Problem - You will need to refer to the consolidated financial statements of Foot Locker, Inc., that are presented in Appendix B at the end of your textbook, in order to complete each requirement of the project. The book only has the numbers for 2005- 2007. If you need numbers for other years, you can get them from the Foot Locker, Inc. Annual Reports, which are on the Foot Locker, Inc. website. You can find the information you need either by going to the Investor Relations web page or by going to www.sec.gov and downloading the company's 10-k for the relevant year(s).
Suppose you are an investor considering buying Foot Locker, Inc., common stock. The following questions are important. Show amounts in millions and round to the nearest $1 million.
1. Explain whether Foot Locker, Inc. had more sales revenue or collected more cash from customers during 2007. Why is accounts receivable missing from its balance sheet?
2. Investors are vitally interested in a company's sales and profits, and its trends of sales and profits over time. Consider Foot Locker's sales and net income (net loss) during the period from 2005 through 2007. Compute the percentage increase or decrease in net sales and also in net income (net loss) from 2005 to 2007. Which item grew faster during this two-year period, net sales or net income (net loss)? Can you offer a possible explanation for these changes?
During 2007, Foot Locker, Inc. had numerous accruals and deferrals. As a new member of Foot Locker, Inc.'s accounting staff, it is your job to explain the effects of accruals and deferrals on net income for 2007. The accrual and deferral data follow, along with questions that Foot Locker, Inc.'s stockholders have raised (all amounts in millions):
3. Examine Footnote 8 to Foot Locker's consolidated financial statements (Other Current Assets). Notice that included in this total is "net receivables." Ending net receivables for 2006 (beginning balance of 2007) were $59 million. Ending net receivables for 2007 were $50 million. Which of these amounts did Foot Locker, Inc. earn in 2006? Which amount is included in Foot Locker, Inc.'s 2007 net income?
4. Examine Footnote 9 (Property and Equipment, Net). Notice that accumulated depreciation stood at $870 million and the end of 2006 and at $903 million at year-end 2007. Assume that depreciation expense for 2007 was $100. Explain what must have happened to account for the remainder of the change in the accumulated depreciation account during 2007.
5. Focus on cash and cash equivalents. Why did cash change during 2007? The statement of cash flows holds the answer to this question. Analyze the seven largest individual items on the statement of cash flows (not the summary subtotals such as "net cash provided by operating activities"). For each of the seven individual items, state how Foot Locker Inc.'s action affected cash. Show amounts in millions and round to the nearest $1 million.
6. What securities are included in Foot Locker's Short-term investments? What type of securities are they?
7. Make a T-account for Short-term investments. Record $249 as the balance in the account as of the end of 2006. Using the information in the investments section of the Consolidated Statement of Cash Flows, record the cash purchases and sales of short-term investments during 2007. Why doesn't the ending balance equal the amount shown on the balance sheet as of the end of 2007?
8. Three important pieces of information are (a) the cost of inventory on hand, (b) the cost of sales, and (c) the cost of inventory purchases. Identify or compute each of these items for Foot Locker, Inc. at the end of its fiscal year 2007.
9. Assume that all inventory purchases were made on account, and that only inventory purchased increased Accounts Payable. Compute Foot Locker, Inc.'s cash payments for inventory during fiscal 2007.
10. How does Foot Locker, Inc. value its inventories? Which costing method does Foot Locker Inc. use?
11. Did Foot Locker, Inc.'s gross profit percentage and rate of inventory turnover improve or deteriorate in fiscal 2007 (versus fiscal 2006)? Consider the overall effect of these two ratios. Did Foot Locker, Inc. improve during fiscal 2007? How did these factors affect the net income for fiscal 2007? Foot Locker, Inc.'s inventories totaled $1,254 million at the end of fiscal 2005. Round decimals to three places.
12. Which depreciation method does Foot Locker, Inc. use? Over what useful life does Foot Locker, Inc. depreciate various types of fixed assets?
13. Were Foot Locker, Inc.'s plant assets proportionately newer or older at the end of fiscal 2007 (versus 2006)? Explain your answer.
14. The current liability section of Foot Locker, Inc.'s Consolidated Balance Sheet as of February 2, 2008 (the end of fiscal 2007) lists accrued and other liabilities totaling $268 million. Find the details of this total in the Notes to Consolidated Financial Statements. What are the four principal items comprising this total?
15. How would you rate Foot Locker, Inc.'s overall debt position at the end of fiscal 2007 - risky, safe or average? Compute the ratios that enable you to answer this question.
16. As of the end of fiscal 2007, how many classes of stock does Foot Locker, Inc. have authorized? Issues? Outstanding?
17. During 2007, Foot Locker, Inc. repurchased its treasury stock. How many shares did it purchase? How much did it pay for the stock? How much per share? Compare the price it paid for these shares with the market price of the company's stock at the end of each quarter (see footnote 26). Does it look like the company was getting a "good deal" on the purchase of its stock? Why?
18. Did Foot Locker, Inc. issue any new shares of common stock during fiscal 2007? Briefly explain the reasons.
19. Prepare a T-account to show the beginning and ending balances, plus all the activity in Retained Earnings for fiscal 2007.
20. What indicates that Foot Locker, Inc. owns foreign subsidiaries? Identify the item that proves your point and the financial statement on which the item appears.
21. At February 2, 2008, did Foot Locker, Inc. have a cumulative net gain or a cumulative net loss from translating its foreign subsidiaries' financial statements into dollars? How can you tell?
22. What is your evaluation of the quality of Foot Locker, Inc.'s earnings? State how you formed your opinion.
23. Perform a trend analysis of Foot Locker's net sales, gross profit, operating income and net income. Use 2005 as the base year, and compute trend figures for 2006 and 2007.