Gap (GPS)

Sales Return Allowance

A summary of activity in the sales return allowance account is as follows:

Sales Return Allowance

Sales Return Allowance

A summary of activity in the sales return allowance account is as follows:

Gap Inc. Form 10-K  49

Table of Contents

NOTE 3. DISCONTINUED OPERATION OF FORTH & TOWNE

In February 2007, we announced our decision to close our Forth & Towne store locations. The decision 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. All of the 19 Forth & Towne stores were closed by the end of June 2007 and we reduced our workforce by approximately 550 employees in fiscal 2007. The results of Forth & Towne, net of income tax benefit, have been presented as a discontinued operation in the accompanying Consolidated Statements of Earnings for all periods presented as follows:

For fiscal 2007, the loss from the discontinued operation of Forth & Towne included the following charges on a pre-tax basis: $29 million related to the impairment of long-lived assets, $6 million of lease settlement charges, $5 million of employee severance, $2 million of net sublease losses and $4 million of administrative and other costs.

We expect future charges related to the closure of Forth & Towne to be immaterial. Future cash payments for Forth & Towne primarily relate to obligations associated with certain leases and these payments will be made over the various remaining lease terms through 2017. Based on our current assumptions as of February 2, 2008, we expect our lease payments, net of sublease income, to result in a total net cash outlay of approximately $2 million for future rent.

Sales Return Allowance

A summary
of activity in the sales return allowance account is as follows:

Gap Inc. Form 10-KSIZE="1">  49

Table of Contents

NOTE 3. DISCONTINUED OPERATION OF FORTH &
TOWNE

In February 2007, we announced our decision to close our Forth & Towne store locations. The decision 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. All of the 19 Forth & Towne stores were closed by the end of June 2007 and we reduced our workforce by
approximately 550 employees in fiscal 2007. The results of Forth & Towne, net of income tax benefit, have been presented as a discontinued operation in the accompanying Consolidated Statements of Earnings for all periods presented as
follows:

For fiscal 2007, the loss from the discontinued operation of Forth & Towne included the following charges on a
pre-tax basis: $29 million related to the impairment of long-lived assets, $6 million of lease settlement charges, $5 million of employee severance, $2 million of net sublease losses and $4 million of administrative and other costs.