UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended: October 30, 2010
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the transition period from __________ to __________
Commission
File Number: 1-10299
FOOT
LOCKER, INC.
(Exact
Name of Registrant as Specified in its Charter)
New
York
|
13-3513936
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
112
West 34th Street,
New York, New York, 10120
(Address
of Principal Executive Offices, Zip Code)
(212-720-3700)
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ
No o
|
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files). Yes þ
No o
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o
No þ
|
|
Number
of shares of Common Stock outstanding at November 27, 2010:
155,037,483
|
FOOT LOCKER,
INC.
TABLE OF
CONTENTS
|
|
|
Page
|
Part
I.
|
Financial
Information
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
Condensed
Consolidated Balance Sheets
|
3
|
|
|
Condensed
Consolidated Statements of Operations
|
4
|
|
|
Condensed
Consolidated Statements of Comprehensive Income
|
5
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
6
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
Item
4.
|
Controls
and Procedures
|
19
|
Part
II.
|
Other
Information
|
|
|
Item
1.
|
Legal
Proceedings
|
20
|
|
Item
1A.
|
Risk
Factors
|
20
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
|
Item
6.
|
Exhibits
|
20
|
|
|
Signature
|
21
|
|
|
Index
to Exhibits
|
22
|
PART I - FINANCIAL
INFORMATION
Item 1. Financial
Statements
FOOT LOCKER,
INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in
millions, except shares)
|
|
October 30,
|
|
|
October 31,
|
|
|
January 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
*
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
534
|
|
|
$
|
425
|
|
|
$
|
582
|
|
Short-term
investments
|
|
|
7
|
|
|
|
13
|
|
|
|
7
|
|
Merchandise
inventories
|
|
|
1,202
|
|
|
|
1,228
|
|
|
|
1,037
|
|
Other
current assets
|
|
|
162
|
|
|
|
216
|
|
|
|
146
|
|
|
|
|
1,905
|
|
|
|
1,882
|
|
|
|
1,772
|
|
Property
and equipment, net
|
|
|
387
|
|
|
|
400
|
|
|
|
387
|
|
Deferred
taxes
|
|
|
324
|
|
|
|
376
|
|
|
|
362
|
|
Goodwill
|
|
|
145
|
|
|
|
146
|
|
|
|
145
|
|
Other
intangibles and other assets
|
|
|
151
|
|
|
|
159
|
|
|
|
150
|
|
|
|
$
|
2,912
|
|
|
$
|
2,963
|
|
|
$
|
2,816
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
286
|
|
|
$
|
276
|
|
|
$
|
215
|
|
Accrued
expenses and other current liabilities
|
|
|
263
|
|
|
|
202
|
|
|
|
218
|
|
|
|
|
549
|
|
|
|
478
|
|
|
|
433
|
|
Long-term
debt
|
|
|
137
|
|
|
|
138
|
|
|
|
138
|
|
Other
liabilities
|
|
|
248
|
|
|
|
365
|
|
|
|
297
|
|
|
|
|
934
|
|
|
|
981
|
|
|
|
868
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and paid-in capital: 162,202,536, 161,224,691 and 161,267,025
shares, respectively
|
|
|
726
|
|
|
|
706
|
|
|
|
709
|
|
Retained
earnings
|
|
|
1,577
|
|
|
|
1,536
|
|
|
|
1,535
|
|
Accumulated
other comprehensive loss
|
|
|
(187
|
)
|
|
|
(157
|
)
|
|
|
(193
|
)
|
Less:
Treasury stock at cost: 7,334,074, 4,723,330, and 4,726,237
shares, respectively
|
|
|
(138
|
)
|
|
|
(103
|
)
|
|
|
(103
|
)
|
Total
shareholders’ equity
|
|
|
1,978
|
|
|
|
1,982
|
|
|
|
1,948
|
|
|
|
$
|
2,912
|
|
|
$
|
2,963
|
|
|
$
|
2,816
|
|
See
Accompanying Notes to Condensed Consolidated Financial Statements.
* The
balance sheet at January 30, 2010 has been derived from the previously reported
audited financial statements at that date, but does not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company’s Annual Report on Form 10-K for the year ended January 30,
2010.
FOOT LOCKER,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(in
millions, except per share amounts)
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Sales
|
|
$ |
1,280 |
|
|
$ |
1,214 |
|
|
$ |
3,657 |
|
|
$ |
3,529 |
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
892 |
|
|
|
885 |
|
|
|
2,571 |
|
|
|
2,564 |
|
Selling, general and administrative expenses
|
|
|
287 |
|
|
|
274 |
|
|
|
835 |
|
|
|
804 |
|
Depreciation and amortization
|
|
|
27 |
|
|
|
29 |
|
|
|
79 |
|
|
|
85 |
|
Impairment
charges
|
|
|
— |
|
|
|
36 |
|
|
|
— |
|
|
|
36 |
|
Interest expense, net
|
|
|
2 |
|
|
|
3 |
|
|
|
7 |
|
|
|
8 |
|
Other income
|
|
|
(1 |
) |
|
|
— |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
1,207 |
|
|
|
1,227 |
|
|
|
3,490 |
|
|
|
3,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
73 |
|
|
|
(13 |
) |
|
|
167 |
|
|
|
34 |
|
Income
tax expense (benefit)
|
|
|
21 |
|
|
|
(7 |
) |
|
|
55 |
|
|
|
10 |
|
Income
(loss) from continuing operations
|
|
|
52 |
|
|
|
(6 |
) |
|
|
112 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from disposal of discontinued operations, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
52 |
|
|
$ |
(6 |
) |
|
$ |
112 |
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
0.33 |
|
|
$ |
(0.04 |
) |
|
$ |
0.72 |
|
|
$ |
0.16 |
|
Weighted-average
common shares outstanding
|
|
|
155.4 |
|
|
|
156.4 |
|
|
|
156.0 |
|
|
|
155.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
0.33 |
|
|
$ |
(0.04 |
) |
|
$ |
0.71 |
|
|
$ |
0.16 |
|
Weighted-average
common shares assuming dilution
|
|
|
156.2 |
|
|
|
156.4 |
|
|
|
156.8 |
|
|
|
156.1 |
|
See
Accompanying Notes to Condensed Consolidated Financial
Statements.
FOOT LOCKER,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in
millions)
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
income (loss)
|
|
$ |
52 |
|
|
$ |
(6 |
) |
|
$ |
112 |
|
|
$ |
25 |
|
Other
comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments arising during the
period
|
|
|
38 |
|
|
|
28 |
|
|
|
1
|
|
|
|
90
|
|
Pension
and postretirement plan adjustments
|
|
|
1
|
|
|
|
1 |
|
|
|
5
|
|
|
|
3
|
|
Change
in fair value of derivatives
|
|
|
2
|
|
|
|
1 |
|
|
|
1
|
|
|
|
(1 |
) |
Unrealized
gain on available-for-sale security
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Comprehensive
income
|
|
$ |
93 |
|
|
$ |
24 |
|
|
$ |
119 |
|
|
$ |
119 |
|
See
Accompanying Notes to Condensed Consolidated Financial
Statements.
