Foot Locker (FL)

Share-Based Compensation

     Effective January 29, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,” and related interpretations, (“SFAS No. 123(R)”) to account for stock-based compensation using the modified prospective transition method and, therefore, the Company did not restate its prior period results. SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”), and revises guidance in SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Among other things, SFAS No. 123(R) requires that compensation expense be recognized in the financial statements for share-based awards based on the grant date fair value of those awards. The modified prospective transition method applies to unvested stock options, restricted shares and stock appreciation rights and issuances under the employee stock purchase plan outstanding as of January 29, 2006 based on the grant-date fair value estimated in accordance with the pro forma provisions of SFAS No. 123, and any new share-based awards granted subsequent to January 29, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Additionally, stock-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized over the requisite service periods of the awards.

     Prior to January 29, 2006, the Company accounted for these stock-based compensation plans in accordance with APB No. 25 and related interpretations. This method did not result in compensation cost for stock options and shares purchased under employee stock purchase plans. No compensation expense for employee stock options was recorded, as all stock options granted under the stock option plans had an exercise price that was not less than the quoted market price at the date of grant. Compensation expense was also not recorded for employee purchases of stock under the employee stock purchase plans as it was considered non-compensatory under APB No. 25. Prior to the Company’s adoption of SFAS No. 123(R), as required under the disclosure provisions of SFAS No. 123, as amended, the Company provided pro forma net income and earnings per common share for each period as if it had applied the fair value method to measure stock-based compensation expense.

     During 2006, the Company recorded a cumulative effect of a change in accounting of $1 million to reflect estimated forfeitures for prior periods related to the Company’s nonvested restricted stock awards. Prior to the adoption of SFAS No. 123(R), the Company recognized compensation cost of restricted stock awards over the vesting term based upon the fair value of the Company’s common stock at the date of grant. Forfeitures were recorded as they occurred, however under SFAS No. 123(R) an estimate of forfeitures is required to be included over the vesting term. Under SFAS No. 123(R), the Company will continue to recognize compensation expense over the vesting term, net of estimated forfeitures. See Note 23 for information on the assumptions the Company used to calculate the fair value of stock-based compensation.

     SFAS No. 123(R) requires the benefits associated with tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow as previously required. For 2007 and 2006, the Company recorded an excess tax benefit of $1 million and $2 million, respectively, as a financing cash flow as required by the standard.

     Upon exercise of stock options, issuance of restricted stock or issuance of shares under the employee stock purchase plan, the Company will issue authorized but unissued common stock or use common stock held in treasury. The Company may make repurchases of its common stock from time to time, subject to legal and contractual restrictions, market conditions and other factors.

34

Share-Based
Compensation

     Effective January 29, 2006, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,”
and related interpretations, (“SFAS No. 123(R)”) to account for stock-based
compensation using the modified prospective transition method and, therefore,
the Company did not restate its prior period results. SFAS No. 123(R) supersedes
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” (“APB No. 25”), and revises guidance in SFAS No. 123, “Accounting
for Stock-Based Compensation” (“SFAS No. 123”). Among other things, SFAS No.
123(R) requires that compensation expense be recognized in the financial
statements for share-based awards based on the grant date fair value of those
awards. The modified prospective transition method applies to unvested stock
options, restricted shares and stock appreciation rights and issuances under the
employee stock purchase plan outstanding as of January 29, 2006 based on the
grant-date fair value estimated in accordance with the pro forma provisions of
SFAS No. 123, and any new share-based awards granted subsequent to January 29,
2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123(R). Additionally, stock-based compensation expense
includes an estimate for pre-vesting forfeitures and is recognized over the
requisite service periods of the awards.

     Prior to January 29, 2006, the Company accounted for these stock-based
compensation plans in accordance with APB No. 25 and related interpretations.
This method did not result in compensation cost for stock options and shares
purchased under employee stock purchase plans. No compensation expense for
employee stock options was recorded, as all stock options granted under the
stock option plans had an exercise price that was not less than the quoted
market price at the date of grant. Compensation expense was also not recorded
for employee purchases of stock under the employee stock purchase plans as it
was considered non-compensatory under APB No. 25. Prior to the Company’s
adoption of SFAS No. 123(R), as required under the disclosure provisions of SFAS
No. 123, as amended, the Company provided pro forma net income and earnings per
common share for each period as if it had applied the fair value method to
measure stock-based compensation expense.

     During 2006, the Company recorded a cumulative effect of a change in
accounting of $1 million to reflect estimated forfeitures for prior periods
related to the Company’s nonvested restricted stock awards. Prior to the
adoption of SFAS No. 123(R), the Company recognized compensation cost of
restricted stock awards over the vesting term based upon the fair value of the
Company’s common stock at the date of grant. Forfeitures were recorded as they
occurred, however under SFAS No. 123(R) an estimate of forfeitures is required
to be included over the vesting term. Under SFAS No. 123(R), the Company will
continue to recognize compensation expense over the vesting term, net of
estimated forfeitures. See Note 23 for information on the assumptions the
Company used to calculate the fair value of stock-based compensation.

     SFAS
No. 123(R) requires the benefits associated with tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow rather than
as an operating cash flow as previously required. For 2007 and 2006, the Company
recorded an excess tax benefit of $1 million and $2 million, respectively, as a
financing cash flow as required by the standard.

     Upon
exercise of stock options, issuance of restricted stock or issuance of shares
under the employee stock purchase plan, the Company will issue authorized but
unissued common stock or use common stock held in treasury. The Company may make
repurchases of its common stock from time to time, subject to legal and
contractual restrictions, market conditions and other factors.

34

Share-Based Compensation

     Effective January 29, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,” and related interpretations, (“SFAS No. 123(R)”) to account for stock-based compensation using the modified prospective transition method and, therefore, will not restate its prior period results. SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”), and revises guidance in SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Among other things, SFAS No. 123(R) requires that compensation expense be recognized in the financial statements for share-based awards based on the grant date fair value of those awards. The modified prospective transition method applies to unvested stock options, restricted shares and stock appreciation rights and issuances under the employee stock purchase plan outstanding as of January 29, 2006 based on the grant-date fair value estimated in accordance with the pro forma provisions of SFAS No. 123, and any new share-based awards granted subsequent to January 29, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Additionally, stock-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized over the requisite service periods of the awards over the vesting term.

     Prior to January 29, 2006, the Company accounted for these stock-based compensation plans in accordance with APB No. 25 and related interpretations. This method did not result in compensation cost for stock options and shares purchased under employee stock purchase plans. No compensation expense for employee stock options was recorded, as all stock options granted under the stock option plans had an exercise price that was not less than the quoted market price at the date of grant. Compensation expense was also not recorded for employee purchases of stock under the employee stock purchase plans as it was considered non-compensatory under APB No. 25. Prior to the Company’s adoption of SFAS No. 123(R), as required under the disclosure provisions of SFAS No. 123, as amended, the Company provided pro forma net income and earnings per common share for each period as if it had applied the fair value method to measure stock-based compensation expense.

     The Company has recorded an additional $6 million of stock-based compensation expense, net of estimated forfeitures, during 2006 as a result of its adoption of SFAS No. 123(R). During 2006, the Company recorded a cumulative effect of a change in accounting of $1 million to reflect estimated forfeitures for prior periods related to the Company’s nonvested restricted stock awards. Prior to the adoption of SFAS No. 123(R), the Company recognized compensation cost of restricted stock awards over the vesting term based upon the fair value of the Company’s common stock at the date of grant. Forfeitures were recorded as they occurred, however under SFAS No. 123(R) an estimate of forfeitures is required to be included over the vesting term. Under SFAS No. 123(R), the Company will continue to recognize compensation expense over the vesting term, net of estimated forfeitures. See Note 22 for information on the assumptions the Company used to calculate the fair value of stock-based compensation.

     SFAS No. 123(R) requires the benefits associated with tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow as previously required. For 2006, the Company recorded an excess tax benefit of $2 million as a financing cash flow as required by the standard.

     Upon exercise of stock options, issuance of restricted stock or issuance of shares under the employee stock purchase plan, the Company will issue authorized but unissued common stock or use common stock held in treasury. The Company may make repurchases of its common stock from time to time, subject to legal and contractual restrictions, market conditions and other factors.

33