Gap (GPS)

Closure of Forth & Towne

On February 26, 2007, we announced that we will close our Forth & Towne store locations. The decision to take this action resulted from a thorough analysis of the concept, which revealed that it was not demonstrating enough potential to deliver an acceptable long-term return on investment. We notified affected employees of this decision on February 26, 2007 and we plan to close all 19 stores by the end of June 2007. For the thirteen weeks ended May 5, 2007, we recognized $37 million of charges related to the future closure of Forth & Towne, consisting of $29 million related to the impairment of long-lived assets, $4 million of employee severance, $3 million of administrative and other costs, and $1 million of inventory write-offs. The closure of Forth & Towne will result in a reduction in our workforce of approximately 550 employees. We expect to incur an additional $5-10 million of closure charges in the second and third quarters of fiscal year 2007, primarily consisting of lease related expenses. We anticipate that most cash payments for these charges will be made by the third quarter of fiscal year 2007 except for those cash payments associated with certain leases, which will be paid over the various remaining lease terms through 2017 unless we are successful in negotiating settlements with the respective landlords, or we are able to assign these leases or sublease these locations to third parties. Inventory write-offs have been recorded in cost of goods sold and occupancy expenses and all other charges related to the closure of Forth & Towne have been recorded in operating expenses in our condensed consolidated statement of income.