Foot Locker 2002 Annual Report Download - page 37

35
Co mpensatio n” (“SFAS No . 123” ) . In accordance with APB No . 25,
co mpensatio n expense is no t rec o rded fo r o ptio ns granted if the
o ptio n price is no t less than the quoted market price at the date o f
grant. Co mpensatio n expense is also no t reco rded for employee pur-
chases of sto ck under the 1994 Sto ck Purchase Plan. The plan,
which is co mpensato ry as defined in SFAS No . 123, is no n- co mpen-
sato ry as defined in APB No . 25. SFAS No . 123 requires disclo sure
of the impact o n earning s per share if the fair value metho d o f
acco unting fo r sto ck-based co mpensatio n is applied fo r co mpanies
electing to co ntinue to acco unt fo r sto ck-based plans under APB
No . 25.
SFAS No . 148, “Accounting fo r Stock-Based Co mpensatio n –
Transitio n and Disclosure an amendment of FASB Statement No .
123,” whic h was issued in Dec ember 2002, pro vides alternative
metho ds o f transitio n for an entity that changes to the fair value
based metho d o f acco unting fo r sto ck-based co mpensatio n and
requires more pro minent disclo sure of the pro fo rma impact o n earn-
ing s per share. Such disclo sures are no w required quarterly fo r
interim perio ds beg inning in 2003. Acc o unting fo r the Co mpany’s
sto ck-based co mpensatio n during the three- year perio d ended
February 1, 2003, in accordance with the fair value metho d pro vi-
sio ns of SFAS No . 123 wo uld have resulted in the follo wing:
( in millio ns, exc ept per share amo unts) 2002 2001 2000
Net inc ome ( lo ss) :
As repo rted $ 153 $ 92 $ ( 24 0)
Co mpensatio n expense included in
repo rted net inco me ( lo ss) , net of
inco me tax benefit 111
To tal co mpensation expense under
fair value metho d fo r all awards,
ne t of inco me tax benefit ( 6) ( 7) ( 4 )
Pro fo rma $ 148 $ 8 6 $ ( 24 3)
Basic earnings per share:
As repo rted $ 1 .09 $0.66 $(1.74)
Pro fo rma $1.05 $0.62 $(1.76)
Diluted earnings per share:
As repo rted $ 1 .05 $0.64 $(1.73)
Pro fo rma $1.02 $0.61 $(1.75)
Cash and Cash Equivalent s
The Co mpany c o nsiders all highly liquid investments with origi-
nal maturities of three mo nths o r less to be c ash equivalents.
Merchandi se I nvent ori es and Cost of Sales
Merchandise invento ries fo r the Co mpany’s Athletic Stores are
valued at the lo wer o f co st o r market using the retail invento ry
metho d. Co st fo r retail sto res is determined o n the last-in, first-
o ut ( LIFO) basis fo r do mestic invento ries and o n the first- in,
first- o ut ( FIFO) basis fo r internatio nal invento ries. Merchandise
invento ries o f the Direct-to -Custo mers business are valued at
FIFO co st. Transpo rtatio n, distributio n center and so urc ing c o sts
are capitalized in merchandise invento ries.
Co st o f sales is comprised o f the co st o f merchandise, o cc u-
pancy, buyers’ co mpensatio n and shipping and handling co sts.
The co st o f merchandise is recorded net o f amo unts rec eived from
vendo rs fo r damaged pro duct returns, markdo wn allo wanc es and
volume rebates.
Property and Equipment
Pro perty and equipment are recorded at c o st, less accumulated
depreciatio n and amo rtizatio n. Significant additions and impro ve-
ments to pro perty and equipment are capitalized. Maintenance and
repairs are c harged to current o peratio ns as inc urred. Majo r renewals
o r replac ements that substantially extend the useful life of an asset
are capitalized and depreciated. Owned pro perty and equipment is
depreciated on a straight- line basis over the estimated useful lives
of the assets: 25 to 45 years fo r buildings and 3 to 10 years fo r fur-
niture, fixtures and equipment. Pro perty and equipment under c api-
tal leases and impro vements to leased premises are generally
amo rtized o n a straight-line basis o ver the shorter o f the estimated
useful life o f the asset o r the remaining lease term. Capitalized soft-
ware reflec ts certain co sts related to software develo ped fo r internal
use that are capitalized and amo rtized, after substantial co mpletio n
of the project, o n a straight-line basis o ver perio ds no t exceeding 8
years. Capitalized software, net o f ac cumulated amo rtizatio n, is
inc luded in pro perty and equipment and was $62.7 millio n at
February 1, 2003 and $68.8 million at February 2, 2002.
Effective as o f the beginning o f 2003, the Co mpany will ado pt
SFAS No . 143, “Accounting fo r Asset Retirement Obligatio ns.” The
statement requires that the fair value o f a liability fo r an asset
retirement o bligatio n be recognized in the perio d in whic h it is
inc urred if a reasonable estimate c an be made. The carrying
amo unt of the related lo ng-lived asset shall be increased by the
same amount as the liability and that amount will be depreciated
o r amo rtized c o nsistent with the underlying lo ng-lived asset. The
difference between the fair value and the value o f the ultimate
liability will be ac creted o ver time using the c redit-adjusted risk-
free interest rate in effect when the liability is initially reco g -
nized. Asset retirement o bligatio ns of the Co mpany may include
structural alteratio ns to sto re lo catio ns and equipment remo val
co sts fro m distributio n centers required by certain leases. The
Co mpany does no t expect the ado ption of SFAS No . 143 to have
a significant impact o n its financ ial po sitio n or results of o pera-
tio ns.
Recoverability of Long-Lived Asset s
Effective as o f the beginning o f 2002, the Co mpany ado pted SFAS
No . 144, “Acco unting fo r the Impairment or Dispo sal of Lo ng- Lived
Assets” ( “ SFAS No . 144” ), whic h superseded SFAS No . 121. In
acco rdance with SFAS No . 144, an impairment lo ss is rec o gnized
whenever events o r changes in circumstances indicate that the car-
rying amo unts of long-lived tangible and intang ible assets with
finite lives may no t be recoverable. Assets are gro uped and evalu-
ated at the lo west level fo r which there are identifiable cash flo ws
that are largely independent o f the cash flo ws o f other groups o f
assets. The Co mpany has identified this lo west level to be princi-
pally individual sto res. The Co mpany co nsiders histo rical perform-
anc e and future estimated results in its evaluatio n o f po tential
impairment and then co mpares the carrying amo unt of the asset
with the estimated future cash flo ws expected to result fro m the
use of the asset. If the carrying amo unt of the asset exc eeds esti-
mated expec ted undisco unted future cash flo ws, the Co mpany
measures the amo unt o f the impairment by c o mparing the carrying