Foot Locker (FL)

3. Staff Accounting Bulletin No. 108

     In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”) “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” that provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. There are two widely recognized methods for quantifying the effects of financial statement misstatements: the “rollover” or income statement method and the “iron curtain” or balance sheet method. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach (“dual method”) and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The Company had historically evaluated uncorrected misstatements using the “rollover” method. SAB 108 permits companies to apply its provisions initially by either (i) restating prior financial statements as if the provisions had always been applied or (ii) recording the cumulative effect of initially applying SAB 108 as adjustments to the carrying value of assets and liabilities as of the beginning of 2006 with an offsetting adjustment recorded to the opening balance of shareholders’ equity.

     The Company believes its prior period assessments of uncorrected misstatements and the conclusions reached regarding its quantitative and qualitative assessments of materiality of such items, both individually and in the aggregate, were appropriate. These items did not significantly affect 2005 as these items originated in earlier periods. In accordance with SAB 108, the Company has adjusted its opening retained earnings for 2006 for the items described below.

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3. Staff Accounting Bulletin
No. 108

     In
September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”)
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements,” that provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
There are two widely recognized methods for quantifying the effects of financial
statement misstatements: the “rollover” or income statement method and the “iron
curtain” or balance sheet method. The SEC staff believes that registrants should
quantify errors using both a balance sheet and an income statement approach
(“dual method”) and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. The Company had historically evaluated uncorrected
misstatements using the “rollover” method. SAB 108 permits companies to apply
its provisions initially by either (i) restating prior financial statements as
if the provisions had always been applied or (ii) recording the cumulative
effect of initially applying SAB 108 as adjustments to the carrying value of
assets and liabilities as of the beginning of 2006 with an offsetting adjustment
recorded to the opening balance of shareholders’ equity.

     The
Company believes its prior period assessments of uncorrected misstatements and
the conclusions reached regarding its quantitative and qualitative assessments
of materiality of such items, both individually and in the aggregate, were
appropriate. These items did not significantly affect 2005 as these items
originated in earlier periods. In accordance with SAB 108, the Company has
adjusted its opening retained earnings for 2006 for the items described
below.

39