FOOT LOCKER,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(in
millions)
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
From
Operating Activities:
|
|
|
|
|
|
|
Net income
|
|
$ |
112 |
|
|
$ |
25 |
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Income from disposal of
discontinued operations, net
|
|
|
—
|
|
|
|
(1 |
) |
Non-cash
impairment charges
|
|
|
— |
|
|
|
36 |
|
Depreciation and
amortization
|
|
|
79
|
|
|
|
85 |
|
Share-based compensation
expense
|
|
|
10
|
|
|
|
9 |
|
Qualified
pension plan contributions
|
|
|
(32 |
) |
|
|
(40 |
) |
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Merchandise
inventories
|
|
|
(163 |
) |
|
|
(69 |
) |
Accounts
payable
|
|
|
70
|
|
|
|
82 |
|
Other
accruals
|
|
|
27 |
|
|
|
(41 |
) |
Payment on the settlement
of the net investment hedge
|
|
|
(24 |
) |
|
|
— |
|
Proceeds from the
termination of interest rate swaps
|
|
|
— |
|
|
|
19 |
|
Other, net
|
|
|
42 |
|
|
|
35 |
|
Net cash provided by operating activities from continuing
operations
|
|
|
121 |
|
|
|
140 |
|
|
|
From
Investing Activities:
|
|
|
|
|
|
|
|
|
Gains
from lease terminations
|
|
|
1 |
|
|
|
— |
|
Gain
from insurance recoveries
|
|
|
— |
|
|
|
1 |
|
Short-term
investment redemptions
|
|
|
— |
|
|
|
10 |
|
Capital expenditures
|
|
|
(73 |
) |
|
|
(70 |
) |
Net cash used in investing activities from continuing
operations
|
|
|
(72 |
) |
|
|
(59 |
) |
|
|
From
Financing Activities:
|
|
|
|
|
|
|
|
|
Reduction in long-term debt
|
|
|
— |
|
|
|
(3 |
) |
Issuance of common stock
|
|
|
5 |
|
|
|
2 |
|
Dividends paid
|
|
|
(70 |
) |
|
|
(70 |
) |
Treasury
stock issued under employee stock plan
|
|
|
3 |
|
|
|
— |
|
Purchase of treasury shares
|
|
|
(36 |
) |
|
|
— |
|
Excess tax benefits on share-based
compensation
|
|
|
1 |
|
|
|
— |
|
Net cash used in financing activities from continuing
operations
|
|
|
(97 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities of Discontinued
Operations
|
|
|
— |
|
|
|
(1 |
) |
Effect of exchange rate
fluctuations on Cash and Cash Equivalents
|
|
|
— |
|
|
|
31 |
|
Net
change in Cash and Cash Equivalents
|
|
|
(48 |
) |
|
|
40 |
|
Cash
and Cash Equivalents at beginning of year
|
|
|
582 |
|
|
|
385 |
|
Cash
and Cash Equivalents at end of interim period
|
|
$ |
534 |
|
|
$ |
425 |
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
6 |
|
|
$ |
6 |
|
Income taxes
|
|
$ |
32 |
|
|
$ |
13 |
|
See
Accompanying Notes to Condensed Consolidated Financial Statements.
FOOT LOCKER,
INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant
Accounting Policies
Basis
of Presentation
The
accompanying condensed consolidated financial statements contained in this
report are unaudited. In the opinion of management, the condensed consolidated
financial statements include all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the results for the interim periods
of the fiscal year ending January 29, 2011 and of the fiscal year ended January
30, 2010. Certain items included in these statements are based on management’s
estimates. Actual results may differ from those estimates. The results of
operations for any interim period are not necessarily indicative of the results
expected for the year. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Company’s Form 10-K for the
year ended January 30, 2010, as filed with the Securities and Exchange
Commission (the “SEC”) on March 29, 2010.
Recent
Accounting Pronouncements
Recently
issued accounting pronouncements did not have, or are not believed by management
to have, a material effect on the Company’s present or future consolidated
financial statements.
2.
Goodwill and Other
Intangible Assets
The
Company reviews goodwill and intangible assets with indefinite lives for
impairment annually during the first quarter of its fiscal year or more
frequently if impairment indicators arise. The annual review of goodwill and
assets with indefinite lives during the first quarter of 2010 and 2009 did not
result in any impairment charges. The following table provides a summary of
goodwill by reportable segment. The change represents foreign
exchange fluctuations.
|
|
October 30,
|
|
October 31,
|
|
January 30,
|
|
Goodwill (in millions)
|
|
2010
|
|
2009
|
|
2010
|
|
Athletic
Stores
|
|
|
$ |
18 |
|
|
$ |
19 |
|
|
$ |
18 |
|
Direct-to-Customers
|
|
|
|
127 |
|
|
|
127 |
|
|
|
127 |
|
|
|
|
$ |
145 |
|
|
$ |
146 |
|
|
$ |
145 |
|
The
components of finite-lived intangible assets and intangible assets not subject
to amortization are as follows:
|
|
October 30, 2010
|
|
|
October 31, 2009
|
|
|
January 30, 2010
|
|
|
|
Gross
|
|
|
Accum.
|
|
|
Net
|
|
|
Gross
|
|
|
Accum.
|
|
|
Net
|
|
|
Gross
|
|
|
Accum.
|
|
|
Net
|
|
(in millions)
|
|
value
|
|
|
amort.
|
|
|
value
|
|
|
value
|
|
|
amort.
|
|
|
value
|
|
|
value
|
|
|
amort.
|
|
|
value
|
|
Finite
life
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
acquisition costs
|
|
$
|
179
|
|
|
$
|
(148
|
)
|
|
$
|
31
|
|
|
$
|
193
|
|
|
$
|
(147
|
)
|
|
$
|
46
|
|
|
$
|
184
|
|
|
$
|
(143
|
)
|
|
$
|
41
|
|
Trademarks
|
|
|
21
|
|
|
|
(7
|
)
|
|
|
14
|
|
|
|
20
|
|
|
|
(6
|
)
|
|
|
14
|
|
|
|
20
|
|
|
|
(6
|
)
|
|
|
14
|
|
Loyalty
program
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
Favorable
leases
|
|
|
9
|
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
10
|
|
|
|
(8
|
)
|
|
|
2
|
|
|
|
9
|
|
|
|
(8
|
)
|
|
|
1
|
|
CCS
customer relationships
|
|
|
21
|
|
|
|
(8
|
)
|
|
|
13
|
|
|
|
21
|
|
|
|
(4
|
)
|
|
|
17
|
|
|
|
21
|
|
|
|
(5
|
)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
finite life intangible assets
|
|
|
231
|
|
|
|
(172
|
)
|
|
|
59
|
|
|
|
245
|
|
|
|
(166
|
)
|
|
|
79
|
|
|
|
235
|
|
|
|
(163
|
)
|
|
|
72
|
|
Intangible
assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
of Ireland trademark
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
CCS
trade-name
|
|
|
25
|
|
|
|
—
|
|
|
|
25
|
|
|
|
25
|
|
|
|
—
|
|
|
|
25
|
|
|
|
25
|
|
|
|
—
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
indefinite life intangible assets
|
|
|
27
|
|
|
|
—
|
|
|
|
27
|
|
|
|
27
|
|
|
|
—
|
|
|
|
27
|
|
|
|
27
|
|
|
|
—
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other intangible assets
|
|
$
|
258
|
|
|
$
|
(172
|
)
|
|
$
|
86
|
|
|
$
|
272
|
|
|
$
|
(166
|
)
|
|
$
|
106
|
|
|
$
|
262
|
|
|
$
|
(163
|
)
|
|
$
|
99
|
|
The
weighted-average amortization period as of October 30, 2010 was 11.8 years.
Amortization expense was $4 million and $5 million for the thirteen-week periods
ended October 30, 2010 and October 31, 2009,
respectively. Amortization expense was $13 million and $15 million
for the thirty-nine week periods ended October 30, 2010 and October 31, 2009,
respectively. Estimated amortization expense for finite life
intangible assets is expected to approximate $4 million for the remainder of
2010, $16 million for 2011, $14 million for 2012, $9 million for 2013, and $4
million for 2014. The change in the net value of the intangible assets for the
thirty-nine week period ended October 30, 2010 reflects amortization of $13
million and the effect of the weakening euro as compared with the U.S. dollar of
$2 million, partially offset by additions of $2 million.
3.
Financial
Instruments
The
Company operates internationally and utilizes certain derivative financial
instruments to mitigate its foreign currency exposures, primarily related to
third party and intercompany forecasted transactions. As a result of
the use of derivative instruments, the Company is exposed to the risk that
counterparties will fail to meet their contractual obligations. To mitigate this
counterparty credit risk, the Company has a policy of entering into contracts
only with major financial institutions selected based upon their credit ratings
and other financial factors. The Company monitors the creditworthiness of
counterparties throughout the duration of the derivative
instrument. Additional information is contained within Note 9, Fair Value
Measurements.
