Foot Locker 2004 Annual Report Download - page 56

15 Other Liabilities
2004 2003
(in millions)
Pension benefits .......................................................... $130 $175
Postretirement benefits ................................................... 95 113
Straight-line rent liability.................................................. 77 67
Income taxes .............................................................. 29 62
Workers’ compensation / general liability reserves ......................... 11 12
Reserve for discontinued operations ....................................... 11 11
Repositioning and restructuring reserves .................................. 3 2
Fair value of derivatives ................................................... — 1
Unfavorable leases ........................................................ 3 —
Other ...................................................................... 17 15
$376 $458
16 Discontinued Operations
On January 23, 2001, the Company announced that it was exiting its 694-store Northern Group segment. During the
second quarter of 2001, the Company completed the liquidation of the 324 stores in the United States. On September 28,
2001, the Company completed the stock transfer of the 370 Northern Group stores in Canada, through one of its wholly
owned subsidiaries for approximately CAD$59 million (approximately US$38 million), which was paid in the form of a note
(the “Note”). Another wholly owned subsidiary of the Company was the assignor of the store leases involved in the
transaction and therefore retains potential liability for such leases. The net amount of the assets and liabilities of the
former operations was written down to the estimated fair value of the Note. The transaction was accounted for pursuant
to SEC Staff Accounting Bulletin Topic 5:E “Accounting for Divestiture of a Subsidiary or Other Business Operation,” as
a “transfer of assets and liabilities under contractual arrangement” as no cash proceeds were received and the
consideration comprised the Note, the repayment of which was dependent on the future successful operations of
the business.
An agreement in principle had been reached during December 2002 to receive CAD$5 million (approximately US$3
million) cash consideration in partial prepayment of the Note and accrued interest, and further, the Company agreed to
reduce the face value of the Note to CAD$17.5 million (approximately US$12 million). During the fourth quarter of 2002,
circumstances had changed sufficiently such that it became appropriate to recognize the transaction as an accounting
divestiture. Accordingly, the Note was recorded in the financial statements at its estimated fair value of CAD$16 million
(approximately US$10 million). On May 6, 2003, the amendments to the Note were executed and a cash payment of
CAD$5.2 million was received from the purchasers of the Northern Group, representing principal and interest through the
date of the amendment. On January 15, 2004, the Company received an additional payment of CAD$1 million, representing
a partial repayment of the Note. On August 20, 2004, the Company received a contingent payment of CAD$1 million, which
was based upon a certain transaction that occurred. As a result of the settlement of the contingent transaction, the
CAD$17.5 million Note was replaced with a new CAD$15.5 million note. The terms of the new note are substantially the
same as the May 6, 2003 Note, including the expiration date and interest payment terms.
Future adjustments, if any, to the carrying value of the Note will be recorded pursuant to SEC Staff Accounting Bulletin
Topic 5:Z:5, “Accounting and Disclosure Regarding Discontinued Operations,” which requires changes in the carrying value
of assets received as consideration from the disposal of a discontinued operation to be classified within continuing
operations. Interest income will also be recorded within continuing operations. The Company will recognize an impairment
loss when, and if, circumstances indicate that the carrying value of the Note may not be recoverable. Such circumstances
would include deterioration in the business, as evidenced by significant operating losses incurred by the purchaser or
nonpayment of an amount due under the terms of the Note. The purchaser has made all payments required under the terms
of the Note, however the business has sustained unexpected operating losses during the past fiscal year. The Company
has evaluated the projected performance of the business and will continue to monitor its results during the coming year.
At January 29, 2005 and January 31, 2004, US$1 million and US$2 million, respectively, are classified as a current
receivable, with the remainder classified as long term within other assets in the accompanying Consolidated Balance Sheets.
All scheduled principal and interest payments have been received timely and in accordance with the terms of the Note.
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