Banana Republic 2005 Annual Report Download - page 54

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52 gap inc. 2005 annual report
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:
NOTE E: SUBLEASE LOSS RESERVE AND OTHER LIABILITIES
As a result of our 2001 decision to consolidate and downsize corporate facilities in our San Francisco and San Bruno campuses, we have approxi-
mately 217,000 square feet of excess facility space as of January 28, 2006. We record a sublease loss reserve for the net present value of the differ-
ence 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, including a review of real estate market conditions, our projections for sublease income and sublease commencement assumptions.
In fiscal 2005, we released a net amount of $61 million of sublease loss reserve, and recorded net sublease loss charges of $15 million and $10 million
in fiscal 2004 and 2003, respectively. 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 and planning efforts to design and construct leasehold improve-
ments for occupation in 2006 began. The remaining reduction in the provision was related to our decision to occupy certain other office space. In
addition, we also recorded $6 million related to corporate severance and outplacement expenses. Sublease loss charges are reflected in operating
expenses in our Consolidated Statements of Operations.
Remaining cash expenditures associated with the headquarter facilities sublease loss reserve are expected to be paid over the various remaining
lease terms through 2012. Based on our current assumptions as of January 28, 2006, we expect our lease payments, net of sublease income, to
result in a total net cash outlay of approximately $20 million for future rent. Our accrued liability related to the domestic headquarter sublease loss
charges of $14 million at January 28, 2006 was net of approximately $6 million of estimated sublease income to be generated from sublease con-
tracts, which have not yet been identified.
Distribution facility changes in fiscal 2003 include costs associated with the cost of lease terminations, facilities restoration, severance and equip-
ment removal.
Rental expense, net of sublease income, for all operating leases was as follows:
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
($ in millions) January 28, 2006 January 29, 2005 January 31, 2004
Minimum rentals $ 866 $ 819 $ 808
Contingent rentals 139 148 146
Total $ 1,005 $ 967 $ 954
Fiscal Year ($ in millions)
2006 $ 974
2007 873
2008 786
2009 678
2010 537
Thereafter 1,660
Total minimum lease commitment $ 5,508