term investments reinvested were greater than purchases of new investments in fiscal 2004 compared to the prior year, and we released $337 million of restricted cash required as collateral to our letter of credit agreements.

In fiscal 2005 and 2004, capital expenditures totaled approximately $600 million and $419 million, respectively. The majority of these expenditures in both fiscal years were used for new store locations, store remodels and information technology.

For fiscal 2006, we expect capital expenditures to be about $675 million, primarily for new stores, remodels and information technology infrastructure and projects. We expect to open about 175 new store locations and to close about 135 store locations. New store locations will be weighted toward Old Navy, while Gap stores will account for the majority of locations closed. As a result, we expect net square footage to increase 1 to 2 percent for fiscal 2006. We expect to fund these capital expenditures with cash flows from operations and available cash. The breakdown of our fiscal 2006 capital expenditures estimate is outlined in the table below:

Cash Flows from Investing Activities

Net cash provided by investing activities for the thirty-nine weeks ended October 29, 2005 was $530 million, a decrease of $74 million compared with the same period in the prior year. The decrease was driven by higher short-term investments and greater capital expenditures, offset by release of restricted cash as a result of our new letter of credit agreements.

During the first thirty-nine weeks of fiscal 2005, capital expenditures totaled approximately $448 million. The majority of these expenditures were used for new store locations and store remodels. Capital expenditures during the first thirty-nine weeks of fiscal 2004 were $294 million primarily for new store locations, store remodels and information technology.

For fiscal 2005, we expect capital expenditures to be about $625 million. We expect to open about 195 new store locations and to close about 145 store locations. New store locations will be weighted toward Old Navy, while Gap stores will account for the majority of locations closed. As a result, we expect net square footage to increase approximately 3 percent for the full year fiscal 2005. We expect to fund these capital expenditures with cash flows from operations and available cash.

Cash Flows from Investing Activities

During the first half of fiscal 2005, net cash provided by investing activities decreased $174 million compared with the first half of fiscal 2004. The decrease was driven by higher investments in the first half of fiscal 2005 compared to the first half of fiscal 2004. This was partially offset by release of restricted cash as a result of the amendment to our letter of credit agreement.

During the first half of fiscal 2005, capital expenditures totaled approximately $259 million. The majority of these expenditures were used for 81 new store locations, store remodels and information technology. Capital expenditures during the first half of fiscal 2004 were $147 million primarily for 41 new store locations, store remodels and information technology.

For fiscal 2005, we expect capital expenditures to be about $625 million. We expect to open about 190 new store locations and to close about 140 store locations. New store locations will be weighted toward Old Navy, while Gap stores will account for the majority of locations closed. As a result, we expect net square footage to increase approximately 3 percent for the full year fiscal 2005. We expect to fund these capital expenditures with cash flows from operations and available cash.

21

Table of Contents

Cash Flows from Investing Activities

During the first quarter of fiscal 2005, net cash used for investing activities increased $711 million compared with the first quarter of fiscal 2004. Maturities of short-term investments reinvested were greater than purchases of new investments in the first quarter of fiscal 2004 compared to the first quarter of fiscal 2005.

During the first quarter of fiscal 2005, capital expenditures totaled approximately $112 million. The majority of these expenditures were used for 41 new store locations, store remodels and information technology. Capital expenditures during the first quarter of fiscal 2004 were $35 million primarily for 14 new store locations, store remodels and information technology.

For fiscal 2005, we expect capital expenditures to be about $625 million. We expect to open about 170 new store locations and to close about 135 store locations. New store locations will be weighted toward Old Navy, while Gap stores will account for the majority of locations closed. As a result, we expect net square footage to increase 2 percent for the full year fiscal 2005. We expect to fund these capital expenditures with cash flows from operations and available cash. The breakdown of our fiscal 2005 capital expenditures estimate is outlined in the table below:

Cash Flows from Investing Activities

For fiscal 2004, net cash used for investing activities decreased $2.5 billion compared with fiscal 2003. Maturities of short-term investments reinvested were greater than purchases of new investments in fiscal 2004 compared to the prior year. We also released $337 million of cash required as collateral to our letter of credit agreements (See Note C to Consolidated Financial Statements). For fiscal 2003, net cash used for investing activities increased $1.7 billion compared with fiscal 2002. The increase was primarily driven by the restriction of cash that served as collateral to our committed bank lines supporting our letter of credit agreements as well as an increase in the availability of cash to purchase additional short-term investments due to our improved cash position. The cash has been restricted voluntarily to lower the interest cost of obtaining the committed bank lines.

In fiscal 2004, capital expenditures totaled approximately $442 million. The majority of these expenditures were used for 130 new store locations, store remodels and information technology. Capital expenditures for fiscal 2003 and fiscal 2002 were $261 million and $308 million, respectively. For fiscal 2005, we expect capital expenditures to be about $625 million, primarily for new stores, remodels and information technology infrastructure and projects. We expect to open about 175 new store locations and to close about 135 store locations. New store locations will be weighted toward Old Navy, while Gap stores will account for the majority of locations closed. As a result, we expect net square footage to increase 2 percent for the full year fiscal 2005. We expect to fund these capital expenditures with cash flows from operations and available cash. The breakdown of our fiscal 2005 capital expenditures estimate is outlined in the table below: