Foot Locker 2006 Annual Report Download - page 48

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32
expense is incurred. In accordance with EITF 02-16, “Accounting by a Reseller for Cash Consideration from a Vendor,”
the Company accounts for reimbursements received in excess of expenses incurred related to specific, incremental
advertising, as a reduction to the cost of merchandise and is reflected in cost of sales as the merchandise is sold.
Advertising costs, which are included as a component of selling, general and administrative expenses, net of
reimbursements for cooperative advertising, were as follows:
2006 2005 2004
(in millions)
Advertising expenses .............................. $ 92.5 $ 99.0 $102.5
Cooperative advertising reimbursements ............... (23.0) (21.2) (24.8)
Net advertising expense ............................ $ 69.5 $ 77.8 $ 77.7
Catalog Costs
Catalog costs, which primarily comprise paper, printing, and postage, are capitalized and amortized over the
expected customer response period to each catalog, generally 90 days. Cooperative reimbursements earned for the
promotion of certain products is agreed upon with vendors and is recorded in the same period as the associated catalog
expenses are amortized. Prepaid catalog costs totaled $3.9 million and $3.0 million at February 3, 2007 and January
28, 2006, respectively.
Catalog costs, which are included as a component of selling, general and administrative expenses, net of
reimbursements for cooperative reimbursements, were as follows:
2006 2005 2004
(in millions)
Catalog costs ...................................... $ 47.0 $48.2 $50.3
Cooperative reimbursements ........................... (3.5) (3.0) (2.9)
Net catalog expense ................................. $43.5 $45.2 $ 47.4
Earnings Per Share
Basic earnings per share is computed as net income divided by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur from common
shares issuable through share-based compensation including stock options and the conversion of convertible long-
term debt. The following table reconciles the numerator and denominator used to compute basic and diluted earnings
per share for continuing operations.
2006 2005 2004
(in millions)
Income from continuing operations .................... $ 247 $ 263 $ 255
Effect of Dilution:
Convertible debt (1) ................................. — — 2
Income from continuing operations assuming dilution ...... $ 247 $ 263 $ 257
Weighted-average common shares outstanding ............ 155.0 155.1 150.9
Effect of Dilution:
Stock options and awards ............................ 1.8 2.5 3.0
Convertible debt (1) ................................. — — 3.2
Weighted-average common shares outstanding
assuming dilution ............................... 156.8 157.6 157.1
(1) In 2001, the Company issued $150 million of subordinated convertible notes due 2008. Effective June 4, 2004, all of the convertible
subordinated notes were cancelled and approximately 9.5 million new shares of the Company’s common stock were issued.