Derivative
Holdings Designated as Hedges
For
derivatives to qualify as hedges at inception and throughout the hedged periods,
the Company formally documents the nature of the hedged items and the
relationships between the hedging instruments and the hedged items. The Company
also documents its risk-management objectives, strategies for undertaking the
various hedge transactions, and the methods of assessing hedge effectiveness and
hedge ineffectiveness. In addition, for hedges of forecasted transactions, the
significant characteristics and expected terms of the forecasted transactions
must be specifically identified, and it must be probable that each forecasted
transaction will occur. If it were deemed probable that a forecasted transaction
would not occur, the hedge gain or loss would be recognized in earnings
immediately. No such gains or losses were recognized in earnings for any of the
periods presented. Derivative financial instruments qualifying for hedge
accounting must maintain a specified level of effectiveness between the hedging
instrument and the item being hedged, both at inception and throughout the
hedged period, which management evaluates periodically.
Cash Flow
Hedges
The
primary currencies to which the Company is exposed are the euro, British pound,
Canadian dollar, and Australian dollar. For option and forward foreign exchange
contracts designated as cash flow hedges of the purchase of inventory, the
effective portion of gains and losses is deferred as a component of accumulated
other comprehensive loss and is recognized as a component of cost of sales when
the related inventory is sold. The amount reclassified to cost of sales related
to such contracts was not significant for any of the periods presented. The
ineffective portion of gains and losses related to cash flow hedges recorded to
earnings was also not significant for any of the periods presented. When using a
forward contract as a hedging instrument, the Company excludes the time value
from the assessment of effectiveness. At each quarter-end, the Company had not
hedged forecasted transactions for more than the next twelve months, and the
Company expects all derivative-related amounts reported in accumulated other
comprehensive loss to be reclassified to earnings within twelve months. The
notional value of the contracts outstanding at October 30, 2010 was $47 million
and these contracts extend through July 2011. Net changes in the fair value of
foreign exchange derivative financial instruments designated as cash flow hedges
of the purchase of inventory were increases of $2 million and $1 million for the
thirteen and thirty-nine weeks ended October 30, 2010, and were increases of $1
million and $2 million for the thirteen and thirty-nine weeks ended October 31,
2009, respectively.
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 currency
option contracts. The notional value of the contracts outstanding at October 30,
2010 was $29 million and these contracts extend through January 2011. Changes in
the fair value of these foreign currency option contracts, which are designated
as non-hedges, are recorded in earnings immediately within other income. The
realized gains, premiums paid, and changes in the fair market value recorded in
the Consolidated Statements of Operations were not significant for the thirteen
and thirty-nine weeks ended October 30, 2010 and October 31,
2009.
The
Company also enters into forward foreign exchange contracts to hedge
foreign-currency denominated merchandise purchases and intercompany transactions
that are not designated as hedges. The notional value of the contracts
outstanding at October 30, 2010 was $35 million and these contracts extend
through April 2011. Net changes in the fair value of foreign exchange derivative
financial instruments designated as non-hedges were substantially offset by the
changes in value of the underlying transactions, which were recorded in selling,
general and administrative expenses. The amount recorded for all of the periods
presented was not significant.
The
Company enters into diesel fuel forward and option contracts to mitigate a
portion of the Company’s freight expense due to the variability caused by fuel
surcharges imposed by our third-party freight carriers. The notional value of
the contracts outstanding at October 30, 2010 was $2 million and these contracts
extend through May 2011. Changes in the fair value of these contracts are
recorded in earnings immediately. The effect was not significant for any of the
periods presented.
In 2008,
the Company terminated its European net investment hedge by amending its
existing cross currency swap and entering simultaneously into a new cross
currency swap, thereby fixing the amount owed to the counterparty at $24
million. The agreement included an option, which was exercised by the
counterparty that required the Company to settle this transaction in August
2010.
Fair
Value of Derivative Contracts
The
following represents the fair value of the Company’s derivative
contracts. Many of the Company’s agreements allow for a netting
arrangement. The following is presented on a gross basis, by type of
contract:
|
|
Balance Sheet
|
|
October 30,
|
|
|
October 31,
|
|
|
January 30,
|
|
(in millions)
|
|
Caption
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Hedging
Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
foreign exchange contracts
|
|
Current
assets
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
— |
|
Total
|
|
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Hedging
Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
foreign exchange contracts
|
|
Current
assets
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
European
cross currency swap
|
|
Non
current liability
|
|
|
— |
|
|
|
(24 |
) |
|
|
(24 |
) |
Total
|
|
|
|
$ |
1 |
|
|
$ |
(23 |
) |
|
$ |
(23 |
) |
Interest
Rate Risk Management
The
Company has from time to time employed various interest rate swaps to minimize
its exposure to interest rate fluctuations. On March 20, 2009, the Company
terminated its interest rate swaps for a gain of $19 million. This gain is
amortized as part of interest expense over the remaining term of the debt using
the effective-yield method. The amount amortized during the thirteen weeks ended
October 30, 2010 and October 31, 2009 was not significant. The amount amortized
during the thirty-nine weeks ended October 30, 2010 and October 31, 2009 was $1
million in each respective period.
Fair
Value of Financial Instruments
The
carrying value and estimated fair value of long-term debt was $137 million and
$121 million, respectively, at October 30, 2010, $138 million and $128 million,
respectively, at October 31, 2009 and $138 million and $127 million,
respectively, at January 30, 2010. The carrying values of cash and cash
equivalents, short-term investments and other current receivables and payables
approximate their fair value.
4.
Accumulated Other
Comprehensive Loss
Accumulated
other comprehensive loss comprised the following:
|
|
October 30,
|
|
|
October 31,
|
|
|
January 30,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Foreign
currency translation adjustments
|
|
$
|
76
|
|
|
$
|
100
|
|
|
$
|
75
|
|
Cash
flow hedges
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
Unrecognized
pension cost and postretirement benefit
|
|
|
(262
|
)
|
|
|
(255
|
)
|
|
|
(266
|
)
|
Unrealized
loss on available-for-sale security
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
$
|
(187
|
)
|
|
$
|
(157
|
)
|
|
$
|
(193
|
)
|
5.
Earnings Per
Share
The
Company accounts for and discloses net earnings per share using the treasury
stock method. The Company’s basic earnings per share is computed by
dividing the Company’s reported net income for the period by the
weighted-average number of common shares outstanding for the period. The
Company’s restricted stock awards, which contain non-forfeitable rights to
dividends, are considered participating securities and are included in the
calculation of basic earnings per share. Diluted earnings per share reflect the
weighted-average number of common shares outstanding during the period used in
the basic earnings per share computation plus dilutive common stock equivalents.
The diluted earnings per share calculation includes the effect of contingently
issuable share-based compensation awards with performance vesting conditions as
being outstanding at the beginning of the period in which all vesting conditions
are met.
The
Company’s basic and diluted weighted-average number of common shares outstanding
as of October 30, 2010 and October 31, 2009, were as follows:
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Weighted-average
common shares outstanding
|
|
|
155.4 |
|
|
|
156.4 |
|
|
|
156.0 |
|
|
|
155.9 |
|
Effect of
Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and awards
|
|
|
0.8 |
|
|
|
— |
|
|
|
0.8 |
|
|
|
0.2 |
|
Weighted-average
common shares assuming dilution
|
|
|
156.2 |
|
|
|
156.4 |
|
|
|
156.8 |
|
|
|
156.1 |
|
Options
to purchase 4.8 million and 6.6 million shares of common stock were not included
in the computation for the thirteen weeks ended October 30, 2010 and October 31,
2009, respectively. Options to purchase 4.5 million and 6.3 million shares of
common stock were not included in the computation for the thirty-nine weeks
ended October 30, 2010 and October 31, 2009, respectively. These options were
not included primarily because the exercise prices of the options were greater
than the average market price of the common shares and, therefore, the effect
would be antidilutive. For the thirteen weeks and thirty-nine weeks ended
October 30, 2010, contingently issuable shares of 0.5 million have not been
included as the vesting conditions have not been satisfied. Stock options and
awards totaling 0.3 million shares were not included in the computation of
earnings per share for the thirteen weeks ended October 31, 2009 as the effect
would have been antidilutive due to a loss from continuing operations being
reported for the period.
6.
