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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 2003
Commission file no. 1-10299
FOOT LOCKER, INC.
-----------------
(Exact name of registrant as specified in its charter)
New York 13-3513936
- --------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
112 W. 34th Street, New York, New York 10120
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 720-3700
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 X NO
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES X NO
Number of shares of Common Stock outstanding at September 5, 2003: 142,300,188
FOOT LOCKER, INC.
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets.............................. 1
Condensed Consolidated Statements
of Operations................................................. 2
Condensed Consolidated Statements
of Comprehensive Income....................................... 3
Condensed Consolidated Statements
of Cash Flows................................................. 4
Notes to Condensed Consolidated
Financial Statements.......................................... 5-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 14-22
Item 4. Controls and Procedures............................................ 22-23
Part II. Other Information
Item 1. Legal Proceedings.................................................. 23
Item 4. Submission of Matters to a Vote of
Security Holders............................................ 23-24
Item 6. Exhibits and Reports on Form 8-K................................... 24
Signature.......................................................... 25
Index to Exhibits.................................................. 26
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FOOT LOCKER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except shares)
August 2, August 3, February 1,
2003 2002 2003
---- ---- ----
(Unaudited) (Unaudited) *
ASSETS
Current assets
Cash and cash equivalents .................................... $ 332 $ 307 $ 357
Merchandise inventories ...................................... 948 887 835
Assets of discontinued operations ............................ 2 3 2
Other current assets ......................................... 98 110 90
------- ------- -------
1,380 1,307 1,284
Property and equipment, net ..................................... 621 626 636
Deferred taxes .................................................. 256 247 240
Goodwill and intangible assets .................................. 223 202 216
Assets of business transferred under
contractual arrangement (note receivable) ................. -- 12 --
Other assets .................................................... 109 69 110
------- ------- -------
$ 2,589 $ 2,463 $ 2,486
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................. $ 339 $ 389 $ 251
Accrued liabilities .......................................... 259 203 296
Current portion of repositioning and restructuring reserves .. 4 3 3
Current portion of reserve for discontinued operations ....... 17 21 18
Liabilities of discontinued operations ....................... 2 4 3
Current portion of long-term debt and obligations
under capital leases ....................................... -- 31 1
------- ------- -------
621 651 572
Long-term debt and obligations
under capital leases ......................................... 348 363 356
Liabilities of business transferred under
contractual arrangement ...................................... -- 12 --
Other liabilities ............................................... 428 360 448
Shareholders' equity
Common stock and paid-in capital: 142,262,025;
141,036,379 and 141,180,455 shares, respectively ........... 385 373 378
Retained earnings ............................................ 1,012 848 946
Accumulated other comprehensive loss ......................... (204) (144) (213)
Less: Treasury stock at cost: 66,124; 70,220 and
105,220 shares, respectively ............................... (1) -- (1)
------- ------- -------
Total shareholders' equity ...................................... 1,192 1,077 1,110
------- ------- -------
$ 2,589 $ 2,463 $ 2,486
======= ======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
* The balance sheet at February 1, 2003 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by GAAP for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Registrant's Annual Report on Form 10-K for the year
ended February 1, 2003.
-1-
FOOT LOCKER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
2003 2002 2003 2002
---- ---- ---- ----
Sales .......................................................... $ 1,123 $ 1,085 $ 2,251 $ 2,175
Costs and Expenses
Cost of sales ................................................ 792 773 1,575 1,543
Selling, general and administrative expenses ................. 233 220 474 440
Depreciation and amortization ................................ 38 38 75 74
Restructuring charge (income) ................................ 1 (1) 1 (1)
Interest expense, net ........................................ 4 7 9 14
Other income ................................................. -- (3) -- (3)
------- ------- ------- -------
1,068 1,034 2,134 2,067
------- ------- ------- -------
Income from continuing operations before
income taxes .............................................. 55 51 117 108
Income tax expense ............................................. 18 18 41 37
------- ------- ------- -------
Income from continuing operations 37 33 76 71
------- ------- ------- -------
Loss on disposal of discontinued operations, net of income
tax benefit of $1, respectively ........................... (1) (2) (1) (20)
Cumulative effect of accounting change, net of income tax of
$- ........................................................ -- -- (1) --
------- ------- ------- -------
Net income ..................................................... $ 36 $ 31 $ 74 $ 51
======= ======= ======= =======
Basic earnings per share:
Income from continuing operations ......................... $ 0.26 $ 0.23 $ 0.54 $ 0.50
Loss from discontinued operations ......................... (0.01) (0.01) (0.01) (0.14)
Cumulative effect of accounting change .................... -- -- -- --
------- ------- ------- -------
Net income ................................................ $ 0.25 $ 0.22 $ 0.53 $ 0.36
======= ======= ======= =======
Weighted-average common shares outstanding ..................... 141.3 140.7 141.2 140.4
Diluted earnings per share:
Income from continuing operations ......................... $ 0.25 $ 0.22 $ 0.52 $ 0.48
Loss from discontinued operations ......................... (0.01) (0.01) (0.01) (0.13)
Cumulative effect of accounting change .................... -- -- -- --
------- ------- ------- -------
Net income ................................................ $ 0.24 $ 0.21 $ 0.51 $ 0.35
======= ======= ======= =======
Weighted-average common shares assuming dilution ............... 152.1 151.0 151.7 150.9
See Accompanying Notes to Condensed Consolidated Financial Statements.
-2-
FOOT LOCKER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
2003 2002 2003 2002
---- ---- ---- ----
Net income ................................................. $ 36 $ 31 $ 74 $ 51
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments arising during
the period ............................................... 3 15 8 25
Change in fair value of derivatives accounted for as
hedges, net of deferred tax benefit of $- ................ (1) (1) 1 (1)
------- ------- ------- -------
Comprehensive income ....................................... $ 38 $ 45 $ 83 $ 75
======= ======= ======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
-3-
FOOT LOCKER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Twenty-six weeks ended
----------------------
Aug. 2, Aug. 3,
2003 2002
----- -----
From Operating Activities:
Net income ................................................................... $ 74 $ 51
Adjustments to reconcile net income to net cash provided by
operating activities of continuing operations:
Cumulative effect of accounting change, net of tax ......................... 1 --
Restructuring charge (income) .............................................. 1 (1)
Loss on disposal of discontinued operations, net of tax .................... 1 20
Depreciation and amortization .............................................. 75 74
Real estate gains .......................................................... -- (3)
Deferred income taxes ...................................................... (14) 3
Change in assets and liabilities:
Merchandise inventories .................................................. (107) (84)
Accounts payable and other accruals ...................................... 55 92
Repositioning and restructuring reserves ................................. -- (2)
Pension funding liability ................................................ (50) --
Other, net ............................................................... 18 3
----- -----
Net cash provided by operating activities of continuing operations ........... 54 153
----- -----
From Investing Activities:
Proceeds from disposal of real estate ........................................ -- 6
Lease acquisition costs ...................................................... (9) (8)
Capital expenditures ......................................................... (59) (63)
----- -----
Net cash used in investing activities of continuing operations ............... (68) (65)
----- -----
From Financing Activities:
Reduction in long-term debt and capital lease obligations .................... -- (4)
Dividends paid ............................................................... (8) --
Issuance of common stock ..................................................... 5 9
----- -----
Net cash (used in) provided by financing activities of continuing operations . (3) 5
----- -----
Net Cash used in Discontinued Operations ........................................ (3) (6)
Effect of exchange rate fluctuations
on Cash and Cash Equivalents ................................................. (5) 5
----- -----
Net change in Cash and Cash Equivalents ......................................... (25) 92
Cash and Cash Equivalents at beginning of year .................................. 357 215
----- -----
Cash and Cash Equivalents at end of interim period .............................. $ 332 $ 307
===== =====
Cash paid during the period:
Interest ..................................................................... $ 13 $ 14
Income taxes ................................................................. $ 39 $ 20
See Accompanying Notes to Condensed Consolidated Financial Statements.
-4-
FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the Registrant's Form 10-K for the year ended February
1, 2003, as filed with the Securities and Exchange Commission (the "SEC") on May
19, 2003. Certain items included in these statements are based on management's
estimates. In the opinion of management, all material adjustments, which are of
a normal recurring nature, necessary for a fair presentation of the results for
the interim periods have been included. The results for the twenty-six weeks
ended August 2, 2003 are not necessarily indicative of the results expected for
the year.
Stock-Based Compensation
The Registrant accounts for stock-based compensation by applying APB No.
25, "Accounting for Stock Issued to Employees" ("APB No. 25"), as permitted by
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). In
accordance with APB No. 25, compensation expense is not recorded for options
granted if the option price is not less than the quoted market price at the date
of grant. Compensation expense is also not recorded for employee purchases of
stock under the 1994 Stock Purchase Plan. The plan, which is compensatory as
defined in SFAS No. 123, is non-compensatory as defined in APB No. 25. SFAS No.
123 requires disclosure of the impact on earnings per share if the fair value
method of accounting for stock-based compensation is applied for companies
electing to continue to account for stock-based plans under APB No. 25.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure an amendment of FASB Statement No. 123," which was issued in December
2002, provides alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based
compensation and requires more prominent disclosure of the pro forma impact on
earnings per share. As the Registrant has continued to account for stock - based
compensation under APB No. 25, such disclosures are now required quarterly for
interim periods beginning in 2003. Accounting for the Registrant's stock-based
compensation, in accordance with the fair value method provisions of SFAS No.
123 would have resulted in the following:
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
---- ---- ---- ----
(in millions, except per share amounts)
Net income, as reported: $ 36 $ 31 $ 74 $ 51
Add: Stock-based employee compensation expense
included in reported net income, net of
income tax benefit ............................ -- -- 1 --
Deduct: Total stock-based employee compensation
expense determined under fair value method
for all awards, net of income tax benefit ..... 1 2 2 3
-------- -------- -------- --------
Pro forma net income .......................... $ 35 $ 29 $ 73 $ 48
======== ======== ======== ========
Basic earnings per share:
As reported ................................... $ 0.25 $ 0.22 $ 0.53 $ 0.36
Pro forma ..................................... $ 0.25 $ 0.21 $ 0.51 $ 0.34
Diluted earnings per share:
As reported ................................... $ 0.24 $ 0.21 $ 0.51 $ 0.35
Pro forma ..................................... $ 0.24 $ 0.21 $ 0.50 $ 0.34
-5-
The fair values of the issuance of the stock-based compensation pursuant
to the Company's various stock option and purchase plans were estimated at the
grant date using the Black-Scholes option-pricing model. The Black-Scholes
option valuation model was developed for estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. Because
option valuation models require the use of subjective assumptions, changes in
these assumptions can materially affect the fair value of the options, and
because the Registrant's options do not have the characteristics of traded
options, the option valuation models do not necessarily provide a reliable
measure of the fair value of its options.
Goodwill and Intangible Assets
The Registrant adopted SFAS No. 142, "Goodwill and Other Intangible
Assets" effective February 3, 2002, which requires that goodwill and intangible
assets with indefinite lives no longer be amortized but reviewed for impairment
if impairment indicators arise and, at a minimum, annually. Accordingly, the
Registrant stopped amortizing goodwill in the first quarter of 2002. During the
first quarter of 2003, the Registrant completed its annual review of goodwill,
which did not result in an impairment charge.
Goodwill (in millions) August 2, 2003 August 3, 2002 February 1, 2003
- ---------------------- -------------- -------------- ----------------
Athletic Stores ........... $ 56 $ 55 $ 56
Direct-to-Customers ....... 80 80 80
----------- ----------- -----------
$ 136 $ 135 $ 136
=========== =========== ===========
Intangible Assets (in millions) August 2, 2003 August 3, 2002 February 1, 2003
- ------------------------------- -------------- -------------- ----------------
Intangible assets not subject to amortization .... $ 2 $ -- $ 2
Intangible assets subject to amortization, net
of accumulated amortization of $42 million,
$37 million and $36 million, respectively ..... 85 67 78
----------- ----------- --------------
$ 87 $ 67 $ 80
=========== =========== ==============
Total ... $ 223 $ 202 $ 216
=========== =========== ==============
Finite life intangible assets comprise lease acquisition costs, which are
required to secure prime lease locations and other lease rights, primarily in
Europe. The weighted-average amortization period as of August 2, 2003 was
approximately 11.5 years. Amortization expense for lease acquisition costs was
approximately $3 million and $5 million for the thirteen and twenty-six weeks
ended August 2, 2003, respectively. For the thirteen and twenty-six weeks ended
August 3, 2002, amortization expense was approximately $2 million and $4
million, respectively. Annual estimated amortization expense for lease
acquisition costs is expected to be approximately $10 million for 2003, $11
million for 2004 and $10 million for 2005 and each of the succeeding two years.
