Basis of Presentation

6 Months Ended

Jul. 02, 2011

2.	Basis of Presentation

Basis of Presentation

The consolidated financial statements have been prepared by the Company without audit in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited Consolidated Financial Statements previously filed on the Company’s Form 10-K for the fiscal year ended January 1, 2011. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the results of interim periods.

Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, which are not required for interim purposes, have been condensed or omitted. The results for any interim period are not necessarily indicative of the results to be expected for a full year.

The conversion from the going concern to liquidation basis of accounting required management to make significant estimates and judgments. In order to record assets at estimated net realizable value and liabilities at estimated settlement amounts under the liquidation basis of accounting, the Company recorded its assets and liabilities at fair value as of May 6, 2009, the date of adoption of the liquidation basis of accounting.

The consolidated financial statements for the three months ended July 2, 2011 were prepared on the liquidation basis of accounting, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. As a result of the shareholder’ approval of the Plan of Dissolution, the Company adopted the liquidation basis of accounting effective May 6, 2009. This basis of accounting is considered appropriate when, among other things, liquidation of a company is probable and the net realizable values of assets are reasonably determinable. Under this basis of accounting, assets are valued at their net realizable values and liabilities are stated at their estimated settlement amounts. As described further in Note 1, the Company’s investment in FCB Holdings has been reflected at its estimated net realizable value, determined based on factors, specifically the original purchase price and the net loss for the period from April 5, 2011 to July 2, 2011.

Principles of Consolidation

Our consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and majority-owned subsidiary companies. Intercompany balances and transactions between the entities have been eliminated. For simplicity of presentation, these consolidated financial statements are referred to as financial statements herein.

Accrued Cost of Liquidation

The Company will continue to incur certain operating costs and receive income on its investments throughout the liquidation period. On a regular basis, we will evaluate our assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation based on the most recent information available to us, and when necessary make changes accordingly. Actual costs and income may differ from our estimates, which might reduce or increase the net assets available in liquidation to be distributed to stockholders. During the period April 3, 2011 to July 2, 2011, the Company recorded a reduction in liquidating expense accrual of $0.7 million, related to reduced Compensation, General and Administrative and Headquarters Building Costs and received cash proceeds of $0.3 from miscellaneous cash receipts. Additionally, the Company has a receivable from FCB Holdings of approximately $0.6 million and a decrease in the estimated net realizable value of FCB Holdings of ($0.3) million, determined based on factors, specifically the original purchase price and the net loss for the period from April 5, 2011 to July 2, 2011, from the date of the CPEX Acquisition to July 2, 2011. During the period January 2, 2011 to July 2, 2011, the Company recorded a reduction in liquidating expense accruals of $0.7 million, related to reduced Compensation, General and Administrative and Headquarters Building Costs and received cash proceeds of $0.5 million from miscellaneous cash receipts.

The Company may make further distributions to its stockholders of its remaining cash, less any amount applied to or reserved for actual or contingent liabilities (which may be deposited in a liquidating trust). The amounts reserved will be based on a determination by the Board of Directors, derived from consultation with management and outside experts, if the Board of Directors determines that it is advisable to retain such experts, and a review of, among other things, our estimated contingent liabilities and our estimated ongoing expenses, including, but not limited to, payroll, legal expenses, regulatory filings and other miscellaneous expenses. Each shareholder will receive its pro rata share of each distribution based on the number of shares held on the record date for such distribution. If at the end of the statutory three-year dissolution period on May 5, 2012, the Company has unsettled liabilities as more fully discussed in Note 6, it may determine to transfer its remaining assets and liabilities to a liquidating trust. As discussed in Note 1, the Company is considering various options to permit stockholders to continue to participate in earnings resulting from the CPEX Transaction, if any, after Footstar is completely dissolved. The determination of which option to proceed with would likely affect the amount of any further distributions.

FOOTSTAR INC 10-Q/A