Segment
Information
The
Company has determined that its reportable segments are those that are based on
its method of internal reporting. As of October 30, 2010, the Company has two
reportable segments, Athletic Stores and Direct-to-Customers. Sales and division
results for the Company’s reportable segments for the thirteen weeks and
thirty-nine weeks ended October 30, 2010 and October 31, 2009 are presented
below. Division profit reflects income from continuing operations before income
taxes, corporate expense, non-operating income and net interest
expense.
Sales
|
|
Thirteen weeks ended
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
October 31,
|
|
October 30,
|
|
October 31,
|
|
(in millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Athletic
Stores
|
|
|
$ |
1,171 |
|
|
$ |
1,111 |
|
|
$ |
3,367 |
|
|
$ |
3,247 |
|
Direct-to-Customers
|
|
|
|
109 |
|
|
|
103 |
|
|
|
290 |
|
|
|
282 |
|
Total
sales
|
|
|
$ |
1,280 |
|
|
$ |
1,214 |
|
|
$ |
3,657 |
|
|
$ |
3,529 |
|
Operating
Results
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Athletic
Stores (1)
|
|
$ |
91 |
|
|
$ |
1 |
|
|
$ |
225 |
|
|
$ |
67 |
|
Direct-to-Customers (2)
|
|
|
9 |
|
|
|
4 |
|
|
|
22 |
|
|
|
17 |
|
Restructuring
reserve adjustment
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Division
profit
|
|
|
100 |
|
|
|
6 |
|
|
|
247 |
|
|
|
85 |
|
Less:
Corporate expense, net
|
|
|
26 |
|
|
|
16 |
|
|
|
75 |
|
|
|
45 |
|
Operating
profit
|
|
|
74 |
|
|
|
(10
|
) |
|
|
172 |
|
|
|
40 |
|
Other
income (3)
|
|
|
1 |
|
|
|
— |
|
|
|
2 |
|
|
|
2 |
|
Interest
expense, net
|
|
|
2 |
|
|
|
3 |
|
|
|
7 |
|
|
|
8 |
|
Income
(loss) from continuing operations before income taxes
|
|
$ |
73 |
|
|
$ |
(13 |
) |
|
$ |
167 |
|
|
$ |
34 |
|
(1)
|
Included
in the results for the thirteen and thirty-nine weeks ended October 31,
2009 are non-cash impairment charges totaling $32 million,
which were recorded to write-down long-lived assets such as
store fixtures and leasehold improvements at the Company’s Lady Foot
Locker, Kids Foot Locker, Footaction, and Champs Sports
divisions.
|
|
Included
in the results for the thirteen and thirty-nine weeks ended October 31,
2009 is a non-cash impairment charge of $4 million to write off software
costs.
|
|
Other
income for the thirteen weeks ended October 30, 2010 primarily represents
lease termination gains related to the sales of leasehold interests in
Europe and royalty income. For the thirty-nine weeks ended October 30,
2010 other income primarily represents royalty income, lease
termination gains, and realized gains associated with foreign currency
option contracts. Included in other income for the thirty-nine weeks
ended October 31, 2009 are gains from insurance proceeds, gain on the
purchase and retirement of bonds, and royalty
income.
|
7.
Pension and
Postretirement Plans
The
Company has defined benefit pension plans covering most of its North American
employees, which are funded in accordance with the provisions of the laws where
the plans are in effect. In addition to providing pension benefits, the Company
sponsors postretirement medical and life insurance plans, which are available to
most of its retired U.S. employees. These medical and life insurance plans are
contributory and are not funded.
The
following are the components of net periodic pension benefit cost and net
periodic postretirement benefit income:
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Thirteen weeks
|
|
|
Thirty-nine weeks
|
|
|
Thirteen weeks
|
|
|
Thirty-nine weeks
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service
cost
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest
cost
|
|
|
8
|
|
|
|
9
|
|
|
|
25
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expected
return on plan assets
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
(30
|
)
|
|
|
(32
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
of unrecognized prior service
cost
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
of net loss (gain)
|
|
|
4
|
|
|
|
3
|
|
|
|
13
|
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Net
benefit expense (income)
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
17
|
|
|
$
|
14
|
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
$
|
(5
|
)
|
During
the thirty-nine weeks ended October 30, 2010 the Company made a voluntary
contribution of $30 million and a required contribution of $2 million to its
U.S. and Canadian plans, respectively. No further pension
contributions are planned or required in 2010.
8.
Share-Based
Compensation
On May
19, 2010, the Foot Locker 2007 Stock Incentive Plan was amended to increase the
number of shares of the Company’s common stock reserved for all awards to twelve
million shares.
The
Company uses a Black-Scholes option-pricing model to estimate the fair value of
share-based awards. The Black-Scholes option-pricing model incorporates various
and highly subjective assumptions, including expected term and expected
volatility. Total compensation expense related to the Company’s
share-based plans was $3.2 million and $3.6 million and $10.1 million and $9.0
million for the thirteen and thirty-nine weeks ended October 30, 2010 and
October 31, 2009, respectively.
Compensation expense related to the
Company’s stock option and stock purchase plans was $1.2 million and $1.0
million for the thirteen weeks ended October 30, 2010 and October 31, 2009,
respectively, and was $4.2 million and $2.7 million for the thirty-nine weeks
ended October 30, 2010 and October 31, 2009, respectively. The following table
shows the Company’s assumptions used to compute the share-based compensation
expense:
|
|
Stock Option Plans
Thirty-nine weeks ended
|
|
|
Stock Purchase Plan
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Weighted-average
risk free rate of interest
|
|
|
2.34 |
% |
|
|
1.93 |
% |
|
|
0.92 |
% |
|
|
1.81 |
% |
Expected
volatility
|
|
|
45 |
% |
|
|
53 |
% |
|
|
39 |
% |
|
|
39 |
% |
Weighted-average
expected award life
|
|
5.0
years
|
|
|
4.6
years
|
|
|
1.0
year
|
|
|
1.0
year
|
|
Dividend
yield
|
|
|
4.0 |
% |
|
|
6.0 |
% |
|
|
4.9 |
% |
|
|
4.3 |
% |
Weighted-average
fair value
|
|
$ |
4.47 |
|
|
$ |
2.89 |
|
|
$ |
2.47 |
|
|
$ |
4.42 |
|
The
information set forth in the following table covers options granted under the
Company’s stock option plans for the thirty-nine weeks ended October 30,
2010:
(in thousands, except price per share)
|
|
Shares
|
|
|
Weighted-
Average
Term
|
|
|
Weighted-
Average
Exercise
Price
|
|
Options
outstanding at the beginning of the year
|
|
|
7,002 |
|
|
|
|
|
$ |
16.88 |
|
Granted
|
|
|
1,309 |
|
|
|
|
|
|
15.10 |
|
Exercised
|
|
|
(485 |
) |
|
|
|
|
|
11.52 |
|
Expired
or cancelled
|
|
|
(118 |
) |
|
|
|
|
|
19.95 |
|
Options
outstanding at October 30, 2010
|
|
|
7,708 |
|
|
|
5.42 |
|
|
$ |
16.87 |
|
Options
exercisable at October 30, 2010
|
|
|
5,549 |
|
|
|
4.04 |
|
|
$ |
18.28 |
|
Options
available for future grant at October 30, 2010
|
|
|
10,340 |
|
|
|
|
|
|
|
|
|
The total
intrinsic value of options exercised (the difference between the market price of
the Company’s common stock on the exercise date and the price paid by the
optionee to exercise the option) for the thirteen and thirty-nine weeks ended
October 30, 2010 was $1.3 million and $1.9 million, respectively, and was $0.1
million and $0.2 million for the thirteen and thirty-nine weeks ended October
31, 2009, respectively. The aggregate intrinsic value for stock options
outstanding and exercisable (the difference between the Company’s closing stock
price on the last trading day of the period and the exercise price of the
options, multiplied by the number of in-the-money stock options) as of October
30, 2010 was $16.4 million and $10.6 million, respectively. The aggregate
intrinsic value for stock options outstanding and exercisable as of October 31,
2009 was $0.9 million and $0.2 million, respectively.
The cash
received from option exercises for the thirteen and thirty-nine weeks ended
October 30, 2010 was $3.9 million and $5.1 million, respectively. The cash
received from options exercised for the thirteen and thirty-nine weeks ended
October 31, 2009 was $1.1 million and $1.2 million, respectively. The tax
benefit realized from option exercises was $1 million for both the thirteen and
thirty-nine weeks ended October 30, 2010 and was not significant for the
corresponding prior-year periods.
The
following table summarizes information about stock options outstanding and
exercisable at October 30, 2010:
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
Options Exercisable
|
|
|
Range of Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise Price
|
|
(in
thousands, except price per share)
|
|
$ |
9.51 |
|
|
$ |
10.25 |
|
|
|
1,805 |
|
|
|
6.81 |
|
|
$ |
10.05 |
|
|
|
1,140 |
|
|
$ |
10.09 |
|
|
$ |
10.31 |
|
|
$ |
15.10 |
|
|
|
2,549 |
|
|
|
6.64 |
|
|
$ |
13.64 |
|
|
|
1,059 |
|
|
$ |
12.18 |
|
|
$ |
15.85 |
|
|
$ |
23.92 |
|
|
|
2,010 |
|
|
|
3.85 |
|
|
$ |
20.67 |
|
|
|
2,006 |
|
|
$ |
20.68 |
|
|
$ |
24.04 |
|
|
$ |
27.10 |
|
|
|
921 |
|
|
|
3.26 |
|
|
$ |
25.70 |
|
|
|
921 |
|
|
$ |
25.70 |
|
|
$ |
28.16 |
|
|
$ |
28.16 |
|
|
|
423 |
|
|
|
4.25 |
|
|
$ |
28.16 |
|
|
|
423 |
|
|
$ |
28.16 |
|
|
$ |
9.51 |
|
|
$ |
28.16 |
|
|
|
7,708 |
|
|
|
5.42 |
|
|
$ |
16.87 |
|
|
|
5,549 |
|
|
$ |
18.28 |
|
Changes
in the Company’s non-vested options for the thirty-nine weeks ended October 30,
2010 are summarized as follows:
(in thousands, except price per share)
|
|
Number of
Shares
|
|
Weighted-
Average Grant
Date Fair Value
per Share
|
|
Non-vested
at January 30, 2010
|
|
|
1,918
|
|
|
$
|
11.67
|
|
Granted
|
|
|
1,309
|
|
|
|
15.10
|
|
Vested
|
|
|
(950
|
)
|
|
|
11.82
|
|
Expired
or cancelled
|
|
|
(118
|
)
|
|
|
19.95
|
|
Non-vested
at October 30, 2010
|
|
|
2,159
|
|
|
|
13.23
|
|
As of
October 30, 2010, there was $4.0 million of total unrecognized compensation
cost, related to non-vested stock options, which is expected to be recognized
over a weighted-average period of 1.2 years.
Restricted
Stock and Units
Restricted
shares of the Company’s common stock and restricted stock units may be awarded
to certain officers and key employees of the Company. The Company also issues
restricted stock units to its non-employee directors. Each restricted stock unit
represents the right to receive one share of the Company’s common stock provided
that the vesting conditions are satisfied. As of October 30, 2010, 653,535
restricted stock units were outstanding. Compensation expense is recognized
using the fair market value at the date of grant and is amortized over the
vesting period, provided the recipient continues to be employed by the Company.
Generally, awards fully vest after the passage of time, typically three years.
However, restricted stock unit grants made after May 19, 2010 in connection with
the Company’s long-term incentive program vest after the attainment of certain
performance metrics and the passage of time. Restricted stock is considered
outstanding at the time of grant and the holders have voting
rights. Dividends are paid to holders of restricted stock that vest
with the passage of time; for performance-based restricted stock granted after
May 19, 2010, dividends will be accumulated and paid after the performance
criteria are met.
Restricted
shares and units activity for the thirty-nine weeks ended October 30, 2010 and
October 31, 2009 is summarized as follows:
|
|
Number of Shares and Units
|
|
(in thousands)
|
|
October 30, 2010
|
|
|
October 31, 2009
|
|
Outstanding
at the beginning of the year
|
|
|
1,680
|
|
|
|
844
|
|
Granted
|
|
|
651
|
|
|
|
1,115
|
|
Vested
|
|
|
(492
|
)
|
|
|
(69
|
)
|
Cancelled
or forfeited
|
|
|
(70
|
)
|
|
|
—
|
|
Outstanding
at end of period
|
|
|
1,769
|
|
|
|
1,890
|
|
Aggregate
value (in millions)
|
|
$
|
20.5
|
|
|
$
|
26.1
|
|
Weighted-average
remaining contractual life
|
|
1.68
years
|
|
|
1.58
years
|
|
The
weighted-average grant-date fair value per share was $13.75 and $9.90 for the
thirty-nine weeks ended October 30, 2010 and October 31, 2009, respectively. The
total value of awards for which restrictions lapsed during the thirty-nine weeks
ended October 30, 2010 and October 31, 2009 was $10.1 million and $1.7 million,
respectively. As of October 30, 2010, there was $11.1 million of total
unrecognized compensation cost related to non-vested restricted awards. The
Company recorded compensation expense related to restricted stock awards, net of
forfeitures, of $2.0 million and $2.6 million and $5.9 million and $6.3 million
for the thirteen and thirty-nine weeks ended October 30, 2010 and October 31,
2009, respectively.
9.
Fair Value
Measurements
The
following tables provide a summary of the Company’s recognized assets and
liabilities that are measured at fair value on a recurring basis:
|
|
At October 30, 2010
|
|
|
At October 31, 2009
|
|
|
At January 30, 2010
|
|
(in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investment
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7 |
|
Auction
rate security
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
Forward
foreign exchange contracts
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
Total
Assets
|
|
$ |
— |
|
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
6 |
|
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
6 |
|
|
$ |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
net investment hedge
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24 |
|
|
$ |
— |
|
Total
Liabilities
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24 |
|
|
$ |
— |
|
The
Company’s auction rate security is classified as available-for-sale and,
accordingly, is reported at fair value. The fair value of the security is
determined by review of the underlying security at each reporting period. The
Company’s derivative financial instruments are valued using market-based inputs
to valuation models. These valuation models require a variety of inputs,
including contractual terms, market prices, yield curves, and measures of
volatility.
The
Company’s Level 3 assets represent the Company’s investment in the Reserve
International Liquidity Fund, Ltd. (the “Fund”), a money market fund classified
in short-term investments. The Company assesses the fair value of its investment
in the Fund, which includes a quarterly impairment evaluation. There were no
further redemptions for this investment during the thirty-nine weeks ended
October 30, 2010.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
BUSINESS
OVERVIEW
Foot
Locker, Inc., through its subsidiaries, operates in two reportable segments –
Athletic Stores and Direct-to-Customers. The Athletic Stores segment is one of
the largest athletic footwear and apparel retailers in the world, whose formats
include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports,
Footaction, and CCS.
The
Direct-to-Customers segment is multi-branded and multi-channeled. This segment
sells, through its affiliates, directly to customers through its Internet
websites and catalogs. Eastbay, one of the affiliates, is among the largest
direct marketers of athletic footwear and apparel in the United
States. This segment also operates websites aligned with the brand
names of the retail store banners (footlocker.com, ladyfootlocker.com,
kidsfootlocker.com, footaction.com, champssports.com, and ccs.com).
STORE
COUNT
At
October 30, 2010, the Company operated 3,474 stores as compared with 3,500 and
3,601 stores at January 30, 2010 and October 31, 2009, respectively. During the
thirty-nine weeks ended October 30, 2010, the Company opened 35 stores,
remodeled or relocated 135 stores and closed 61 stores.
A total
of 24 franchised stores were operating at October 30, 2010, as compared with 22
stores at January 30, 2010 and 21 stores at October 31, 2009. Royalty income
from the franchised stores was not significant for the thirteen and thirty-nine
weeks ended October 30, 2010 and October 31, 2009. These stores are not included
in the Company’s operating store count above.
SALES AND OPERATING
RESULTS
All
references to comparable-store sales for a given period relate to sales of
stores that are open at the period-end and that have been open for more than one
year. Accordingly, stores opened and closed during the period are not included.
Sales from the Direct-to-Customers segment are included in the total Company
calculation of comparable-store sales for all periods presented. Sales from
acquired businesses that include the purchase of inventory are included in the
computation of comparable-store sales after 15 months of operations.
Accordingly, effective with the first quarter of 2010, CCS internet and catalog
sales have been included in the computation of comparable-store sales. Division
profit reflects income from continuing operations before income taxes, corporate
expense, non-operating income and net interest expense.
The
following table summarizes results by segment:
Sales
|
|
Thirteen weeks ended
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
October 31,
|
|
October 30,
|
|
October 31,
|
|
(in millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Athletic
Stores
|
|
|
$ |
1,171 |
|
|
$ |
1,111 |
|
|
$ |
3,367 |
|
|
$ |
3,247 |
|
Direct-to-Customers
|
|
|
|
109 |
|
|
|
103 |
|
|
|
290 |
|
|
|
282 |
|
Total
sales
|
|
|
$ |
1,280 |
|
|
$ |
1,214 |
|
|
$ |
3,657 |
|
|
$ |
3,529 |
|
Operating
Results
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Athletic
Stores (1)
|
|
$ |
91 |
|
|
$ |
1 |
|
|
$ |
225 |
|
|
$ |
67 |
|
Direct-to-Customers (2)
|
|
|
9 |
|
|
|
4 |
|
|
|
22 |
|
|
|
17 |
|
Restructuring
reserve adjustment
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Division
profit
|
|
|
100 |
|
|
|
6 |
|
|
|
247 |
|
|
|
85 |
|
Less:
Corporate expense, net
|
|
|
26 |
|
|
|
16 |
|
|
|
75 |
|
|
|
45 |
|
Operating
profit
|
|
|
74 |
|
|
|
(10
|
) |
|
|
172 |
|
|
|
40 |
|
Other
income (3)
|
|
|
1 |
|
|
|
— |
|
|
|
2 |
|
|
|
2 |
|
Interest
expense, net
|
|
|
2 |
|
|
|
3 |
|
|
|
7 |
|
|
|
8 |
|
Income
(loss) from continuing operations before income taxes
|
|
$ |
73 |
|
|
$ |
(13 |
) |
|
$ |
167 |
|
|
$ |
34 |
|
(1)
|
Included
in the results for the thirteen and thirty-nine weeks ended October 31,
2009 are non-cash impairment charges totaling $32 million,
which were recorded to write-down long-lived assets such as
store fixtures and leasehold improvements at the Company’s Lady Foot
Locker, Kids Foot Locker, Footaction, and Champs Sports
divisions.
|
|
Included
in the results for the thirteen and thirty-nine weeks ended October 31,
2009 is a non-cash impairment charge of $4 million to write off software
costs.
|
|
Other
income for the thirteen weeks ended October 30, 2010 primarily represents
lease termination gains related to the sales of leasehold interests in
Europe and royalty income. For the thirty-nine weeks ended October 30,
2010 other income primarily represents royalty income, lease
termination gains, and realized gains associated with foreign currency
option contracts. Included in other income for the thirty-nine weeks
ended October 31, 2009 are gains from insurance proceeds, gain on the
purchase and retirement of bonds, and royalty
income.
|
Sales
increased by $66 million, or 5.4 percent, to $1,280 million for the thirteen
weeks ended October 30, 2010, from $1,214 million for the thirteen weeks ended
October 31, 2009. For the thirty-nine weeks ended October 30, 2010 sales of
$3,657 million increased 3.6 percent from sales of $3,529 million for the
thirty-nine week period ended October 31, 2009. Excluding the effect of foreign
currency fluctuations, total sales for the thirteen-week and thirty-nine week
periods increased 7.0 percent and 3.8 percent, respectively, as compared with
the corresponding prior-year periods. Comparable-store sales increased by 8.1
percent and 5.2 percent, for the thirteen and thirty-nine weeks ended October
30, 2010, respectively.
Gross
margin, as a percentage of sales, increased to 30.3 percent for the thirteen
weeks ended October 30, 2010 as compared with 27.1 percent in the corresponding
prior-year period. Gross margin, as a percentage of sales, of 29.7 percent for
the thirty-nine weeks ended October 30, 2010 increased as compared with 27.3
percent in the corresponding prior-year period. The cost of merchandise rate for
the thirteen and thirty-nine weeks ended October 30, 2010 decreased by
190 and 160 basis points, respectively, as compared with the corresponding
prior-year periods, reflecting a lower markdown rate as the Company was less
promotional during the current year, coupled with lower inventory shrink. Lower
vendor allowances during the current year, reflecting the overall lower
promotional activity, negatively affected gross margin by 10 and 20 basis points
for the thirteen and thirty-nine weeks ended October 30, 2010, respectively, as
compared with the corresponding prior-year periods. For the thirteen and
thirty-nine weeks ended October 30, 2010, the occupancy and buyers’ salary
expense rate decreased by 130 and 80 basis points, respectively, as a percentage
of sales, as compared with the corresponding prior-year periods reflecting
expense reductions and improved leverage.
Segment
Analysis
Athletic
Stores
Athletic
Stores sales increased by 5.4 percent and 3.7 percent for the thirteen and
thirty-nine weeks ended October 30, 2010, respectively, as compared with the
corresponding prior-year periods. Excluding the effect of foreign currency
fluctuations, sales from Athletic Stores increased 7.0 percent and 3.9 percent
for the thirteen and thirty-nine weeks ended October 30, 2010, respectively, as
compared with the corresponding prior-year periods. Comparable-store sales
increased by 8.2 percent and 5.4 percent for the thirteen and thirty-nine weeks
ended October 30, 2010, respectively. The comparable-store sales increase for
the thirteen and thirty-nine weeks ended October 30, 2010, reflected meaningful
improvements in each of the Company’s U.S. operations. Excluding
foreign currency fluctuations, sales in Europe increased for both the thirteen
and thirty-nine weeks ended October 30, 2010, while sales in Australia and New
Zealand reflected a modest increase for the quarter. These increases reflect an
improved in-stock position and new receipts of more compelling assortments of
athletic footwear, including technical and light-weight running styles, toning
and marquee basketball. Apparel sales continued to improve as our suppliers
provided assortments that coordinate with key footwear styles. Sales for the
thirty-nine weeks ended October 30, 2010 for Australia were negatively affected
by the prior-year government stimulus program, as compared with the
corresponding prior-year period.
Athletic
Stores division profit for the thirteen weeks ended October 30, 2010 increased
to $91 million, or 7.8 percent, as a percentage of sales, from a division profit
of $1 million or 0.1 percent, as a percentage of sales, for the thirteen
weeks ended October 31, 2009. Athletic Stores division profit for the
thirty-nine weeks ended October 30, 2010 increased to $225 million, or 6.7
percent, as a percentage of sales, from a division profit of $67
million, or 2.1 percent, as a percentage of sales, for the thirty-nine
weeks ended October 31, 2009. Included in division profit for the thirteen weeks
and thirty-nine weeks ended October 31, 2009 are impairment charges totaling $32
million recorded to write-down long-lived assets such as store fixtures and
leasehold improvements at the Company’s Lady Foot Locker, Kids Foot Locker,
Footaction, and Champs Sports divisions. Excluding the prior year impairment
charges, the increase in division profit was mainly attributable to a
higher gross margin rate as the Company was less promotional during the current
year and inventories were better positioned, coupled with an increase in sales.
The Athletic Stores division profit reflects higher incentive compensation,
offset by lower operating expenses as this segment benefited from initiatives
implemented during late 2009 to reduce overhead costs.
Direct-to-Customers
Direct-to-Customers
sales increased by 5.8 percent to $109 million for the thirteen weeks ended
October 30, 2010 as compared with the corresponding prior-year period of $103
million. Direct-to-Customers sales increased by 2.8 percent to $290
million for the thirty-nine weeks ended October 30, 2010, as compared with the
corresponding prior-year period of $282 million. Internet sales increased by
10.5 percent to $95 million and by 5.5 percent to $251 million for the thirteen
and thirty-nine weeks ended October 30, 2010, respectively, as compared with the
corresponding prior-year periods. This increase was primarily a result of
the strong sales performance through the Company’s store banner websites, which
benefited from improved functionality and compelling product
assortments.
Direct-to-Customers
division profit increased 125 percent to $9 million, and increased
29.4 percent to $22 million, for the thirteen and thirty-nine weeks ended
October 30, 2010, as compared with the corresponding prior-year periods.
Division profit, as a percentage of sales, increased to 8.3 percent and
7.6 percent for the thirteen and thirty-nine weeks ended October 30, 2010,
respectively, as compared with 3.9 percent and 6.0 percent, respectively, in the
corresponding prior-year periods. Included in the thirteen and thirty-nine
weeks ended October 31, 2009 was a $4 million impairment charge, which was
recorded to write off certain software development costs for the
Direct-to-Customers segment as a result of management’s decision to terminate
this project. The Company has developed various initiatives to improve projected
results for CCS during the holiday selling season; accordingly, management will
monitor the results of this format, which may include an analysis of
recoverability of its intangible assets.
Corporate
Expense
Corporate
expense consists of unallocated general and administrative expenses, as well as
depreciation and amortization related to the Company’s corporate headquarters,
centrally managed departments, unallocated insurance and benefit programs,
certain foreign exchange transaction gains and losses, and other items.
Corporate expense for the thirteen weeks ended October 30, 2010 increased
by $10 million to $26 million from the corresponding prior-year
period. Corporate expense for the thirty-nine weeks ended October 30, 2010
increased by $30 million to $75 million from the corresponding prior-year
period. These increases primarily reflect higher incentive compensation
costs.
Selling, General and
Administrative
Selling,
general and administrative expenses (“SG&A”) of $287 million increased by
$13 million or 4.7 percent, for the thirteen weeks ended October 30, 2010 as
compared with the corresponding prior-year period. SG&A of $835 million
increased by $31 million, or 3.9 percent, for the thirty-nine weeks ended
October 30, 2010 as compared with the corresponding prior-year period. SG&A,
as a percentage of sales, decreased to 22.4 percent for the thirteen weeks
ended October 30, 2010, as compared with 22.6 percent in the corresponding
prior-year period. SG&A, as a percentage of sales, remained flat at 22.8
percent for the thirty-nine weeks ended October 30, 2010, as compared with the
corresponding prior-year period. Excluding the effect of foreign currency
fluctuations, SG&A increased by $17 million and $34 million for the thirteen
and thirty-nine weeks ended October 30, 2010, respectively, as compared with the
corresponding prior-year periods. This increase for the thirteen
weeks and thirty-nine weeks ended October 30, 2010 principally reflects higher
incentive compensation costs, partially offset by expense management
efforts.
Depreciation and
Amortization
Depreciation
and amortization decreased by $2 million in the third quarter of 2010 to $27
million as compared with $29 million for the third quarter of 2009. Depreciation
and amortization decreased by $6 million for the thirty-nine weeks ended October
30, 2010 to $79 million as compared with $85 million for the thirty-nine weeks
ended October 31, 2009. The effect of foreign currency fluctuations was not
significant for any of the periods presented. The decrease primarily reflects
reduced depreciation and amortization resulting from store long-lived asset
impairment charges recorded during the third quarter of 2009.
Interest
Expense
|
|
Thirteen weeks ended
|
|
|
Thirty-nine weeks ended
|
|
|
|
October 30,
|
|
|
October 31,
|
|
|
October 30,
|
|
|
October 31,
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Interest
expense
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
10
|
|
Interest
income
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Interest
expense, net
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
8
|
|
The
decrease in net interest expense for the thirteen and thirty-nine weeks ended
October 30, 2010 as compared with the corresponding prior-year period primarily
reflects income earned on higher cash and cash equivalents
balances.
Income
Taxes
The
Company recorded income tax expense of $21 million and $55 million, an effective
rate of 29.3 percent and 33.1 percent, for the thirteen weeks and thirty-nine
weeks ended October 30, 2010, respectively. For the thirteen weeks
and thirty-nine weeks ended October 31, 2009, the Company recorded a tax benefit
of $7 million and tax expense of $10 million, an effective rate of 50.7 percent
and 29.9 percent, respectively. The effective rates for the thirteen weeks ended
October 30, 2010 and October 31, 2009 reflect favorable settlements of tax
examinations of $7 million and $1 million, respectively. Tax expense for the
thirteen weeks ended October 31, 2009 also reflects the tax benefit of the
impairment charges. Excluding these items, the effective rate for the
thirteen weeks and thirty-nine weeks ended October 30, 2010 increased as
compared with the corresponding prior-year periods, reflecting a higher
proportion of income earned in higher tax jurisdictions.
The
Company currently expects its fourth quarter tax rate to approximate 37 percent,
excluding any potential adjustments that may occur. The actual rate will
primarily depend on the percentage of income earned in the United States as
compared with international operations.
Net
Income
For the
thirteen weeks ended October 30, 2010, net income was $52 million, or $0.33 per
diluted share; this compares with a loss of $6 million or $0.04 per diluted
share for the corresponding prior-year period. Net income for the thirty-nine
weeks ended October 30, 2010 was $112 million, or $0.72 per diluted share. This
compares with net income of $25 million, or $0.16 per diluted share for the
thirty-nine weeks ended October 31, 2009. Included in the thirteen and
thirty-nine weeks ended October 31, 2009 are impairment charges totaling $22
million, after-tax, or $0.14 per diluted share. Included in the thirty-nine
weeks ended October 31, 2009, is income from discontinued operations of $1
million, as a result of a favorable state tax examination attributable to the
Company’s former Canadian businesses.
LIQUIDITY AND CAPITAL
RESOURCES
Generally,
the Company’s primary source of cash has been from operations. The Company
generally finances real estate with operating leases. The principal uses of cash
have been to finance inventory requirements, capital expenditures related to
store openings, store remodelings, information systems, and other support
facilities, retirement plan contributions, quarterly dividend payments, interest
payments, other cash requirements to support the development of its short-term
and long-term operating strategies, and to fund other working capital
requirements.
Management
believes its cash, cash equivalents, future cash flow from operations, and the
Company’s current revolving credit facility will be adequate to fund these
requirements. The Company’s management does not currently expect to borrow under
the revolving credit facility in 2010. The Company may, from time to time,
repurchase its common stock or seek to retire or purchase outstanding debt
through open market purchases, privately negotiated transactions, or otherwise.
Such repurchases, if any, will depend on prevailing market conditions, liquidity
requirements, contractual restrictions, and other factors. The amounts involved
may be material. On February 16, 2010, the Company’s Board of Directors approved
an extension of the Company’s 2007 common share repurchase program for an
additional three years in the amount of $250 million.
Any
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 portion
of its merchandise purchases and risks associated with foreign global sourcing,
economic conditions worldwide, the effects of currency fluctuations, as well as
other factors listed under the heading “Disclosure Regarding Forward-Looking
Statements,” could affect the ability of the Company to continue to fund its
needs from business operations.
Net cash
provided by operating activities from continuing operations was $121 million and
$140 million for the thirty-nine weeks ended October 30, 2010 and October 31,
2009, respectively. These amounts reflect net income adjusted for non-cash items
and working capital changes. Included in the thirteen weeks and thirty-nine
weeks ended October 31, 2009 are non-cash impairment charges totaling $36
million, of which $32 million was recorded to write-down long-lived assets such
as store fixtures and leasehold improvements at the Company’s Lady Foot Locker,
Kids Foot Locker, Footaction and Champs Sports divisions and $4 million to write
off software development costs. During the thirty-nine weeks ended October 30,
2010, the Company contributed $32 million to its U.S. and Canadian qualified
pension plans as compared with $40 million in the corresponding prior-year
period. The change in merchandise inventory, net of the change in accounts
payable, as compared with the corresponding prior-year period, represents
inventory required to support the favorable sales trend. During the
thirty-nine weeks ended October 30, 2010, the Company paid $24 million to settle
the liability associated with the terminated European net investment hedge,
whereas in the corresponding prior-year period the Company terminated its
interest rate swaps and received $19 million.
