Foot Locker (FL)

2007 Results

     The 2007 results as presented in this Annual Report have been corrected to reflect an immaterial revision to its fourth quarter and full year 2007 results in accordance with Staff Accounting Bulletin 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” The income tax benefit of $99 million related to continuing operations, as reported for the full year of 2007 within the Form 10-K, was overstated by $6 million. This overstatement comprises primarily five items. First, the Company understated its income taxes payable by $9 million due to incorrectly accounting for foreign dividend withholding taxes. Second, the Company noted that certain foreign currency fluctuations related to the tax assets and liabilities, totaling $5 million, should have been reflected as part of the foreign currency translation adjustment within accumulated other comprehensive loss. The Company had incorrectly reflected these foreign exchange movements within the income tax provision, thereby increasing the income tax provision erroneously. Third, the Company overstated the value of a portion of its Canadian deferred tax assets by $3 million as a result of using incorrect tax rates. Fourth, the Company understated a deferred tax liability of $2 million related to goodwill. Finally, various state and international depreciation corrections totaling $3 million were overstated in the income tax provision.

2007 Results

     The
2007 results as presented in this Annual Report have been corrected to reflect
an immaterial revision to its fourth quarter and full year 2007 results in
accordance with Staff Accounting Bulletin 108, “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” The income tax benefit of $99 million related to continuing
operations, as reported for the full year of 2007 within the Form 10-K, was
overstated by $6 million. This overstatement comprises primarily five items.
First, the Company understated its income taxes payable by $9 million due to
incorrectly accounting for foreign dividend withholding taxes. Second, the
Company noted that certain foreign currency fluctuations related to the tax
assets and liabilities, totaling $5 million, should have been reflected as part
of the foreign currency translation adjustment within accumulated other
comprehensive loss. The Company had incorrectly reflected these foreign exchange
movements within the income tax provision, thereby increasing the income tax
provision erroneously. Third, the Company overstated the value of a portion of
its Canadian deferred tax assets by $3 million as a result of using incorrect
tax rates. Fourth, the Company understated a deferred tax liability of $2
million related to goodwill. Finally, various state and international
depreciation corrections totaling $3 million were overstated in the income tax
provision.

2007 Results

     The
2007 results as presented in this Annual Report have been corrected to reflect
an immaterial revision to its fourth quarter and full year 2007 results in
accordance with Staff Accounting Bulletin 108, “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” The income tax benefit of $99 million related to continuing
operations, as reported for the full year of 2007 within the Form 10-K, was
overstated by $6 million. This overstatement comprises primarily five items.
First, the Company understated its income taxes payable by $9 million due to
incorrectly accounting for foreign dividend withholding taxes. Second, the
Company noted that certain foreign currency fluctuations related to the tax
assets and liabilities, totaling $5 million, should have been reflected as part
of the foreign currency translation adjustment within accumulated other
comprehensive loss. The Company had incorrectly reflected these foreign exchange
movements within the income tax provision, thereby increasing the income tax
provision erroneously. Third, the Company overstated the value of a portion of
its Canadian deferred tax assets by $3 million as a result of using incorrect
tax rates. Fourth, the Company understated a deferred tax liability of $2
million related to goodwill. Finally, various state and international
depreciation corrections totaling $3 million were overstated in the income tax
provision.

Second Quarter Results

The Company reported net income of $18 million, or $0.11 per share, for the second quarter ended August 2, 2008 compared with a net loss of $18 million, or $0.12 per share, last year. Second quarter sales increased 1.5 percent, to $1,302 million this year compared with sales of $1,283 million for the corresponding prior year period. Second quarter comparable-store sales decreased 0.5 percent.

“Our second quarter earnings were at the high end of our expectations due primarily to lower than anticipated markdowns. As a result, our gross margin rate was 420 basis points favorable to the second quarter of last year and in line with our historic gross margin rates for the second fiscal quarter,” stated Matthew D. Serra, Foot Locker, Inc.’s Chairman and Chief Executive Officer. “Our gross margin rate in the second quarter of last year was affected negatively by a strategic decision to accelerate the clearance of slow-selling merchandise.”

Fiscal Year Results

For the full year, the Company reported net income of $53 million, or $0.34 per share, compared with net income of $251 million, or $1.60 per share, last year. Income from continuing operations was $51 million, or $0.33 per share in 2007, versus $247 million, or $1.58 per share, in 2006.

