Foot Locker 2002 Annual Report Download

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FOOT LOCKER, INC.
2002 Annual Repo rt
Gro wing Our Glo bal Presence

Table of contents

  • Page 1
    2 0 0 2 An n ua l Re p o rt FOOT LOCKER, INC. Gro wing Our Glo bal Presenc e

  • Page 2
    ...athletic fo o twear and apparel. Headquartered in New Yo rk City, it o perates appro ximately 3, 600 athletic retail sto res in 14 c o untries in No rth Americ a, Euro pe and Australia under the brand names Fo o t Lo c ker, Lady Fo o t Lo c ker, Kids Fo o t Lo c ker and Champs Spo rts. Additio nally...

  • Page 3
    G ROWING O UR G LOBAL PRESENCE At h le t ic St o re s Sa le s Pe r Av e ra g e Gro s s Sq ua re Fo o t ( do llars) I n c o me f ro m Co n t i n u i n g Op e ra t io n s ( millio ns) 00 01 02 00 ...

  • Page 4
    .... To wards these ends, we have implemented several strateg ic initiatives, inc luding develo ping private- label merc handise o ffering s, c reating a multi- dimensio nal real estate pro g ram, launc hing an integ rated Internet c hannel, refining o ur infrastruc ture to be mo re c o st- effic ient...

  • Page 5
    ..., to $1. 10 pe r share c o mpare d with $0. 77 pe r share last ye ar. o pe ne d 57 sto re s in 2002, e nding the ye ar with 377 to tal sto re s. Our ne w Fo o t Lo c ke r and Champs Spo rts sto re s at Time s Square in Ne w Yo rk City we re two o f o ur mo st exc iting pro je...

  • Page 6
    ... r Lady Fo o t Lo c ker Kids Fo o t Lo c ker Fo o t Lo c ker Internatio nal Champs Spo rts To tal 2002 1, 472 632 391 521 574 3, 590 Opened 63 1 1 66 26 157 Clo sed 58 27 15 4 18 122 Remo deled/ Relo c ated 81 30 8 39 47 205 February 1, 2003 1, 477 606 377 583 582 3, 625 Average Size 4, 100...

  • Page 7
    ... undatio n ho ste d its se c o nd annual " On Our Fe e t" fund- raising be ne fit with mo re than 1, 000 me mbe rs o f the spo rting c o mmunity rallying to ge the r and raising funds fo r the be ne fit o f wo rthy c ause s suc h as the Unite d Way o f Ne w Yo rk City. Our Co mpany is...

  • Page 8
    ... O VERVIEW Pri ma ry Cu s t o me r Me rc h a n d i s e Mi x # o f St o re s Av e ra g e St o re Si z e Men's, Wo men's and Children's 12 to 20 Year Old Athletic Fo o twear Men's Athletic Apparel and Ac c esso ries 1, 477 4, 100 Gro ss Square Feet 14 to 29 Year Old Female Wo men's Athletic Fo...

  • Page 9
    ...'s exc iting ne w sto re g ro wth plans fo r the next se ve ral ye ars. The Co mpany c urre ntly o pe rate s 620 Fo o t Lo c ke r and Champs Spo rts sto re s o utside the Unite d State s, with 377 in Euro pe, 168 in Canada and 75 in Australia. Last ye ar, appro ximate ly 19...

  • Page 10
    ... c usto mer base and being less dependent o n any o ne ec o no my o r sec to r. Several years after the initiatio n o f the Fo o t Lo c ker sto re c o nc ept, the Co mpany launc hed its Lady Fo o t Lo c ker and Kids Fo o t Lo c ker businesses. Eac h business was fo unded and develo ped to appeal to...

  • Page 11
    9

  • Page 12
    10

  • Page 13
    ..., primarily lo c ated in majo r sho pping malls. Its sto res average 2, 200 g ro ss square feet with a fo c used selec tio n o f branded athletic fo o twear and selec t branded and private- label athletic apparel. Its c o re c usto mer is a 14- to - 29 year o ld wo man, who is fashio nminded, ac...

  • Page 14
    ... ug ho ut the year as the Co mpany c o ntinued to pro vide its c usto mers with an appro priate mix o f fashio n and tec hnic al athletic fo o twear and apparel. The business is managed fro m the Netherlands, inco rpo rating a shared service appro ach, including its headquarters o ffice and 250,000...

  • Page 15
    13

  • Page 16
    ... These pro g rams inc lude Fo o t Lo c ker, Inc. brand- spec ific events as well as tho se that are c o - spo nso red by the Co mpany's mo st- impo rtant suppliers. In additio n, stro ng strateg ic partnerships and allianc es have been fo rged with several pro fessio nal spo rts leag ues. Fo r o ver...

  • Page 17
    15

  • Page 18
    ...inc rease its existing Direc tto - Custo mers business thro ug h internally develo ped initiatives. During 2002, " Final- Sc o re" was launc hed via c atalo g s and a new website to expand market penetratio n and c apitalize o n the trend to wards mo re value- based pro duc ts. The investment in pro...

  • Page 19
    ...Management's Disc ussio n and Analysis o f Financ ial Co nditio n and Results o f Operatio ns 29 29 30 30 31 32 33 34 52 IBC IBC IBC Management's... lidated Financ ial Statements Five Year- Summary o f Selec ted Financ ial Data Bo ard o f Direc to rs Co rpo rate Offic ers Co rpo rate Info rmatio n ...

  • Page 20
    ... pensio n c o sts resulted fro m the dec line in plan asset values and the expec ted lo ng - term rate o f return used to determine the expense. These inc reases were partially o ffset by $29 millio n in the reduc tio n in SG&A expenses related to the dispo sitio ns o f The San Franc isc o Music Bo...

  • Page 21
    ..., SG&A also included $4 millio n o f inco me related to the Co mpany's pensio n plan, as the expected return o n the plan assets exceeded the co st to pro vide benefits. SG&A also included an asset impairment charge o f $2 millio n in 2001 fo r the Lady Fo o t Lo cker fo rmat. There were no material...

  • Page 22
    ... allo wance fo r deferred tax assets related to a multistate tax planning strategy and subsequently, during the year, reco rded an additio nal $2 millio n tax benefit related to this strategy. During the seco nd quarter o f 2002, the Co mpany reco rded a $2 millio n tax benefit related to a reductio...

  • Page 23
    ... c o re businesses. The restruc turing plan also inc luded an ac c elerated sto re- c lo sing pro g ram in No rth Americ a and Asia, c o rpo rate headc o unt reduc tio n and a distributio n c enter shutdo wn. Thro ugho ut 2000, the dispo sitio n o f Randy River Canada, Fo o t Lo cker Outlets, Co lo...

  • Page 24
    ... the third quarter o f 2002. Lo wer mall traffic resulted in disappo inting sales during the fo urth quarter o f 2002. Sales, ho wever, co ntinued to benefit fro m the apparel strategy led by merchandise in private label and licensed o fferings. Sales fro m the Lady Fo o t Lo cker and Kids Fo o t Lo...

  • Page 25
    ...o t Lo cker U.S., Australia and Canada co ntributed so lid increases. High-end basketball sho es co ntinued to drive the stro ng fo o twear sales perfo rmance as the number of launches of marquee and exclusive fo o twear pro ducts co ntributed to incremental sales during the year. Apparel sales also...

  • Page 26
    ...Aftertho ug hts, The San Franc isc o Music Bo x Co mpany, Burger King and Po peye's franc hises, Randy River Canada, Weekend Editio n and Garden Centers. ( in millio ns) Any materially adverse reac tio n to c usto mer demand, fashio n trends, c o mpetitive market fo rc es, unc ertainties related to...

  • Page 27
    ... additio nal minimum liability fo r the Co mpany's pensio n plans. The additio nal minimum liability was required as a result o f the plan's neg ative return o n assets in 2002, c o upled with a dec rease in the disc o unt rate used to value the benefit o blig atio ns. The fo llo wing represents the...

  • Page 28
    ... n and po stretirement liabilities based upo n assumptio ns related to disco unt rates, expected lo ng- term rates o f return o n invested plan assets, salary increases, age, mo rtality and health care co st trends, amo ng o thers. Management reviews all assumptio ns annually with its independent

  • Page 29
    ... an entity rather than a segment o f a business. The pro no uncement no w pro vides fo r a single acco unting mo del fo r repo rting lo ng- lived assets to be dispo sed o f by sale. The Co mpany ado pted SFAS No . 144 in 2002, and as required, prio r year balance sheet amo unts have been co nfo rmed...

  • Page 30
    ... as a result o f new info rmatio n, future events o r o therwise. New Account ing Pronouncement s In June 2001, the FASB issued SFAS No . 143, "Acco unting fo r Asset Retirement Obligatio ns" ( " SFAS No . 143" ) , which is effective fo r fiscal years beginning after June 15, 2002. The Co mpany...

  • Page 31
    ...Inc.'s management. Our respo nsibility is to express an o pinio n o n these c o nso lidated financ ial statements based o n o ur audits. We c o nduc ted o ur audits in ac c o rdanc e with auditing standards generally ac c epted in the United States o f Americ a. Tho se standards require that we plan...

  • Page 32
    ... sts and Expenses Co st o f sales Selling , general and administrative expenses Deprec iatio n and amo rtizatio n Restruc turing c harges ( inc o me) Interest expense, net Other inc o me Inc o me fro m c o ntinuing o peratio ns befo re inc o me taxes Inc o me tax expense Inc o me fro m c o ntinuing...

  • Page 33
    ... Merc handise invento ries Assets o f disc o ntinued o peratio ns Other c urrent assets $ 357 835 2 90 1 ,2 8 4 636 240 136 80 - 110 $ 215 793 5 102 1, 115 637 238 135 56 30 89 Propert y and equipment , net Def erred t axes Goodwill I nt angible asset s, net Asset s of business t ransf erred...

  • Page 34
    ... under sto c k o ptio n and award plans Fo rfeitures o f restric ted sto c k Amo rtizatio n o f sto c k issued under restric ted sto c k o ptio n plans Issued under direc to r and emplo yee sto c k plans, net o f related tax benefit Issued at end o f year Co mmo n sto c k in treasury at beg inning...

  • Page 35
    ..., net o f tax Deprec iatio n and amo rtizatio n Impairment o f lo ng - lived assets Restric ted sto c k c o mpensatio n expense Tax benefit o n sto c k c o mpensatio n Gains o n sales o f real estate Gains o n sales o f assets and investments Deferred inc o me taxes Change in assets and liabilities...

  • Page 36
    ... 2, 2002, respectively. Fiscal 2000 ended February 3, 2001 and included 53 weeks. References to years in this annual repo rt relate to fiscal years rather than calendar years. Earnings Per Share Basic earning s per share is c o mputed as net earning s divided by the weig hted- average number...

  • Page 37
    ... mers business are valued at FIFO c o st. Transpo rtatio n, distributio n c enter and so urc ing c o sts are c apitalized in merc handise invento ries. Co st o f sales is c o mprised o f the c o st o f merc handise, o c c upanc y, buyers' c o mpensatio n and shipping and handling c o sts. The c o st...

  • Page 38
    ... per share amo unts) I ncome Taxes The Co mpany determines its deferred tax pro visio n under the liability metho d, whereby deferred tax assets and liabilities are rec o g nize d fo r the expe c te d tax c o nse que nc e s of te mpo rary tax rates. differenc es between the tax bases o f assets and...

  • Page 39
    ...to reduce the deferred tax assets related to the Canadian o peratio ns to an amo unt that is mo re likely than no t to be realized. In the first quarter o f 2001, the Co mpany reco rded a tax benefit o f $5 millio n as a result o f the implementatio n o f tax planning strategies related to the disco...

  • Page 40
    ..., the fair value o f the No te was reco rded as a gain o n dispo sal within disco ntinued o peratio ns. There was no tax expense reco rded related to this gain. The Co mpany will no lo nger present the assets and liabilities o f No rthern Canada as "Assets o f business transferred under co ntractual...

  • Page 41
    ...primarily reflecting real estate co sts mo re favo rable than o riginal estimates. In 1997, the Co mpany anno unced that it was exiting its Do mestic General Merchandise segment. In the seco nd quarter of 2002, the Co mpany reco rded a charge of $4 millio n befo re-tax, o r $2 millio n after-tax, fo...

  • Page 42
    ...c o nnec tio n with the dispo sitio n o f several o f its no n- c o re businesses, the Co mpany reduc ed sales suppo rt and c o rpo rate staff by o ver 30 perc ent, reduc ed divisio nal staff and c o nso lidated the management o f Kids Fo o t Lo c ker and Lady Fo o t Lo c ker into o ne o rg anizatio...

  • Page 43
    ... to the reserves is presented belo w: Non- Core Businesses ( in millio ns) 1999 Charge/ Balanc e ( Inc o me) 2000 Net Usage Balanc e Charge/ ( Inc o me) 2001 Net Usage Balanc e 2002 Charge/ ( I ncome) Net Usage Balance Real estate Asset impairment Severanc e & perso nnel Other dispo sitio...

  • Page 44
    ... 542 36 631 All Other Co rpo rate Assets o f business transferred under c o ntrac tual arrangement Disc o ntinued o peratio ns, net To tal Co mpany 26 69 $2, 278 $149 $154 $151 $150 $116 $94 $ 2 ,4 8 6 ( 4) Dec rease in 2002 deprec iatio n and amo rtizatio n primarily reflec ts the impac...

  • Page 45
    ... benefit o blig atio n exc eeded the fair market value o f plan assets, was o ffset by an intang ible asset to the extent o f previo usly unrec o g nized prio r servic e c o sts o f $2 millio n. Intangible assets subject to amo rtizatio n co mprise lease acquisitio n co sts, which are required...

  • Page 46
    ... at the time o f bo rro wing based o n variable rates and the Co mpany's fixed charge co verage ratio , as defined in the agreement. The rates range fro m LIBOR plus 2.125 percent to LIBOR plus 2.375 percent. Up- fro nt fees paid and direct co sts incurred to amend the agreement are amo rtized o ver...

  • Page 47
    ... luded in o ther assets and the c arrying value o f the 8. 50 perc ent debentures was inc reased by the c o rrespo nding amo unt. There were no interest rate swap ag reements in effec t at February 2, 2002. Fair Value of Financial I nst rument s The carrying value and estimated fair value o f lo ng...

  • Page 48
    ... ( in millio ns) Emplo yee benefits Reserve fo r disc o ntinued o peratio ns 2000 2002 2001 Repo sitio ning and restruc turing reserves Pro perty and equipment Allo wanc e fo r returns and do ubtful ac c o unts Straig ht- line rent Other To tal deferred tax assets Valuatio n allo wanc e Current...

  • Page 49
    ...and plan assets, funded status and amo unts rec o g nized in the Co nso lidated Balanc e Sheets: Po stretirement Pensio n Benefits ( in millio ns) Benefits 2002 2001 2002 2001 Change in benef it obligat ion Benefit o blig atio n at beg inning o f year Servic e c o st Interest c o st Plan partic...

  • Page 50
    ... o me) are: ( in millio ns) Pensio n Benefits Po stretirement Benefits 2000 2002 2001 2002 2001 2000 Servic e c o st Interest c o st Expec ted return o n plan assets Amo rtizatio n o f prio r servic e c o st Amo rtizatio n o f net ( g ain) lo ss Net benefit expense ( inc o me) $ 8 44 ( 50...

  • Page 51
    ... n mo dels do no t nec essarily pro vide a reliable measure o f the fair value o f its o ptio ns. The info rmatio n set fo rth in the fo llo wing table c o vers o ptio ns g ranted under the Co mpany's sto c k o ptio n plans: 2002 Weight edNumber of ( in tho usands, exc ept pric es per share) 2001...

  • Page 52
    ... Plan. These awards fully vest after the passage o f a restric tio n perio d, generally three to five years. There were 90, 000, 420, 000, and 100, 000 restric ted shares o f c o mmo n sto c k g ranted in 2002, 2001 and 2000, respec tively. The market values o f the shares at the date o f g rant amo...

  • Page 53
    ...Result s ( Unaudit ed) ( in millio ns, exc ept per share amo unts) 1st Q 2nd Q 3rd Q 4th Q Year Sales 2002 2001 $1, 090 $1, 072 320 326 64 57 38 ( h) 32 20 ( h) 37 1, 085 1, 048 312 306 55 9 33 4 31 ( 14) 1, 120 1, 104 343 327 72 ( e) 59 ...

  • Page 54
    ...Financial Rat ios Return o n equity ( ROE) Inc o me fro m c o ntinuing o peratio ns as a perc entage o f sales Net debt c apitalizatio n perc ent Net debt c apitalizatio n perc ent ( witho ut present value o f o perating leases) ( 3) Current ratio Capital Expenditures Number o f sto res at year end...

  • Page 55
    ...o m) 6 Member o f Financ e and Strateg ic Planning Co mmittee Printer: EarthCo lo r, USA Fo o t Lo c ker, Inc. , Fo o t Lo c ker, Lady Fo o t Lo c ker, Kids Fo o t Lo c ker, Champs Spo rts, fo o tlo c ker. c o m, Eastbay, Co lo rado , Go ing to the Game! , Weekend Editio n, and Team Editio n servic...

  • Page 56
    FOOT LOCKER, INC. 112 West 34th Street Ne w Yo rk, NY 10120 FOOT LOCKER, INC. 2 0 0 2 An n ua l Re p o rt