Net cash
used in investing activities from continuing operations was $72 million and $59
million for the thirty-nine weeks ended October 30, 2010 and October 31, 2009,
respectively. Included in investing activities for the thirty-nine weeks ended
October 30, 2010 is a $1 million gain related to the sales of lease interests in
Europe. Included in investing activities for the thirty-nine weeks ended October
31, 2009 is a $1 million gain from insurance recoveries. Additionally, during
the second quarter of 2009, the Company received $10 million, representing
further liquidation of the Reserve International Liquidity
Fund. Capital expenditures were $73 million for the thirty-nine weeks
ended October 30, 2010 as compared with $70 million in the corresponding
prior-year period. The Company’s full year forecast for capital expenditures is
$105 million, of which $75 million relates to the modernizations of existing
stores and new store openings and $30 million for the development of information
systems and other support facilities.
Net cash
used in financing activities from continuing operations was $97 million and $71
million for the thirty-nine weeks ended October 30, 2010 and October 31, 2009,
respectively. During the thirty-nine weeks ended October 31, 2009, the Company
purchased and retired $3 million of its 8.50 percent debentures payable in
2022. The Company declared and paid dividends totaling $70 million
for each of the thirty-nine weeks ended October 30, 2010 and October 31, 2009.
This represents a quarterly rate of $0.15 per share. The Company received
proceeds from the issuance of common stock and treasury stock in connection with
employee stock programs of $8 million and $2 million for the thirty-nine weeks
ended October 30, 2010 and October 31, 2009, respectively. During the
thirty-nine weeks ended October 30, 2010, the Company repurchased 2,510,000
shares of its common stock under the 2007 common share repurchase program for
$36 million. During the thirty-nine weeks ended October 30, 2010, in
connection with stock option exercises, the Company recorded excess tax benefits
related to share-based compensation of $1 million as a financing
activity.
Recent
Accounting Pronouncements
Recently
issued accounting pronouncements did not have, or are not believed by management
to have, a material effect on the Company’s present or future consolidated
financial statements.
CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
There
have been no significant changes to the Company’s critical accounting policies
and estimates from the information provided in Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” included in the
Annual Report on Form 10-K for the fiscal year ended January 30,
2010.
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements within the meaning of the federal
securities laws. All statements, other than statements of historical facts,
which address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including, but not limited to, such
things as future capital expenditures, expansion, strategic plans, dividend
payments, stock repurchases, growth of the Company’s business and operations,
including future cash flows, revenues and earnings, and other such matters are
forward-looking statements. These forward-looking statements are based on many
assumptions and factors detailed 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 mix and retail locations, the Company’s reliance on
a few key vendors for a majority of its merchandise purchases (including a
significant portion from one key vendor), pandemics and similar major health
concerns, unseasonable weather, further deterioration of global financial
markets, economic conditions worldwide, further deterioration of business and
economic conditions, any changes in business, political and economic conditions
due to the threat of future terrorist activities in the United States or in
other parts of the world and related U.S. military action overseas, the ability
of the Company to execute its business and strategic plans effectively with
regard to each of its business units, and risks associated with foreign global
sourcing, including political instability, changes in import regulations, and
disruptions to transportation services and distribution. Any changes in such
assumptions or factors could produce significantly different results. The
Company undertakes no obligation to update forward-looking statements, whether
as a result of new information, future events, or otherwise.
Item 4. Controls and
Procedures
The
Company’s management performed an evaluation under the supervision and with the
participation of the Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), and completed an evaluation as of October 30, 2010 of
the effectiveness of the design and operation of the Company’s disclosure
controls and procedures (as that term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)). Based on that evaluation, the Company’s CEO and CFO concluded that the
Company’s disclosure controls and procedures were effective to ensure that
information relating to the Company that is required to be disclosed in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC rules and
forms, and is accumulated and communicated to management, including the CEO and
CFO, as appropriate to allow timely decisions regarding required
disclosure.
During
the quarter ended October 30, 2010, there were no changes in the Company’s
internal control over financial reporting (as defined in Rules 13a-15(f) of the
Exchange Act) that materially affected or are reasonably likely to affect the
Company’s internal control over financial reporting.
PART II - OTHER
INFORMATION
Item 1. Legal
Proceedings
Legal
proceedings pending against the Company or its consolidated subsidiaries consist
of ordinary, routine litigation, including administrative proceedings,
incidental to the business of the Company or businesses that have been sold or
disposed of by the Company in past years. These legal proceedings include
commercial, intellectual property, customer, and labor-and-employment-related
claims.
Certain
of the Company’s subsidiaries are defendants in a number of lawsuits filed in
state and federal courts containing various class action allegations under state
wage and hour laws, including allegations concerning unpaid overtime, meal and
rest breaks, and uniforms. In Pereira v. Foot Locker
(United States District Court, E.D. Pennsylvania), one of the class actions,
plaintiff alleged that the Company permitted unpaid off-the-clock hours in
violation of the Fair Labor Standards Act. In September 2009, the court
conditionally certified a nationwide collective action.
Management
does not believe that the outcome of any such proceedings would have a material
adverse effect on the Company’s consolidated financial position, liquidity, or
results of operations, taken as a whole.
Item 1A. Risk
Factors
There
were no material changes to the risk factors disclosed in the 2009 Annual Report
on Form 10-K.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
The
following table provides information with respect to shares of the Company’s
common stock that the Company repurchased during the thirteen weeks ended
October 30, 2010.
Date Purchased
|
|
Total
Number of
Shares
Purchased (1)
|
|
|
Average
Price Paid
per Share (1)
|
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program (2)
|
|
|
Approximate
Dollar Value of
Shares that may
yet be Purchased
Under the
Program (2)
|
|
August
1, 2010 through August 28, 2010
|
|
|
35,390 |
|
|
$ |
12.33 |
|
|
|
25,000 |
|
|
$ |
230,307,263 |
|
August
29, 2010 through October 2, 2010
|
|
|
589,130 |
|
|
$ |
13.35 |
|
|
|
585,000 |
|
|
$ |
222,495,064 |
|
October
3, 2010 through October 30, 2010
|
|
|
525,000 |
|
|
$ |
15.41 |
|
|
|
525,000 |
|
|
$ |
214,406,176 |
|
|
|
|
1,149,520 |
|
|
$ |
14.26 |
|
|
|
1,135,000 |
|
|
|
|
|
|
(1)
|
These
columns also reflect shares purchased in connection with stock swaps and
shares acquired in satisfaction of the tax withholding obligation of
holders of restricted stock which vested during the
quarter.
|
|
(2)
|
On
February 16, 2010, the Company’s Board of Directors approved the extension
of the Company’s 2007 common share repurchase program for an additional
three years in the amount of $250
million.
|
Item 6. Exhibits
|
(a)
|
Exhibits
|
|
The
exhibits that are in this report immediately follow the
index.
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
FOOT
LOCKER, INC.
|
Date:
December 8, 2010
|
(Company)
|
|
|
/s/
Robert W. McHugh
|
|
ROBERT
W. MCHUGH
|
|
Executive
Vice President and Chief Financial
Officer
|
FOOT
LOCKER, INC.
INDEX
OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q
AND FURNISHED IN
ACCORDANCE WITH ITEM 601 OF REGULATION S-K
Exhibit
No. in
|
|
|
Item
601
|
|
Description
|
12
|
|
Computation
of Ratio of Earnings to Fixed Charges.
|
|
15
|
|
Accountants’
Acknowledgement.
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley act of
2002.
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley act of
2002.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
99
|
|
Report
of Independent Registered Public Accounting Firm.
|
|
|
|
101
|
|
The
following materials from Foot Locker, Inc.’s Quarterly Report on
Form 10-Q for the quarter ended October 30, 2010, formatted in XBRL
(Extensible Business Reporting Language) and furnished electronically
herewith: (i) the Condensed Consolidated Balance Sheets,
(ii) the Condensed Consolidated Statements of Operations,
(iii) the Condensed Consolidated Statements of Comprehensive Income,
(iv) the Condensed Consolidated Statements of Cash Flows, and
(v) Notes to Condensed Consolidated Financial Statements, tagged as
blocks of text.
|