Foot Locker 2006 Annual Report Download - page 62

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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. The Company has evaluated the projected performance of the business and will
continue to monitor its results during the coming year.
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. As the assignor of the Northern Canada leases, the Company
remained secondarily liable under these leases. As of February 3, 2007, the Company estimates that its gross contingent
lease liability is CAD$11 million (approximately US$9 million). The Company currently estimates the expected value of
the lease liability to be approximately US$1 million. The Company believes that, because it is secondarily liable on the
leases, it is unlikely that it would be required to make such contingent payments.
In 1998, the Company exited both its International General Merchandise and Specialty Footwear segments. In 1997,
the Company exited its Domestic General Merchandise segment. During 2006, the Company adjusted its International
General Merchandise reserve by $2 million, reflecting favorable lease terminations. During 2005, the Company recorded
a charge of $2 million to revise estimates on its lease liability for one store in the International General Merchandise
segment. During 2004, the Company recorded income of $1 million, after-tax, related to a refund of Canadian customs
duties related to certain of the businesses that comprised the Specialty Footwear segment.
The major components of the pre-tax losses (gains) on disposal and disposition activity related to the reserves
are presented below. The remaining reserve balances as of February 3, 2007 primarily represent lease obligations; $3
million is expected to be utilized within twelve months and the remaining $12 million thereafter.
2003 2004 2005 2006
Balance
Charge/
(Income)
Net
Usage* Balance
Charge/
(Income)
Net
Usage* Balance
Charge/
(Income)
Net
Usage* Balance
(in millions)
Northern Group .................. $ 2 $— $ 1 $ 3 $— $ 2 $ 5 $(2) $(1) $ 2
International General Merchandise . . . 5 — — 5 2 1 8 (2) — 6
Specialty Footwear ................ 2 (1) 1 2 — (1) 1 — — 1
Domestic General Merchandise ....... 10 — (2) 8 — — 8 — (2) 6
Total ........................... $19 $(1) $— $18 $ 2 $ 2 $22 $ (4) $ (3) $15
* Net usage includes effect of foreign exchange translation adjustments.
18 Repositioning and Restructuring Reserves
1999 Restructuring
The Company recorded restructuring charges in 1999 for programs to sell or liquidate eight non-core businesses.
The restructuring plan also included an accelerated store-closing program in North America and Asia, corporate
headcount reduction and a distribution center shutdown. The dispositions of Randy River Canada, Foot Locker Outlets,
Colorado, Going to the Game!, Weekend Edition and the store-closing program were essentially completed in 2000. In
2001, the Company completed the sales of The San Francisco Music Box Company (“SFMB”) and the assets related to
its Burger King and Popeye’s franchises. The termination of the Maumelle distribution center lease was completed in
2002.
In connection with the sale of SFMB, the Company remained as guarantor of a distribution center lease. During
2006 and 2004, the Company recorded charges of $1 million and $2 million, respectively, primarily related to the
distribution center lease. The lease for the distribution center expires January 31, 2010. As of February 3, 2007, the
Company estimates its gross contingent lease liability for the distribution center lease to be approximately $2 million,
offset in part by the estimated sublease income of $1 million. The Company entered into a sublease on November 15,
2004 for a significant portion of the distribution center that will expire concurrent with the Company’s lease term.
Accordingly, at February 3, 2007 the reserve balance is $1 million.