This excerpt taken from the GPS 10-K filed Apr 2, 2007.
NOTE 5. SUBLEASE LOSS RESERVE AND OTHER LIABILITIES
We have excess facility space as of February 3, 2007 as a result of our 2001 decision to consolidate and downsize corporate facilities in our San Francisco and San Bruno campuses. We record a sublease loss reserve for the net present value of the difference between the contract 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.
In fiscal 2006 and 2004, we recorded a net sublease loss of $5 million and $15 million, respectively. In fiscal 2005, we released a net amount of $61 million of sublease loss reserve. We recorded a net sublease loss of $15 million in fiscal 2004. During the second fiscal quarter of 2005 we completed our assessment of available space and future office facility needs and decided that we would occupy one of our vacant leased properties in San Francisco. As a result, in the same quarter the sublease loss reserve of $58 million associated with this space at April 30, 2005 was reversed. The remaining reduction in the provision was related to our decision to occupy certain other office space. Sublease losses (reversals) are reflected in operating expenses in our Consolidated Statements of Income.
In June 2006, an Agreement of Purchase and Sale was executed with a buyer for our distribution center located in Brampton, Ontario, Canada. Upon completion of the sale in the third fiscal quarter of 2006, we recorded a gain of $3 million associated with the sale, which is included in operating expenses in our Consolidated Statements of Income.
Remaining cash expenditures associated with the headquarter facilities and stores sublease loss reserve are expected to be paid over the various remaining lease terms through 2018. Based on our current assumptions as of February 3, 2007, we expect our lease payments, net of sublease income, to result in a total net cash outlay of approximately $19 million for future rent. Our accrued liability related to the domestic headquarter and stores sublease loss charges of $42 million at February 3, 2007 was net of approximately $23 million of estimated sublease income to be generated from sublease contracts.
The reserve balances and activities are as follows: