The Gap 2008 Annual Report Download - page 63

Note 4. 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 Consolidated Statements of
Earnings for all periods presented and are as follows:
Fiscal Year
($ in millions) 2008 2007 2006
Netsales.............................................................................. $— $ 16 $ 20
Lossfromdiscontinuedoperation,beforeincometaxbenefit............................... $— $(56) $(51)
Add:Incometaxbenefit ................................................................ —2220
Lossfromdiscontinuedoperation,netofincometaxbenefit ............................... $— $(34) $(31)
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, $4 million of administrative and other costs, and $2 million of net sublease losses.
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 January 31, 2009, we expect our lease payments, net of sublease income, to be immaterial.
Note 5. Debt
In September 2007, we paid $326 million related to the maturity of our 6.90 percent notes payable. In December
2008, we paid $138 million related to the maturity of our 8.80 percent notes payable. The remaining $50 million
notes payable with a fixed interest rate of 6.25 percent per annum was classified as current maturities of long-
term debt in the Consolidated Balance Sheet as of January 31, 2009 and was repaid in March 2009. See Note 8 for
information on the cross-currency interest rate swap used in connection with this debt. The fair value of the debt
was $49 million and $51 million as of January 31, 2009 and February 2, 2008, respectively.
Note 6. Credit Facilities
Trade letters of credit represent a payment undertaking guaranteed by a bank on our behalf to pay the vendor a
given amount of money upon presentation of specific documents demonstrating that merchandise has shipped.
Vendor payables are recorded in the Consolidated Balance Sheets at the time of merchandise title transfer,
although the letters of credit are generally issued prior to this. Over the past three years, we have migrated most of
our merchandise vendors to open account payment terms. As of January 31, 2009, our letter of credit agreements
consist of two separate $100 million, three-year, unsecured committed letter of credit agreements, with two
separate banks, for a total aggregate availability of $200 million with an expiration date of May 2011. In addition,
we have an $8 million revolving credit facility available for Athleta which is exclusively being used for the issuance
of trade letters of credit to support its merchandise purchases. As of January 31, 2009, we had $83 million in trade
letters of credit issued under these letter of credit agreements.
As of January 31, 2009, our credit facility consisted of a $500 million, five-year, unsecured revolving credit facility
with an expiration date of August 2012 (the “Facility”). The Facility is available for general corporate purposes,
including commercial paper backstop, working capital, trade letters of credit, and standby letters of credit. The
facility usage fees and fees related to the Facility fluctuate based on our long-term senior unsecured credit ratings
and our leverage ratio. If we were to draw on the Facility, interest would be a base rate (typically the London
Interbank Offered Rate) plus a margin based on our long-term senior unsecured credit ratings and our leverage
ratio on the unpaid principal amount. To maintain availability of funds under the Facility, we pay a facility fee on
the full facility amount, regardless of usage. As of January 31, 2009, there were no borrowings under the Facility.
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