This year’s results included non-cash impairment charges pursuant to SFAS No. 144 and expenses associated with closing unproductive stores totaling $81 million, after tax, or $0.52 per share, and a Canadian income tax valuation allowance adjustment that increased net income by $65 million, or $0.42 per share. Last year’s results included an impairment charge pursuant to SFAS No. 144 of $12 million, after tax, or $0.08 per share, and an additional week that contributed $18 million, after tax, or $0.11 per share.

Income from continuing operations, before the non-cash impairment charges in 2007 and 2006, expenses of closing unproductive stores, and the income tax valuation allowance adjustment in 2007, and the additional week in 2006, was $67 million, or $0.43 per share this year, versus $241 million, or $1.55 per share, last year.

Sales for the 52-week 2007 period decreased 5.4 percent, to $5,437 million, compared with sales of $5,750 million for the 53-week 2006 fiscal year, negatively affected by the additional week last year and reflecting a comparable-store sales decrease of 6.3 percent.

Third Quarter Results

The Company reported a net loss of $33 million, or $0.22 per share, for the third quarter this year compared with net income of $65 million, or $0.42 per share, last year. This year’s results included a non-cash impairment charge to write down long-lived assets for the Company’s U.S. store operations pursuant to SFAS No. 144 and expenses associated with closing unproductive stores, totaling $66 million, after tax, or $0.43 per share. Third quarter net income, before the non-cash impairment charge and the incremental expenses of closing stores, was $33 million, or $0.21 per share.

Third quarter sales decreased 5.2 percent, to $1,356 million this year compared with sales of $1,430 million for the corresponding prior year period. Third quarter comparable-store sales decreased 5.0 percent.

“Our third quarter sales were disappointing, reflecting a challenging external environment and the lack of exciting fashion trends in athletic footwear and apparel,” stated Matthew D. Serra, Foot Locker, Inc.’s Chairman and Chief Executive Officer. “While our sales results fell short of our expectations, third quarter markdowns were approximately 12 percent lower than last year. Additionally, we continued to focus diligently on expense management.”

Fourth Quarter Results

Net income for the Company’s fourth quarter increased to $0.72 per share, or $113 million, compared with $0.61 per share, or $96 million, last year. Included in this year’s results is income of $0.02 per share, or $3 million, from discontinued operations. Income from continuing operations for the fourth quarter of 2006 was $0.70 per share, or $110 million, compared with $0.61 per share, or $96 million, last year.

The fourth quarter results benefited from the additional week, which contributed $0.11 per share, or $18 million, to this year’s results, while a reduction of the Company’s income tax valuation allowance provided a benefit of $0.04 per share, or $6 million, to last year’s results. For comparative purposes, income from continuing operations was $0.59 per share, or $95 million, before the impact of the additional week this year, and $0.57 per share, or $90 million, before the benefit of the income tax credit last year.

Sales for the 14-week fourth quarter increased 5.6 percent, to $1,652 million this year, compared with sales of $1,564 million in the 13-week year-earlier period, reflecting the benefit of the additional week, and negatively impacted by a 13-week comparable-store sales decrease of 3.4 percent.

-MORE-

Second Quarter Results

Net income for the Company’s second quarter ended July 29, 2006 was $0.09 per share, or $14 million, compared to $0.28 per share, or $44 million last year. This year’s results included a non-cash impairment charge of $0.08 per share, or $12 million after-tax, to write-down store long-lived assets at the Company’s European operation, pursuant to SFAS No. 144. The Company’s second quarter income before this non-cash charge was $0.17 per share, or $26 million. Second quarter sales for the period were virtually flat with last year, at $1,303 million this year compared with sales of $1,304 million for the corresponding prior year period. Second quarter comparable-store sales decreased 1.3 percent.

“As we previously reported, our second quarter earnings reflected lower than expected sales in both our domestic and international operations,” stated Matthew D. Serra, Foot Locker, Inc.’s Chairman and Chief Executive Officer. “While the sales and earnings shortfalls were most pronounced at our European stores, sales in our U.S. stores also softened, particularly late in the month of July. In the U.S., we believe this partially reflects a later start than last year to the back-to-school selling season. While our business in Europe remains very profitable in total, we were required to write down the value of certain underperforming assets under the provisions of SFAS No. 144.”

