Foot Locker 2005 Annual Report Download

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FOOT LOCKER, INC.
FOCUSING ON GLOBAL GROWTH
2005 Annual Report
2002
2003
2004
2005
2002
2003
2004
2005
$1.10
2001 $0.77
$1.40
$1.64
$1.67
$4.5B
$4.8B
2001 $4.4B
$5.4B
$5.7B
EPS
SALES

Table of contents

  • Page 1
    SA LE S 20 01 20 $4.4 02 B $ 20 4.5B 03 20 $4.8 B 04 EP S $5 .7B 20 05 $5 .4B 20 01 $0 .77 2005 Annual Report 20 02 FOCUSING ON GLOBAL GROWTH $1 .10 20 03 $1 20 .40 04 20 05 $1 .67 FOOT LOCKER, INC. $1 .64

  • Page 2
    ... in North America, Europe and Australia under the brand names Foot Locker, Footaction, Lady Foot Locker, Kids Foot Locker and Champs Sports. Additionally, the Company's Footlocker.com/Eastbay business operates a rapidly growing direct-to-customers business offering athletic footwear, apparel and...

  • Page 3
    Athletic Stores Sales Per Average Gross Square Foot (dollars) $361 $345 $335 $316 05 04 03 02 01 400 $306 Operating Profit (millions) $409 $389 05 300 $342 $269 $197 04 03 02 01 Income from Continuing Operations (millions) $209 $162 $111 $263 $255 05 04 03 ...

  • Page 4
    ... quality products at compelling and competitive prices. On a more positive note, we are pleased with the solid sales and profit gains posted by our combined North American retail store business and directto-customers operations. Our Champs Sports and recently-acquired Footaction businesses were...

  • Page 5
    ... November 2005, the Board of Directors increased the cash dividend on Foot Locker, Inc.'s common stock by 20 percent, to an annualized amount of $0.36 per share, reflecting confidence in the ability of management to continue to increase the Company's profitability. During the second quarter of 2005...

  • Page 6
    ... 2006, we plan to expand our reach through our direct-to-customers channels by developing a new Internet website and catalog selling men's and women's leather dress shoes. Home Court Advantages Today, Foot Locker, Inc. maintains a leadership position in the worldwide specialty athletic footwear and...

  • Page 7
    ... Stores 80 Australian Stores 14 New Zealand Stores 70 Puerto Rico Stores 9 Virgin Islands Stores Primary Customer Merchandise Mix # of Stores Average Store Size 12 to 20 Year Old Men's, Women's and Children's Athletic Footwear Men's Athletic Apparel and Accessories Men's, Women's and Children...

  • Page 8
    .... Its stores average 3,600 gross square feet and target a 12to-20 year old male customer base that is influenced by competitive sports and urban trends. In the North American market, Foot Locker is actively implementing several strategies with a goal of driving comparable-store sales growth and...

  • Page 9
    7

  • Page 10
    In terms of number of stores, annual sales volume and, most importantly, profitability, Champs Sports is the Company's second largest division in North America. Champs Sports stores are primarily mall-based and offer for sale athletic footwear, apparel and equipment through a total of 556 specialty ...

  • Page 11
    ... of the Company's customer base. Footaction stores, which average 4,700 gross square feet, are conveniently located to their primary customers and are properly sized to allow an attractive display of a broad array of product choices. During 2005, a key focus of the management team of Footaction was...

  • Page 12
    ...currently operates 327 stores in the United States that average 2,400 gross square feet. During the past three years, the Company has significantly increased the profitability of Kids Foot Locker through the implementation of several key strategies, including closing underperforming stores. In 2005...

  • Page 13
    ... customer base by selling athletic footwear, apparel and equipment through a well-managed catalog operation. During the past several years, the business has expanded rapidly, primarily by developing E-commerce websites capitalizing on the Company's highly-recognizable brand names. Another strategy...

  • Page 14
    ... Since its inception, Foot Locker Foundation, Inc. has hosted its annual "On Our Feet" fundraising event to benefit various charitable organizations such as the United Negro College Fund, the United Way of New York City and Reading Is Fundamental. 2005 was a year in which Foot Locker, Inc. furthered...

  • Page 15
    ... West 34th Street, New York, New York (Address of principal executive offices) 10120 (Zip Code) Registrant's telephone number, including area code: (212) 720-3700 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock...

  • Page 16
    ... ...57 Directors and Executive Officers of the Company...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions ...Principal Accountant Fees and Services ...56 57 57 57 57 Market for...

  • Page 17
    ... 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company maintains a website on the Internet at www.footlocker-inc.com. The Company's filings with the Securities and Exchange Commission, including its annual reports on Form 10-K, quarterly reports on...

  • Page 18
    ... by reference ("Annual Report") that are not historical facts, including, but not limited to, statements regarding our expected financial position, business and financing plans found in "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of...

  • Page 19
    ... of Nike to develop and manufacture products that appeal to our target customers could also have an adverse effect on our business, financial condition and results of operations. We cannot assure you that we will be able to acquire merchandise at competitive prices or on competitive terms in the...

  • Page 20
    ...the Athletic Stores segment at the end of 2005 was approximately 14.48 and 8.71 million square feet, respectively. These properties are primarily located in the United States, Canada, various European countries, Australia and New Zealand. The Company currently operates three distribution centers, of...

  • Page 21
    ...below: Chairman of the Board, President and Chief Executive Officer President and Chief Executive Officer, Foot Locker, Inc. - U.S.A. Senior Vice President, General Counsel and Secretary Senior Vice President - Real Estate Senior Vice President and Chief Information Officer Senior Vice President and...

  • Page 22
    ... has aided the Company's ability to successfully develop and increase its portfolio of complementary retail store formats, specifically, Lady Foot Locker and Kids Foot Locker, as well as Footlocker.com, Inc., its direct-to-customers business. Through various marketing channels, including television...

  • Page 23
    ... children. Its 327 stores are located in the United States, Puerto Rico, and the United States Virgin Islands and have an average of 1,400 selling square feet. Store Profile At January 29, 2005 Opened Closed At January 28, 2006 Foot Locker ...Champs Sports ...Footaction ...Lady Foot Locker...Kids...

  • Page 24
    ... of the Footaction chain, offset, in part, by a decrease in the cost of merchandise. The effect of vendor allowances on gross margin, as a percentage of sales, as compared with the corresponding prior year period was not significant. Division Profit The Company evaluates performance based on several...

  • Page 25
    ... related to the Company's corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, certain depreciation and amortization expenses and other items. The decrease in corporate expense of $16 million in 2005...

  • Page 26
    ... related to cash equivalents and short-term investments was $5 million in 2004 and 2003. Income Taxes The effective tax rate for 2005 was 35.0 percent as compared with 31.7 percent in the prior year. The increase was attributable to less benefit from non-recurring items than in 2004 and a higher...

  • Page 27
    ... these factors, in 2005 Foot Locker Europe achieved a double-digit division profit margin. Management is currently implementing various merchandising and management initiatives identified during the third and fourth quarters of 2005, in order to address both the internal and external factors that...

  • Page 28
    ...2004. Lady Foot Locker benefited from its modified merchandise assortment. For the year ended January 29, 2005, the Footaction format negatively affected division profit. This was primarily the result of a lower gross margin rate as compared with the Athletic Stores segment largely related to higher...

  • Page 29
    ...materially adverse change in customer demand, fashion trends, competitive market forces or customer acceptance of the Company's merchandise mix and retail locations, uncertainties related to the effect of competitive products and pricing, the Company's reliance on a few key vendors for a significant...

  • Page 30
    ... that its Board of Directors authorized a new $150 million, 3-year share repurchase program. Under the share repurchase program, subject to legal and contractual restrictions, the Company may make purchases of its common stock, from time to time, depending on market conditions, availability of...

  • Page 31
    ... the euro in relation to the U.S. dollar. The Company declared and paid dividends totaling $49 million during 2005. The Company repurchased approximately 1.6 million shares for $35 million during the year. During 2005, the Company reduced its minimum liability for the Company's pension plans by $15...

  • Page 32
    ... is sold and they contributed 10 basis points to the 2005 gross margin rate. The Company receives support from some of its vendors in the form of reimbursements for cooperative advertising and catalog costs for the launch and promotion of certain products. The reimbursements are agreed upon with...

  • Page 33
    ... related to discount rates, expected long-term rates of return on invested plan assets, salary increases, age and mortality among others. Management reviews all assumptions annually with its independent actuaries, taking into consideration existing and future economic conditions and the Company...

  • Page 34
    ... in the Company's filings with the Securities and Exchange Commission, including the effects of currency fluctuations, customer demand, fashion trends, competitive market forces, uncertainties related to the effect of competitive products and pricing, customer acceptance of the Company's merchandise...

  • Page 35
    ... ability of the Company to execute its business plans effectively with regard to each of its business units, risks associated with foreign global sourcing, including political instability, changes in import regulations, and disruptions to transportation services and distribution. Any changes in such...

  • Page 36
    ... public accounting firm, whose report expresses their opinion with respect to the fairness of the presentation of these statements. The Audit Committee of the Board of Directors, which comprises solely independent non-management directors who are not officers or employees of the Company, meets...

  • Page 37
    ... appears in this Annual Report on Form 10-K under the heading, Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting. MATTHEW D. SERRA, Chairman of the Board, President and Chief Executive Officer March 27, 2006 ROBERT W. MCHUGH, Senior Vice President...

  • Page 38
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Foot Locker, Inc. We have audited the accompanying consolidated balance sheets of Foot Locker, Inc. and subsidiaries as of January 28, 2006 and January 29, 2005, and the related consolidated statements...

  • Page 39
    ... of Foot Locker, Inc. and subsidiaries as of January 28, 2006 and January 29, 2005, and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended January 28, 2006, and our report dated March...

  • Page 40
    CONSOLIDATED STATEMENTS OF OPERATIONS 2005 2004 (in millions, except per share amounts) 2003 Sales ...Costs and expenses Cost of sales ...... benefit of $3, $37, and $4, respectively ...Cumulative effect of accounting change, net of income tax benefit of $ - ...Net income ...Basic earnings per share:...

  • Page 41
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 2005 2004 (in millions) 2003 Net income ...Other comprehensive income, net of tax Foreign currency translation adjustment: Translation adjustment arising during the period ...Cash flow hedges: Change in fair value of derivatives, net of income tax ......

  • Page 42
    CONSOLIDATED BALANCE SHEETS 2005 (in millions) 2004 ASSETS Current assets Cash and cash equivalents ...Short-term investments ...Total cash, cash equivalents and short-term investments ...Merchandise inventories ...Other current assets ...Property and equipment, net ...Deferred taxes ...Goodwill ...

  • Page 43
    ... STATEMENTS OF SHAREHOLDERS' EQUITY 2005 Shares Amount Shares 2004 Amount Shares (shares in thousands, amounts in millions) 2003 Amount Common Stock and Paid-In Capital Par value $0.01 per share, 500 million shares authorized Issued at beginning of year...Restricted stock issued under stock...

  • Page 44
    ... stock plans ...Purchase of treasury shares ...Net cash (used in) provided by financing activities of continuing operations ...Net Cash Provided by operating activities of Discontinued Operations (revised - note 1) ...Effect of Exchange Rate Fluctuations on Cash and Cash Equivalents ...Net Change...

  • Page 45
    ... gift cards are recorded as a current liability. Revenue from layaway sales is recognized when the customer receives the product, rather than when the initial deposit is paid. Statement of Cash Flows The Company has selected to present the operations of the discontinued business as one line in the...

  • Page 46
    ...for stock options and shares purchased under employee stock purchase plans. No compensation expense for employee stock options is reflected in net income, as all stock options granted under those plans had an exercise price not less than the quoted market price at the date of grant. The market value...

  • Page 47
    ... (FIFO) basis for international inventories. Merchandise inventories of the Direct-to-Customers business are valued at the lower of cost or market using weighted-average cost, which approximates FIFO. Transportation, distribution center and sourcing costs are capitalized in merchandise inventories...

  • Page 48
    ... arise and, at a minimum, annually. The Company performs its annual impairment review as of the beginning of each fiscal year. The fair value of each reporting unit evaluated as of the beginning of each year, determined using a combination of market and discounted cash flow approaches, exceeded the...

  • Page 49
    ... and Postretirement Obligations The discount rate selected to measure the present value of the Company's benefit obligations as of January 28, 2006 was derived using a cash flow matching method whereby the Company compares the plans' projected payment obligations by year with the corresponding yield...

  • Page 50
    ... originally intended to close at the acquisition date. Additionally, the Company resolved the remaining Footaction lease related matter and received $1 million return from the escrow account, thereby reducing goodwill. The effect of foreign exchange fluctuations for the fiscal year ended January 28...

  • Page 51
    ...has two reportable segments, Athletic Stores, which sells athletic footwear and apparel through its various retail stores, and Direct-to-Customers, which includes the Company's catalogs and Internet business. The accounting policies of both segments are the same as those described in the "Summary of...

  • Page 52
    ... foreign exchange rates on the reporting of euro dominated earnings. Depreciation and Amortization 2005 2004 2003 Capital Expenditures 2005 2004 2003 2005 (in millions) Total Assets 2004 2003 Athletic Stores ...Direct-to-Customers ...Corporate ...Discontinued operations ...Total Company ... $141...

  • Page 53
    ... and Wilma adversely affected the Company's third quarter and fourth quarter operations and resulted in the closure of approximately 400 of the Company's retail stores for varying periods of time. As of January 28, 2006, 25 of these stores remain closed. The Company expects to re-open up to 7 of the...

  • Page 54
    ... benefits ...Incentive bonuses ...Other payroll and payroll related costs, excluding taxes ...Taxes other than income taxes ...Property and equipment ...Gift cards and certificates ...Income taxes payable ...Fair value of derivative contracts ...Current deferred tax liabilities ...Sales return...

  • Page 55
    ... the total amount retired to date to $27 million. In May 2004, the Company obtained a 5-year, $175 million amortizing term loan from the bank group participating in its existing revolving credit facility to finance a portion of the purchase price of the Footaction stores. The interest rate on the...

  • Page 56
    ... rent payments based on a percentage of store sales. Rent expense includes real estate taxes, insurance, maintenance, and other costs as required by some of the Company's leases. The present value of operating leases is discounted using various interest rates ranging from 4 percent to 13 percent...

  • Page 57
    ... it was exiting its 694-store Northern Group segment. During the second quarter of 2001, the Company completed the liquidation of the 324 stores in the United States. On September 28, 2001, the Company completed the stock transfer of the 370 Northern Group stores in Canada, through one of its wholly...

  • Page 58
    .... During 2005, the Company recorded a charge of $2 million to revise estimates on its lease liability for one store in the International General Merchandise segment. During 2004, the Company recorded income of $1 million, after-tax, related to a refund of Canadian customs duties related to certain...

  • Page 59
    ...sell or liquidate eight non-core businesses. The restructuring plan also included an accelerated store-closing program in North America and Asia, corporate headcount reduction and a distribution center shutdown. The dispositions of Randy River Canada, Foot Locker Outlets, Colorado, Going to the Game...

  • Page 60
    ..., net of federal tax benefit ...International income taxed at varying rates ...Foreign tax credit utilization ...Increase (decrease) in valuation allowance ...Federal/foreign tax settlements ...State and local tax settlements ...Tax exempt obligations ...Work opportunity tax credit ...Other, net...

  • Page 61
    ... in filing its income tax returns than for income tax financial reporting. The Company regularly assesses its tax position for such transactions and records reserves for those differences. The Company's U.S. Federal income tax filings have been examined by the Internal Revenue Service (the...

  • Page 62
    ...was insignificant at both January 28, 2006 and January 29, 2005. Foreign Exchange Risk Management - Derivative Holdings Designated as Non-Hedges The Company mitigates the effect of fluctuating foreign exchange rates on the reporting of foreign currency denominated earnings by entering into a variety...

  • Page 63
    ... cash flows and related weighted-average interest rates by maturity dates, including the effect of the interest rate swaps outstanding at January 28, 2006, of the Company's long-term debt obligations. 2006 2007 2008 2009 2010 Thereafter ($ in millions) Jan. 28, 2006 Total Jan. 29, 2005 Total...

  • Page 64
    ... is highly competitive. Price, quality and selection of merchandise, reputation, store location, advertising and customer service are important competitive factors in the Company's business. The Company operates in 20 countries and purchased approximately 75 percent of its merchandise in 2005 from...

  • Page 65
    ...to current service, if the benefit provided is at least actuarially equivalent to Medicare Part D. During 2005, the Company reviewed its retiree health care benefit plans in light of the final regulations for implementing Medicare Part D by the Centers for Medicare and Medicaid Services. The Company...

  • Page 66
    ... shares of Foot Locker, Inc. common stock as of January 28, 2006 and January 29, 2005. Currently, the target composition of the weighted-average plan assets is 64 percent equity and 36 percent fixed income securities, although the Company may alter the targets from time to time depending on market...

  • Page 67
    ... their annual compensation to acquire shares of common stock at 85 percent of the lower market price on one of two specified dates in each plan year. Of the 3,000,000 shares of common stock authorized for purchase under this plan, 1,191 participating employees purchased 237,353 shares in 2005. Under...

  • Page 68
    ...granted under the Company's stock option plans: 2005 Number of Shares WeightedAverage Exercise Price Number of Shares 2004 WeightedAverage Exercise Price Number of Shares 2003 WeightedAverage Exercise Price (in thousands, except prices per share) Options outstanding at beginning of year ...Granted...

  • Page 69
    ...financial partnerships, including variable interest entities. 25 Shareholder Information and Market Prices (Unaudited) Foot Locker, Inc. common stock is listed on The New York Stock Exchange as well as on the bo ¨ erse-stuttgart stock exchange in Germany and the Elektronische Bo ¨ rse Schweiz (EBS...

  • Page 70
    ... Quarterly Results (Unaudited) 1st Q 2nd Q 3rd Q 4th Q Year (in millions, except per share amounts) Sales 2005 ...2004 ...Gross margin (a) 2005 ...2004 ...Operating profit (b) 2005 ...2004 ...Income from continuing operations 2005 ...2004 ...Net income 2005 ...2004 ...Basic earnings per share: 2005...

  • Page 71
    ... margin ...Income from continuing operations as a percentage of sales ...Net debt capitalization percent (5) ...Net debt capitalization percent (without present value of operating leases) (5) ...Current ratio ...Other Data Capital expenditures ...Number of stores at year end ...Total selling square...

  • Page 72
    ... material information required to be disclosed in this report. (b) Management's Annual Report on Internal Control over Financial Reporting. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined in Exchange...

  • Page 73
    ...reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information set forth in the Proxy Statement under the sections captioned "Equity Compensation Plan Information" and "Beneficial Ownership of the Company's Stock" is incorporated herein...

  • Page 74
    ... duly authorized. FOOT LOCKER, INC. By: Matthew D. Serra Chairman of the Board, President and Chief Executive Officer Date: March 27, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 27, 2006, by the following persons on behalf of...

  • Page 75
    ... Exhibit 4 to the Registrant's Form 8-K dated January 16, 1992). 1986 Foot Locker Stock Option Plan (incorporated herein by reference to Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for the year ended January 28, 1995, filed by the Registrant with the SEC on April 24, 1995 (the "1994...

  • Page 76
    ... 10(k) to the 8-B Registration Statement). Amendments to the Foot Locker Directors' Retirement Plan (incorporated herein by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the period ended October 28, 1995, filed by the Registrant with the SEC on December 11, 1995...

  • Page 77
    ... Current Report on Form 8-K dated February 16, 2005, filed by the Registrant with the SEC on February 18, 2005). Foot Locker 2003 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.2 to the August 2, 2003 Form 10-Q). Summary of Changes to Non-Employee Directors' Compensation...

  • Page 78
    ... Long-term Disability Program for Senior Executives (incorporated herein by reference to Exhibit 10.42 to the 2004 Form 10-K). Letter Agreement with Bruce L. Hartman (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed by the Registrant on December 28, 2005). Computation of Ratio...

  • Page 79
    ...31.2 32 Amendment to the Supplemental Executive Retirement Plan adopted November 16, 2005. Form of Nonstatutory Stock Option Award Agreement for Executive Officers. Form of Incentive Stock Option Award Agreement for Executive Officers. Computation of Ratio of Earnings to Fixed Charges. Subsidiaries...

  • Page 80
    ... FOOT LOCKER, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) ($ in millions) Fiscal Year Ended Jan. 31, 2004 Jan. 28, 2006 Jan. 29, 2005 Feb. 1, 2003 Feb. 2, 2002 NET EARNINGS Income from continuing operations ...Income tax expense ...Interest expense, excluding capitalized...

  • Page 81
    ...Name State or Other Jurisdiction of Incorporation Footlocker.com, Inc. Eastbay, Inc. FLE CV Management, Inc. FLE C.V. FLE Holdings, BV FL Europe Holdings, Inc. Foot Locker Austria GmbH Foot Locker Belgium B.V.B.A. Foot Locker Denmark ApS Foot Locker Europe B.V. Foot Locker France S.A.S. Foot Locker...

  • Page 82
    FOOT LOCKER, INC. SUBSIDIARIES(1) Name State or Other Jurisdiction of Incorporation Foot Locker Stores, Inc. Foot Locker Corporate Services, Inc. Robby's Sporting Goods, Inc. Foot Locker Holdings, Inc. Foot Locker Canada Corporation FL Canada Holdings, Inc. Foot Locker Sourcing, Inc. Foot Locker ...

  • Page 83
    ...of our reports dated March 27, 2006 relating to the consolidated balance sheets of Foot Locker, Inc. and subsidiaries as of January 28, 2006 and January 29, 2005 and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the years in...

  • Page 84
    ... D. Serra, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Foot Locker, Inc. (the "Registrant"); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the...

  • Page 85
    ... W. McHugh, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Foot Locker, Inc. (the "Registrant"); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the...

  • Page 86
    ... of 2002 In connection with the Annual Report on Form 10-K of Foot Locker, Inc. (the "Registrant") for the period ended January 28, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Matthew D. Serra as Chief Executive Officer of the Registrant and Robert...

  • Page 87
    ... Chief Executive Officer Lady Foot Locker Rubin L. Hanan President Foot Locker Canada Richard A. Johnson President and Chief Executive Officer Footlocker.com/Eastbay Lewis P. Kimble Managing Director Foot Locker Asia Pacific CORPORATE INFORMATION Corporate Headquarters 112 West 34th Street New York...

  • Page 88
    FOOT LOCKER, INC. 112 West 34th Street New York, NY 10120

  • Page 89
    NOTICE OF 2006 ANNUAL MEETING AND PROXY STATEMENT

  • Page 90
    ... 112 West 34th Street, New York, New York 10120 Shareholders of record on March 31, 2006 can vote at this meeting. Our 2005 annual report on Form 10-K, which is not part of the proxy soliciting material, is enclosed. • Elect four members to the Board of Directors to serve for three-year terms and...

  • Page 91
    ... the proxy statement and annual report on the Internet? ...Beneficial Ownership of the Company's Stock ...Directors and Executive Officers ...Persons Owning More Than Five Percent of the Company's Stock ...Section 16(a) Beneficial Ownership Reporting Compliance ...Corporate Governance Information...

  • Page 92
    ... Public Accountants Audit and Non-Audit Fees ...Audit Committee Pre-Approval Policies and Procedures ...Audit Committee Report ...Proposal 3-Reapproval of the Performance Goals of the Long-Term Incentive Compensation Plan ...Material Features of the Long-Term Plan ...Reapproval of Performance Goals...

  • Page 93
    ... 2005 Form 10-K without charge by writing to our Investor Relations Department at Foot Locker, Inc., 112 West 34th Street, New York, New York 10120. It is also available free of charge through our corporate web site at www.footlocker-inc.com. What is the record date for this meeting? The record date...

  • Page 94
    ...to vote on such matters in accordance with their best judgment. Who may vote at the Annual Meeting? The only voting securities of Foot Locker are our shares of Common Stock. Only shareholders of record on the books of the Company at the close of business on March 31, 2006 are entitled to vote at the...

  • Page 95
    ...recommended by the Board of Directors. • Voting on Other Matters If any other matters are properly presented at the annual meeting for consideration, the persons named in the proxy will have the discretion to vote on those matters for you. At the date this proxy statement went to press, we did not...

  • Page 96
    ... may call our transfer agent, The Bank of New York, at 1-866-857-2216, or write to the Corporate Secretary at Foot Locker, Inc., 112 West 34th Street, New York, New York 10120 if you would prefer to receive multiple copies of the Company's proxy statement and annual report. We will send additional...

  • Page 97
    ... who elected to defer all or part of their annual retainer fee under the 2002 Directors Stock Plan. These units are payable solely in shares of the Company's Common Stock following termination of service as a director. The deferred stock units do not have current voting or investment power. 50,520...

  • Page 98
    ... Act of 1934 requires that the Company's directors and executive officers file with the SEC and The New York Stock Exchange reports of ownership and changes in ownership of Common Stock and other equity securities of the Company. These persons are required by SEC rules to furnish us with copies...

  • Page 99
    ... established by The New York Stock Exchange. The Nominating and Corporate Governance Committee will review, on an annual basis, any relationships between outside directors and the Company that may affect independence. Currently, only one of the current 11 members of the Board of Directors serves as...

  • Page 100
    ... procedure for shareholders to send communications to the Board of Directors. Shareholders who wish to communicate directly with the outside directors of the Company should send a letter to: Board of Directors, c/o Secretary, Foot Locker, Inc., 112 West 34th Street, New York, NY 10120. The Secretary...

  • Page 101
    ... governance section of the Company's corporate website at www.footlocker-inc.com. BOARD OF DIRECTORS Organization and Powers The Board of Directors has responsibility for establishing broad corporate policies, reviewing significant developments affecting Foot Locker, and monitoring the general...

  • Page 102
    ...to Save the Children. • Mr. McKenna's position as an executive officer of PepsiCo, Inc. The Company has purchased soft drink products from PepsiCo within the last fiscal year totaling approximately $12,800. In addition, our direct-to-customers business expects to enter into an internet marketing...

  • Page 103
    ...rules of The New York Stock Exchange and the Securities Exchange Act of 1934. Finance and Strategic Planning Committee. The committee held three meetings in 2005. This committee (i) reviews the overall strategic and financial plans of the Company, including capital expenditure plans, (ii) considers...

  • Page 104
    ... United States retirement plans of the Company. Executive Committee. The committee did not meet in 2005. Except for certain matters reserved to the Board, this committee has all of the powers of the Board in the management of the business of the Company during intervals between Board meetings. 12

  • Page 105
    ...-term rate, compounded annually, and set as of the first day of each plan year. A stock unit is an accounting equivalent of one share of the Company's Common Stock. The amounts paid to each non-employee director for 2005, including amounts deferred under the Foot Locker 2002 Directors Stock Plan...

  • Page 106
    ... 105,500 * Served as a director until his death on April 7, 2005. ** Payment deferred under the Foot Locker 2002 Directors Stock Plan. 2005 Stock Option Grants to Non-Employee Directors Director Annual Stock Option Grant (# of Shares) Date of Grant Fair Market Value on Date of Grant $ J. C. Bacot...

  • Page 107
    .... The total annual premium for these policies, including fees, is $1,697,375. Directors and officers of the Company, as well as all other employees with fiduciary responsibilities under the Employee Retirement Income Security Act of 1974, as amended, are insured under policies issued by a group...

  • Page 108
    EXECUTIVE COMPENSATION Summary Compensation Table Annual Compensation Salary ($) Bonus ($) Long-Term Compensation Awards Payouts Securities Other Annual Restricted Underlying LTIP Compensation Stock Option/SARs Payouts ($)(b) ($)(c) (#) ($)(d) Name and Principal Position(a) Year All Other ...

  • Page 109
    ... stock, listed in the table below, having the values stated below, based upon a $22.39 closing price of the Company's Common Stock as reported on The New York Stock Exchange on January 27, 2006, the last business day prior to the end of the fiscal year. Name # of Shares of Restricted Stock Year...

  • Page 110
    The New York Stock Exchange on the individual grant dates by the total number of shares of restricted stock awarded on those dates. Name Date of Grant # of Shares Closing Price on Date of Grant Vesting Date Grant Date $ Value M. D. Serra ... 02/09/05 02/18/04 09/11/03 09/11/03 02/02/03 03/23/05 04/...

  • Page 111
    value of the Company's matching contribution under the 401(k) Plan made to the named executive's account in shares of Common Stock. The shares of Common Stock for the matching contributions for 2005, 2004, and 2003 were valued at $23.40, $26.93, and $23.45 per share, respectively. This column also ...

  • Page 112
    ...; a stock price volatility factor of 28 percent; a 3.8 year weighted-average expected award life and a 1.1 percent dividend yield. The assumptions and calculations used for the model are consistent with the assumptions for reporting stock option valuations used in the Company's 2005 Annual Report on...

  • Page 113
    ... (the average of the high and low prices of the Company's Common Stock) on Friday, January 27, 2006, the last business day of 2005, was $22.675. (b) The options exercised by Mr. Hartman during the 2005 fiscal year were exercised following the termination of his insider status with Foot Locker. 21

  • Page 114
    ... any person covered by the Retirement Plan whose annual retirement benefit, calculated in accordance with the terms of the Retirement Plan, exceeds the limitations of the Internal Revenue Code, the Company has adopted the Foot Locker Excess Cash Balance Plan (the "Excess Plan''). The Excess Plan is...

