Foot Locker 2004 Annual Report Download - page 48

and $4 million in 2002. There was no change to net income for the years presented. The effect on the Consolidated
Statements of Cash Flows was not significant for the years ended January 31, 2004 and February 1, 2003 and therefore
have not been reclassified.
Recent Accounting Pronouncements Not Previously Discussed Herein
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB 43, Chapter 4.” This
Statement amends the guidance to clarify that abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges. In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversions be based on the normal capacity of the production
facilities. The Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.
Management does not believe that the effect of the adoption of this Statement will have a material effect on its financial
position and results of operations.
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — an amendment of APB
Opinion No. 29, Accounting for Nonmonetary Transactions.” This Statement requires that exchanges should be recorded
and measured at the fair value of the assets exchanged, with certain exceptions. The Statement is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Management does not believe
that the adoption of this Statement will have a material effect on its financial position and results of operations as the
Company does not currently have any exchanges of nonmonetary assets.
2 Acquisitions
Footaction
The Company consummated its purchase of 349 Footaction stores from Footstar, Inc. on May 7, 2004. Footstar, Inc.
filed for Chapter 11 bankruptcy protection on March 2, 2004; consequently, the disposition of its Footaction stores was
conducted under a Bankruptcy Code Section 363 sale process. The U.S. Bankruptcy Court approved the sale on April 21,
2004 and the waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired on May 4,
2004. The agreement to acquire the Footaction stores was in line with the Company’s strategic priorities, including the
acquisition of compatible athletic footwear and apparel retail companies. The Company’s consolidated results of
operations include those of Footaction beginning with the date that the acquisition was consummated.
The Company integrated the Footaction business into the Athletic Stores segment and is operating the majority of
the stores under the Footaction name. The purchase price of $222 million was increased for direct costs related to the
acquisition totaling $4 million. Direct costs include investment banking, legal and accounting fees and other costs. The
Company has allocated the purchase price of approximately $226 million based, in part, upon internal estimates of cash
flows, recoverability and independent appraisals, and may be revised as more definitive facts and evidence become
available. Pro forma effects of the acquisition have not been presented, as their effects were not significant to the
consolidated results of operations. The allocation of the purchase price is detailed below:
(in millions)
Inventory ................................................................................. $ 39
Property and equipment .................................................................. 45
Intangible assets — amortizing .......................................................... 29
Goodwill .................................................................................. 122
Total assets ............................................................................ 235
Accounts payable and accrued liabilities
(1)
............................................... 5
Other liabilities
(2)
........................................................................ 4
Total liabilities ........................................................................... 9
Total purchase price .................................................................... $226
(1) “Accounts payable and accrued liabilities” include approximately $3 million for anticipated payments to landlords to cancel two of the acquired
leases. Also included is approximately $1 million of liabilities related to gift cards assumed. The remaining $1 million relates to transfer taxes
and real estate charges assumed from Footstar, Inc. as part of the acquisition.
(2) “Other liabilities” includes $4 million of liabilities assumed for leased locations with rents above their fair value.
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