Foot Locker 2009 Annual Report Download - page 56

On February 4, 2007, the Company adopted authoritative guidance for the Accounting for Uncertainty in
Income Taxes, as prescribed by ASC 740, ‘‘Income Taxes.’’ The guidance clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and
measurement standard for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Upon the adoption of the guidance, the Company recognized a $1 million
increase to retained earnings to reflect the change of its liability for its unrecognized income tax benefits. The
Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
Pension and Postretirement Obligations
The discount rate selected to measure the present value of the Company’s U.S. benefit obligations at
January 30, 2010 was derived using a cash flow matching method whereby the Company matches the plans’
projected payment obligations by year with the corresponding yield on the Citibank Pension Discount Curve. The
cash flows are then discounted to their present value and an overall discount rate is determined. The discount
rate selected to measure the present value of the Company’s Canadian benefit obligations at January 30, 2010
was developed by using the plan’s bond portfolio indices, which match the benefit obligations.
Insurance Liabilities
The Company is primarily self-insured for health care, workers’ compensation and general liability costs.
Accordingly, provisions are made for the Company’s actuarially determined estimates of discounted future claim
costs for such risks, for the aggregate of claims reported and claims incurred but not yet reported. Self-insured
liabilities totaled $15 million and $16 million at January 30, 2010 and January 31, 2009, respectively. The
Company discounts its workers’ compensation and general liability using a risk-free interest rate. Imputed
interest expense related to these liabilities was not significant for 2009 and 2008 and was $1 million in 2007.
Accounting for Leases
The Company recognizes rent expense for operating leases as of the possession date for store leases or the
commencement of the agreement for a non-store lease. Rental expense, inclusive of rent holidays, concessions
and tenant allowances are recognized over the lease term on a straight-line basis. Contingent payments based
upon sales and future increases determined by inflation-related indices cannot be estimated at the inception of
the lease and accordingly, are charged to operations as incurred.
Foreign Currency Translation
The functional currency of the Company’s international operations is the applicable local currency. The
translation of the applicable foreign currency into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and expense accounts using the
weighted-average rates of exchange prevailing during the year. The unearned gains and losses resulting from
such translation are included as a separate component of accumulated other comprehensive loss within
shareholders’ equity.
Recent Accounting Pronouncements Not Previously Discussed Herein
Recently issued accounting pronouncements did not, or are not believed by management to, have a material
effect on the Company’s present or future consolidated financial statements.
2. Segment Information
The Company has determined that its reportable segments are those that are based on its method of internal
reporting. As of January 30, 2010, the Company has two reportable segments, Athletic Stores and
Direct-to-Customers. The Company acquired CCS during the fourth quarter of 2008, and its operations are
presented within the Direct-to-Customers segment. The Company also operated the Family Footwear segment,
which included the retail format under the Footquarters brand name through the second quarter of 2007. During
the third quarter, the Company converted the Footquarters stores, which were the only stores reported under the
Family Footwear segment, to Foot Locker and Champs Sports outlet stores. The Company has concluded that the
Footquarters store closings are not discontinued operations.
The accounting policies of both segments are the same as those described in the ‘‘Summary of Significant
Accounting Policies’’ note. The Company evaluates performance based on several factors, of which the primary
financial measure is division results. Division profit (loss) reflects income (loss) from continuing operations
before income taxes, corporate expense, non-operating income, and net interest expense.
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