This excerpt taken from the GPS 10-Q filed Jun 12, 2007.
Other Operating Charges
As part of our ongoing assessment of our network capacity, we made the decision in February 2007 to close a distribution facility in Hebron, Kentucky. We expect the closure to be completed by December 2007. In addition, in order to drive improved returns and to leverage our existing retail channel, in March 2007 we announced that we intend to convert approximately 45 Old Navy Outlet stores into Old Navy stores. We expect the conversion to be completed by October 2007. For the thirteen weeks ended May 5, 2007, the charges recognized related to converting the Old Navy Outlet stores and closing the distribution facility were not material and we do not expect future expenses to be material.
We have excess facility space as of May 5, 2007 and have recorded a sublease loss reserve for the net present value of the difference between the contractual rent obligations and the rate at which we expect to be able to sublease the properties. These estimates and assumptions are monitored on at least a quarterly basis for changes in circumstances. We estimate the reserve based on the status of our efforts to lease vacant office space and stores, including a review of real estate market conditions, our projections for sublease income and sublease commencement assumptions. Sublease losses (reversals) are reflected in operating expenses in our consolidated statements of income.
For the thirteen weeks ended May 5, 2007, we recorded a net sublease loss of $2 million primarily related to excess headquarter space in San Francisco. Remaining cash expenditures associated with our sublease loss reserve are expected to be paid over the various remaining lease terms through 2018. Based on our current assumptions as of May 5, 2007, we expect our lease payments, net of sublease income, to result in a total net cash outlay of approximately $21 million for future rent.
In addition to the $4 million of employee severance related to Forth & Towne, for the thirteen weeks ended May 5, 2007, we recorded $5 million of employee severance related to other organizational changes. Subsequent to the end of the first quarter, we recorded an additional $8 million of employee severance related to organizational changes.