  • Page 115
    ... the Retirement Plan and the Excess Plan paid to him as a lump sum in connection with the termination of his employment in 2005. Mr. Hartman was not eligible to receive a benefit under the SERP. Table I. Projections at Normal Retirement Date Named Executive Officer Total Annual Benefit For Years...

  • Page 116
    ... date. He would also receive those benefits, if any, that the Company provides under its policies to employees whose employment is terminated for these reasons and any benefits required to be provided under the terms of any benefit or incentive plan. Termination Without Cause or for Good...

  • Page 117
    ... in effect on the effective date of their agreements, including the retirement plans, annual and long-term incentive compensation plans, and medical, dental and disability plans, as well as any other plans subsequently offered to senior executives of Foot Locker. • Payments and Benefits on...

  • Page 118
    ... annual bonus at target multiplied by the executive's years of service, with a minimum severance benefit of 52 weeks' salary. Change in Control. If the employment of any of the executives is terminated by him or her for Good Reason or by the Company without Cause within 24 months following a Change...

  • Page 119
    ... executive's base salary depending upon the Company's performance in relation to targets established by the Committee at the beginning of each plan year. In recent years, including 2005, these targets have been a combination of pre-tax income and return-oninvested-capital. These performance targets...

  • Page 120
    ...for the senior management of its business units. Except in the case of mid-year promotions or new hires, or other special circumstances, the Committee makes decisions on base salaries, incentive plan targets and awards, and stock awards at a meeting held in the first quarter of each year. The Chief...

  • Page 121
    ...-capital plan for 2003-2005. This compares to a long-term bonus payment of $2,117,700 in 2004, when the Company significantly exceeded its return-on-invested-capital plan for the performance period. • The stock option grant of 115,000 shares at $27.01 per share, the fair market value on the date...

  • Page 122
    ... return on the Company's Common Stock with the Russell 2000 Index and a selected peer group from February 2, 2001 through January 27, 2006. The peer group comprises: • Dick's Sporting Goods, Inc. • The Finish Line, Inc. • Hibbett Sporting Goods, Inc. • Genesco, Inc., whose business...

  • Page 123
    ... Directors Stock Plan. Participating employees under the 2003 Purchase Plan may contribute up to 10 percent of their annual compensation to acquire shares of the Company's Common Stock at 85 percent of the lower market price on one of two specified dates in each plan year. The 2002 Directors Stock...

  • Page 124
    ... College and serves on the Board of the Foundation for Purchase College of the State University of New York. Nominees for Directors Terms Expiring in 2009 Alan D. Feldman. Age 54. Director since 2005. President and Chief Executive Officer of Midas, Inc. (automotive repair and maintenance services...

  • Page 125
    ... Scandent Group Holdings, Mauritius (global provider of information technology services) since May 1, 2002, and Executive Chairman of the Board and Chief Executive Officer of its majority-owned subsidiary, Scandent Solutions Corporation, since November 1, 2005. Mr. Sinclair was Managing Director of...

  • Page 126
    ... to appropriate questions. The Board of Directors recommends that shareholders vote FOR Proposal 2. Audit and Non-Audit Fees The following table presents fees for professional audit services rendered by KPMG for the audit of Foot Locker's annual financial statements for 2005 and 2004, as well...

  • Page 127
    ... New York Stock Exchange. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. At meetings during 2005, the Committee discussed with management, KPMG LLP, the Company's independent registered public accountant, and the Company...

  • Page 128
    ...Internal Revenue Code and related regulations; however, these amendments will in no way change the performance goals under the plan approved by shareholders. Purpose of the Plan. The purposes of the Long-Term Plan are to reinforce corporate, organizational, and business development goals; to promote...

  • Page 129
    ...Long-Term Plan, is the average of the daily closing prices of a share of the Company's Common Stock in the 60-day period immediately preceding the payment date. Payment for a Performance Period to a Covered Employee cannot be in an amount that exceeds the lesser of (i) 300% of that employee's Annual...

  • Page 130
    ... for director must deliver a notice to the Secretary of the Company at 112 West 34th Street, New York, New York 10120 not less than 90 days nor more than 120 days before the first anniversary of the prior year's annual meeting. These dates are published each year in the Company's proxy statement...

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