Gap (GPS)

Note 11. Leases

We lease most of our store premises and some of our corporate facilities and distribution centers. These operating leases expire at various dates through 2033. Most store leases are for a five year base period and include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed to at lease inception. Some leases also include early termination options, which can be exercised under specific conditions.

We also lease certain equipment under operating leases that expire at various dates through 2012.

The aggregate minimum non-cancelable annual lease payments under leases in effect on January 31, 2009, are as follows:

The total minimum lease commitment amount above does not include minimum sublease rental income of $24 million receivable in the future under non-cancelable sublease agreements.

Rental expense for our operating leases is as follows:

We have excess facility space as of January 31, 2009 and have recorded a sublease loss reserve for the net present value of the difference between the contractual rent obligations and the amount for which we expect to be able to sublease the properties. We had sublease loss reserves of $10 million as of January 31, 2009 and February 2, 2008. Sublease losses are included in operating expenses in the Consolidated Statements of Earnings and were not material for fiscal 2008, 2007, and 2006. Remaining cash expenditures associated with our sublease loss reserve are expected to be paid over the various remaining lease terms through 2016. Based on our current assumptions as of January 31, 2009, we expect a total net cash outlay of approximately $14 million for future rent.

58      GAP INC. FORM 10-K

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Note 11. Leases

We lease most of our store
premises and some of our corporate facilities and distribution centers. These operating leases expire at various dates through 2033. Most store leases are for a five year base period and include options that allow us to extend the lease term beyond
the initial base period, subject to terms agreed to at lease inception. Some leases also include early termination options, which can be exercised under specific conditions.

SIZE="2">We also lease certain equipment under operating leases that expire at various dates through 2012.

The aggregate minimum non-cancelable annual lease payments
under leases in effect on January 31, 2009, are as follows:

The total minimum lease commitment amount above does not include minimum sublease rental income of $24 million receivable in
the future under non-cancelable sublease agreements.

Rental expense for our operating leases is as follows:

NOTE 10. LEASES

We lease most of our store premises and some of our headquarter facilities and distribution centers. These operating leases expire at various dates through 2033. Most store leases are for a five year base period and include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed to at lease inception. Some leases also include early termination options, which can be exercised under specific conditions.

We also lease certain equipment under operating leases that expire at various dates through 2013.

The aggregate minimum non-cancelable annual lease payments under leases in effect on February 2, 2008, are as follows:

The total minimum lease commitment amount above does not include minimum sublease rental income of $32 million receivable in the future under noncancelable sublease agreements.

Gap Inc. Form 10-K  59

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Rental expense for our operating leases was as follows:

NOTE 10. LEASES

NOTE 4. LEASES

We lease most of our store premises and some of our headquarter facilities and distribution centers. These operating leases expire at various dates through 2033. Most store leases are for a five year base period and include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed to at lease inception. Some leases also include early termination options, which can be exercised under specific conditions.

For leases that contain predetermined fixed escalations of the minimum rentals, we recognize the related rental expense on a straight-line basis and record the difference between the recognized rental expense and amounts payable under the leases as deferred rent liability. The short-term portion of our deferred rent liability is recorded in accrued expenses and other current liabilities and the long-term portion of our deferred rent liability is recorded in lease incentives and other liabilities on the Consolidated Balance Sheets. The total deferred rent liability was $342 million at February 3, 2007 and January 28, 2006.

Lease payments that depend on factors that are not measurable at the inception of the lease, such as future sales volume, are contingent rentals and are excluded from minimum lease payments and included in the determination of total rental expense when it is probable that the expense has been incurred and the amount is reasonably estimable. Future payments for maintenance, insurance and taxes to which the Company is obligated are excluded from minimum lease payments.

Tenant allowances received upon entering into certain store leases are recognized on a straight-line basis as a reduction to rent expense over the lease term. At February 3, 2007 and January 28, 2006, the short-term portion of the deferred credit was approximately $74 million and $70 million, respectively, and is included in accrued expenses and other current liabilities on the Consolidated Balance Sheets. At February 3, 2007 and January 28, 2006, the long-term portion of the deferred credit was approximately $529 million and $525 million, respectively, and is included in lease incentives and other liabilities on the Consolidated Balance Sheets.

We expense all rental costs incurred during a construction period.

The aggregate minimum non-cancelable annual lease payments under leases in effect on February 3, 2007, are as follows:

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Rental expense, net of sublease income, for our operating leases was as follows:

NOTE D: LEASES

We lease most of our store premises and some of our headquarter facilities and distribution centers. These operating leases expire at various dates through 2033. Most store leases are for a five year base period and include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed to at lease inception. Some leases also include early termination options, which can be exercised under specific conditions.

For leases that contain predetermined fixed escalations of the minimum rentals, we recognize the related rental expense on a straight-line basis and record the difference between the recognized rental expense and amounts payable under the leases as deferred rent liability. Deferred rent liability is recorded in lease incentives and other liabilities on the Consolidated Balance Sheets and was approximately $342 million at January 28, 2006 and $361 million at January 29, 2005.

Lease payments that depend on factors that are not measurable at the inception of the lease, such as future sales volume, are contingent rentals and are excluded from minimum lease payments and included in the determination of total rental expense when it is probable that the expense has been incurred and the amount is reasonably estimable. Future payments for maintenance, insurance and taxes to which the Company is obligated are excluded from minimum lease payments.

Tenant allowances received upon entering into certain store leases are recognized on a straight-line basis as a reduction to rent expense over the lease term. At January 28, 2006 and January 29, 2005, the short-term portion of the deferred credit was approximately $70 million and $82 million, respectively, and is included in accrued expenses and other current liabilities on the Consolidated Balance Sheets. At January 28, 2006 and January 29, 2005,

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the long-term portion of the deferred credit was approximately $525 million and $496 million, respectively, and is included in lease incentives and other liabilities on the Consolidated Balance Sheets.

The aggregate minimum non-cancelable annual lease payments under leases in effect on January 28, 2006, are as follows:

Rental expense, net of sublease income, for all operating leases was as follows:

NOTE E: LEASES

We lease most of our store premises and some of our headquarters facilities and distribution centers. These operating leases expire at various dates through 2033. Most store leases are for a five year base period and include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed to at lease inception. Some leases also include early termination options, which can be exercised under specific conditions.

For leases that contain predetermined fixed escalations of the minimum rentals, we recognize the related rental expense on a straight-line basis and record the difference between the recognized rental expense and amounts payable under the leases as deferred lease credits. At January 29, 2005, and January 31, 2004, this liability amounted to approximately $361 million and $362 million, respectively.

Lease payments that depend on factors that are not measurable at the inception of the lease, such as future sales volume, are contingent rentals in their entirety and are excluded from minimum lease payments and included in the determination of total rental expense when it is probable that the expense has been incurred and the amount is reasonably estimable.

Cash or rent abatements received upon entering into certain store leases are recognized on a straight-line basis as a reduction to rent expense over the lease term. The unamortized portion is included in deferred lease credits and other liabilities. At January 29, 2005 and January 31, 2004, the long-term deferred credit was approximately $496 million and $543 million, respectively. At January 29, 2005 and January 31, 2004, the short-term deferred credit was approximately $82 million and $83 million, respectively.

The aggregate minimum non-cancelable annual lease payments under leases in effect on January 29, 2005, are as follows:

Rental expense for all operating leases was as follows: