Foot Locker 2007 Annual Report Download - page 63

47
18. 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, which was paid in the form of a note. Over the last several
years, the note has been amended and payments have been received, however the interest and payment terms remained
unchanged. The note is required to be repaid upon the occurrence of “payment events,” as defined in the purchase
agreement, but no later than September 28, 2008. As of February 2, 2008, CAD$15.5 million remains outstanding on the
note. The fair value of the note at February 2, 2008 is $14 million which is classified as a current receivable. At February
3, 2007, $1 million was 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
in accordance with the terms of the note. During 2006, the Company revised its estimates related to the U.S. Northern
store reserve resulting in a reduction of $2 million.
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.
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 2, 2008, the Company estimates that its gross contingent
lease liability is CAD$5 million (approximately US$5 million). The Company currently estimates the expected value of
the lease liability to be insignificant. 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 2007, the Company adjusted the International
General Merchandise by $3 million, reflecting favorable lease terminations and to revise estimates on its lease liability.
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.
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 2, 2008 primarily represent lease obligations;
$14 million is expected to be utilized within twelve months and the remaining $9 million thereafter.
2004 2005 2006 2007
Balance Charge/ (Income) Net Usage(1) Balance Charge/
(Income) Net Usage(1) Balance Charge/ (Income) Net Usage(1) Balance
(in millions)
Northern Group ....................... $ 3 $— $ 2 $ 5 $ (2) $ (1) $ 2 $— $10 $12
International General Merchandise ........ 5 2 1 8 (2) — 6 (3) 1 4
Specialty Footwear ..................... 2 — (1) 1 — — 1 — (1) —
Domestic General Merchandise ............ 8 — — 8 — (2) 6 — 1 7
Total ................................ $18 $ 2 $ 2 $ 22 $ (4) $ (3) $ 15 $ (3) $ 11 $23
(1) Net usage includes effect of foreign exchange translation adjustments.