Foot Locker 2005 Annual Report Download - page 45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Foot Locker, Inc. and its domestic and international
subsidiaries (the “Company”), all of which are wholly owned. All significant intercompany amounts have been eliminated.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
Reporting Year
The reporting period for the Company is the Saturday closest to the last day in January. Fiscal years 2005, 2004 and
2003 represented the 52 weeks ended January 28, 2006, January 29, 2005 and January 31, 2004, respectively. References
to years in this annual report relate to fiscal years rather than calendar years.
Revenue Recognition
Revenue from retail stores is recognized at the point of sale when the product is delivered to customers. Revenue
from Internet and catalog sales is recognized when the product is shipped to customers. Sales include shipping and
handling fees for all periods presented. Retail sales include merchandise, net of returns and exclude all taxes. The Company
recognizes revenue, including gift card sales and layaway sales, in accordance with SEC Staff Accounting Bulletin No. 101,
“Revenue Recognition in Financial Statements,” as amended by SAB No. 104, “Revenue Recognition.” Revenue from gift
card sales is recorded when the gift cards are redeemed. Unredeemed gift cards are recorded as a current liability. Revenue
from layaway sales is recognized when the customer receives the product, rather than when the initial deposit is paid.
Statement of Cash Flows
The Company has selected to present the operations of the discontinued business as one line in the Consolidated
Statements of Cash Flows. For all the periods presented this caption includes only operating activities.
Store Pre-Opening and Closing Costs
Store pre-opening costs are charged to expense as incurred. In the event a store is closed before its lease has
expired, the estimated post-closing lease exit costs, less the fair market value of sublease rental income, is provided for
once the store ceases to be used, in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or
Disposal Activities.”
Advertising Costs and Sales Promotion
Advertising and sales promotion costs are expensed at the time the advertising or promotion takes place, net of
reimbursements for cooperative advertising. Cooperative advertising reimbursements earned for the launch and promotion
of certain products is agreed upon with vendors and is recorded in the same period as the associated expense is incurred.
In accordance with EITF 02-16, “Accounting by a Reseller for Cash Consideration from a Vendor,” the Company accounts
for reimbursements received in excess of expenses incurred related to specific, incremental advertising, as a reduction
to the cost of merchandise and is reflected in cost of sales as the merchandise is sold.
Advertising costs, which are included as a component of selling, general and administrative expenses, net of
reimbursements for cooperative advertising, were as follows:
2005 2004 2003
(in millions)
Advertising expenses ....................................... $ 99.0 $102.5 $ 97.5
Cooperative advertising reimbursements ................... (21.2) (24.8) (23.4)
Net advertising expense .................................... $ 77.8 $ 77.7 $ 74.1
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