1. Taylor Blaney

2.  Enterprise Operations vs. Financing Activities ◦ Enterprise Operations- business activities that are the purpose of the business ◦ Financing Activities- borrowing and lending to aid business purpose  Reformulation ◦ Separates income, assets, and liabilities of enterprise vs. financing ◦ Necessary step to find NEA and EPAT and to forecast future NEA and EPAT

3.  Finding which assets and liabilities are part of the enterprise operations  Threshold for cash is typically 2% of net sales  Some classes may have both enterprise and financing activities involved in them, typically included if some enterprise activity can be assumed

5.  Included in Enterprise Assets: Account201220112010 Cash (2% of sales)123.64112.46100.98 Inventories116710691059 Other Current Assets268159179 Property and Equipment 490427386 Deferred Taxes257284296 Goodwill145144145 Other Intangible Assets 405472 Other Assets726263 TOTAL2562.642311.462300.98

7.  Included in Enterprise Liabilities: Account201220112010 Accounts Payable298240223 Accrued and Other Liabilities 338308266 Other Liabilities221257245 TOTAL857805734

8.  Subtract Enterprise Liabilities from Enterprise Assets to get Net Enterprise Assets-NEA Account201220112010 Enterprise Assets2562.642311.462300.98 Enterprise Liabilities857805734 NEA Total (EA-EL)1705.641506.461566.98

9.  NFL is the amount of financial assets less the financial liabilities that a company has in a given year  Foot Locker, Inc.’s NFL: Accounts201220112012 Assets Cash and Cash Equivalents756.36738.54595.02 Short-Term Investments4800 Liabilities Long-Term Debt133135137 TOTAL (Assets-Liabilities)671.36603.54458.02

11.  To check if work is correct take NEA and add or subtract Net Financial Assets or Liabilities, total should equal stockholders equity section Account201220112010 NEA1705.641506.461566.98 NFA671.36603.54458.02 Total (NEA+NFA) 237721102025 Stockholder’s Equity 237721102025

12.  Involves income items that are associated with enterprise operations  Take items from the statement of earnings to compute  Adjusted for tax that was due to financing activities

14. Income Statement Item 201220112010 Sales6,1825,6235,049 Cost of Sales(4,148)(3,827)(3,533) Selling, General and Administrative Expenses (1,294)(1,244)(1,138) Depreciation and Amortization (118)(110)(106) Impairment Charges(12)(5)(10) Other Income244 TOTAL Enterprise Earnings 612441266 Note: Leave out Interest Expense as a financing expense

15.  Must separate out the amount of income tax that is allocated to enterprise operations vs. financing activities  Use a 37% tax rate to allocate amount of tax attributed to financing activity  The only financing activity on the statement of earnings was interest expense

16. 2012 Earnings from continuing operations Income taxes on continuing operations (37%) Earnings from continuing operations after tax Enterprise612211.85400.15 Financing(5)(1.85)(3.15) Total Reported607210396.978

17. 2011 Earnings from continuing operations Income taxes on continuing operations (37%) Earnings from continuing operations Enterprise441159.22281.78 Financing(6)(2.22)(3.78) Total Reported435157278

18. 2010 Earnings from continuing operations Income taxes on continuing operations (37%) Earnings from continuing operations Enterprise26691.33174.67 Financing(9)(3.33)(5.67) Total Reported25788169

19. Income Statement Item 201220112010 Sales6,1825,6235,049 Cost of Sales(4,148)(3,827)(3,533) Selling, General and Administrative Expenses (1,294)(1,244)(1,138) Depreciation and Amortization (118)(110)(106) Impairment Charges(12)(5)(10) Other Income244 Income Taxes allocated to continuing enterprise operations (211.85)(159.22)(91.33) EPAT400.15281.78174.67

20. 201220112010 Interest Expense(5)(6)(9) Income tax Benefit allocated to financing activities 1.852.223.33 Financing Expense After Tax (FEAT) (3.15)(3.78)(5.67) The part of earnings that is not attributable to enterprise activities, these are the financing expenses

21.  After calculating EPAT and FEAT you can check to see if calculations were correct  EPAT= Enterprise Profit After Tax  FEAT= Financing Expense After Tax  To check, subtract FEAT from EPAT, the total should equal Net Income on statement of earnings

22. 201220112010 EPAT400.15281.78174.67 FEAT(3.15)(3.78)(5.67) Total397278169 Net Income (from statement of earnings) 397278169