Foot Locker 2005 Annual Report Download - page 25

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Corporate Expense
Corporate expense consists of unallocated general and administrative expenses 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 comprised several items, and primarily included decreased
incentive bonuses of $14 million, a $3 million decrease in costs associated with the Company’s loyalty program as the
prior year represented the initial costs to launch the program, and decreased restricted stock expense of $2 million. In
addition, the prior year included $5 million for the integration of the Footaction stores. Included in the current year is
a settlement of $3 million pursuant to a class action settlement with Visa and MasterCard related to past overcharges for
certain debit card transactions. These decreases were offset, in part, by a charge of $4 million due to the potential
insolvency of one of the Company’s insurance carriers and legal and settlement costs of $5 million. Depreciation and
amortization included in corporate expense amounted to $24 million in 2005, $23 million in 2004 and $25 million in 2003.
The increase in corporate expense in 2004 as compared with 2003 was primarily related to decreased incentive
bonuses of $9 million, offset by increased expenses related to integration of Footaction of $5 million, restricted stock
expense from additional grants of $4 million and costs of $3 million related to the Company’s expanded loyalty program.
Integration costs represent incremental costs directly related to the acquisitions, primarily expenses to re-merchandise
the Footaction stores during the first three months of operations.
Other Income
Other income for 2005 represents a $3 million net gain on foreign currency option contracts that were entered into
by the Company to mitigate the effect of fluctuating foreign exchange rates on the reporting of euro dominated earnings.
Additionally, other income includes $3 million of insurance recoveries in excess of losses associated with Hurricane Katrina.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses increased by $41 million to $1,129 million in 2005, or by
3.8 percent, as compared with 2004. SG&A as a percentage of sales decreased to 20.0 percent as compared with
20.3 percent in 2004. The increase in SG&A is primarily related to an increase in payroll and related costs. The effect of
including Footaction for the full fiscal year is an incremental $21 million, excluding the integration costs. During 2005,
the Company donated 82,500 pairs of athletic footwear with a cost of $2 million to Save the Children Foundation. This
donation benefited the tsunami victims in Banda Aceh, Indonesia, as well as Save the Children programs in the United
States. The net of both pension expense and postretirement income did not change significantly from the prior year.
SG&A increased by $101 million to $1,088 million in 2004, or by 10.2 percent, as compared with 2003. Excluding
the effect of foreign currency fluctuations, primarily related to the euro, SG&A increased by $82 million, of which the
acquired businesses contributed $68 million. Increased payroll and related costs primarily comprised the balance of the
increase. SG&A as a percentage of sales decreased to 20.3 percent compared with 20.7 percent in 2003. Pension expense
declined by $2 million primarily as a result of the positive market performance experienced in the prior year. Additionally,
postretirement income decreased by $2 million in 2004 as compared with 2003 as the amortization of the unrecognized
gains, which are amortized over the average remaining life expectancy, continues to decrease over time.
Depreciation and Amortization
Depreciation and amortization of $171 million increased by 11.0 percent in 2005 from $154 million in 2004. This
increase primarily reflects additional depreciation and amortization for the Athletic Stores segment due to capital
spending and, in addition, adjustments to depreciable lives of certain fixed assets. Additionally, depreciation and
amortization for the Footaction format increased by $6 million as compared with the prior year primarily due to increased
capital expenditures related to store improvements and point-of-sale equipment.
Depreciation and amortization of $154 million in 2004 increased 1.3 percent as compared with $152 million in 2003.
Depreciation and amortization of acquired businesses amounted to $7 million for 2004. These increases were offset by
declines that were a result of older assets becoming fully depreciated.
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