Foot Locker 2007 Annual Report Download - page 48

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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 year 2007 represents
the 52 weeks ending February 2, 2008. Fiscal year 2006 represented the 53 weeks ended February 3, 2007. Fiscal year
2005 represented the 52 weeks ended January 28, 2006. 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. Internet
and catalog sales revenue is recognized upon estimated receipt by the customer. Sales include shipping and handling
fees for all periods presented. Sales include merchandise, net of returns and exclude all taxes as permitted by EITF
Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented
in the Income Statement (That is, Gross versus Net Presentation).” The Company provides for estimated returns based
on return history and sales levels. The Company recognizes revenue, including gift card sales and layaway sales, in
accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as
amended by SAB No. 104, “Revenue Recognition.” Revenue from layaway sales is recognized when the customer receives
the product, rather than when the initial deposit is paid.
Gift Cards
The Company sells gift cards to its customers; the cards do not have expiration dates. Revenue from gift card sales
is recorded when the gift cards are redeemed or when the likelihood of the gift card being redeemed by the customer
is remote and there is no legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions. The
Company has determined its gift card breakage rate based upon historical redemption patterns. Historical experience
indicates, that after 12 months, the likelihood of redemption is deemed to be remote. Gift card breakage income
is included in selling, general and administrative expenses and totaled $4 million in 2007, $7 million in 2006, and
$2 million in 2005. Unredeemed gift cards are recorded as a current liability.
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 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