Fourth Quarter Results

Net income increased 7.0 percent to $0.61 per share, or $96 million, from $0.57 per share, or $89 million last year. Included in this year’s results was a credit of $0.02 per share, or $3 million, from insurance proceeds related to Hurricanes Katrina, Rita and Wilma, net of related income tax expense. Also recorded in this year’s fourth quarter, was net income of $0.04 per share, or $6 million, resulting from a reduction of the Company’s income tax valuation allowance primarily due to actions taken to utilize international tax loss carry forwards. As a result, the Company’s effective income tax rate for this year’s fourth quarter was approximately 32 percent, in line with the comparable period of last year.

For the fourth quarter period, sales increased 1.9 percent to $1,564 million this year compared with sales of $1,535 million for the corresponding prior year period. Fourth quarter comparable-store sales increased 3.9 percent.

Net income for the quarter was $0.42 per share, or $66 million, compared with $0.47 per share, or $74 million in the third quarter of last year. Income from continuing operations for the 2005 third quarter was $0.41 per share, or $65 million compared to $0.47 per share, or $74 million last year. Results from discontinued operations reflected revisions in estimates to discontinued reserves and a favorable income tax settlement totaling $0.01 per share, or $1 million, in the third quarter of 2005. Also included in this year’s results were charges, net of credits, totaling $0.02 per share related to hurricanes, potential insolvency of one of the Company’s insurance administrators and the settlement of litigation proceedings.

For the third quarter period, sales increased 3.1 percent to $1,408 million this year compared with sales of $1,366 million in the year-ago period. Third quarter comparable-store sales increased 2.7 percent.

“Our business in North America was very solid during the third quarter, with strongest sales and profit increases posted by our Footaction, Champs Sports and Foot Locker Canada divisions,” stated Matthew D. Serra, Foot Locker, Inc.’s Chairman and Chief Executive Officer. “Third quarter results were negatively impacted, however, by our increased promotional activity in Europe that resulted in a reduction in our inventory growth and allowed us to compete better in certain local markets.”

Net income decreased to $0.28 per share, or $44 million, from $0.53 per share, or $82 million last year. Second quarter results in 2004 included an income tax benefit of $37 million, or $0.24 per share, related to discontinued operations.

Income from continuing operations decreased 3.4 percent to $0.28 per share, or $44 million, from $0.29 per share, or $45 million last year. Included in last year’s results was a loss of $10 million, or $0.07 per share, related to the integration and operation of the 349-store Footaction chain that the Company acquired in May 2004. Also included in last year’s income from continuing operations were income tax benefits related to resolution of U.S. and foreign income tax examinations, resulting in an effective tax rate that was significantly lower than the second quarter of this year. The Company’s higher effective tax rate this year versus the second quarter of last year resulted in an unfavorable comparison of $0.07 per share.

For the second quarter period, sales increased 2.8 percent to $1,304 million this year compared with sales of $1,268 million in the year-ago period. Second quarter comparable-store sales increased 1.3 percent.

“Our second quarter earnings per share were below our initial expectations due to the disappointing financial results of our European business,” stated Matthew D. Serra, Foot Locker, Inc.’s Chairman and Chief Executive Officer. “The second quarter profit decline at Foot Locker Europe essentially offset the combined profit increase generated by our U.S. and other international divisions. We are particularly pleased with the second quarter financial results of our Champs Sports division and expect that our Footaction business will contribute meaningfully to our Company’s financial results for the balance of this year.”

Net income increased 21 percent to $0.57 per share, or $89 million, from $0.47 per share, or $71 million last year. For the fourth quarter period, sales increased 15.1 percent to $1,535 million this year compared with sales of $1,334 million for the corresponding prior year period. Fourth quarter comparable-store sales increased 2.5 percent.

“Our fourth quarter earnings per share increase of 21 percent was above the high end of our original guidance range, and reflected a solid comparable-store sales increase, an improving operating profit margin rate and a lower effective income tax rate,” stated Matthew D. Serra, Foot Locker, Inc.’s Chairman and Chief Executive Officer. “The financial highlights of the fourth quarter also included a strong total sales increase, a higher gross margin rate and continued effective expense management.”