Intangible assets not subject to amortization relate to the Registrant's
U.S. defined benefit retirement plan.
-6-
Derivative Financial Instruments
During the twenty-six weeks ended August 2, 2003 and August 3, 2002,
ineffectiveness related to cash flow hedges recorded to earnings was not
material.
Accumulated comprehensive income was decreased by approximately $1 million
after-tax due to changes in fair value of derivative financial instruments
designated as hedges during the second quarter of 2003 and 2002.
The fair value of derivative contracts outstanding at August 2, 2003
comprised current assets of $1 million, current liabilities of $11 million and
non-current liabilities of $8 million.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In general, SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS No. 149 did not have a
significant impact on financial position and results of operations.
Asset Retirement Obligations
The Registrant adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143") as of February 2, 2003. The statement requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate can be
made. The carrying amount of the related long-lived asset shall be increased by
the same amount as the liability and that amount will be amortized over the
useful life of the underlying long-lived asset. The difference between the fair
value and the value of the ultimate liability will be accreted over time using
the credit-adjusted risk-free interest rate in effect when the liability is
initially recognized. Asset retirement obligations of the Registrant may at any
time include structural alterations to store locations and equipment removal
costs from distribution centers required by certain leases. On February 2, 2003,
the Registrant recorded a liability of $2 million for the expected present value
of future retirement obligations, increased property and equipment by $1 million
and recognized a $1 million after tax charge for the cumulative effect of the
accounting change. There were no additions recorded during the first quarter of
2003 and additional asset retirement obligations recorded during the second
quarter of 2003 were not material. The amortization and accretion expenses
recorded during these periods were also not material. Pro forma effects for the
thirteen and twenty-six weeks ended August 3, 2002, assuming adoption of SFAS
No. 143 as of February 3, 2002, were not material to the liability, the net
earnings or the per share amounts, and therefore, have not been presented.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of the following:
August 2, 2003 August 3, 2002 February 1, 2003
-------------- -------------- ----------------
Foreign currency translation adjustments $ (7) $ (28) $ (15)
Minimum pension liability adjustment (198) (115) (198)
Changes in the fair value of derivatives
designated as hedges 1 (1) --
----- ----- -----
$(204) $(144) $(213)
===== ===== =====
-7-
Discontinued Operations
On January 23, 2001, the Registrant announced that it was exiting its 694
store Northern Group segment. The Registrant recorded a charge to earnings of
$252 million before-tax, or $294 million after-tax, in 2000 for the loss on
disposal of the segment. Major components of the charge included expected cash
outlays for lease buyouts and real estate disposition costs of $68 million,
severance and personnel related costs of $23 million and operating losses and
other exit costs from the measurement date through the expected date of disposal
of $24 million. Non-cash charges included the realization of a $118 million
currency translation loss, resulting from the movement in the Canadian dollar
during the period the Registrant held its investment in the segment and asset
write-offs of $19 million. The Registrant also recorded a tax benefit for the
liquidation of the Northern U.S. stores of $42 million, which was offset by a
valuation allowance of $84 million to reduce the deferred tax assets related to
the Canadian operations to an amount that is more likely than not to be
realized.
In the first quarter of 2001, the Registrant recorded a tax benefit of $5
million as a result of the implementation of tax planning strategies related to
the discontinuance of the Northern Group. During the second quarter of 2001, the
Registrant completed the liquidation of the 324 stores in the United States and
recorded a charge to earnings of $12 million before-tax, or $19 million
after-tax. The charge comprised the write-down of the net assets of the Canadian
business to their net realizable value pursuant to the then pending transaction,
which was partially offset by reduced severance costs as a result of the
transaction and favorable results from the liquidation of the U.S. stores and
real estate disposition activity. On September 28, 2001, the Registrant
completed the stock transfer of the 370 Northern Group stores in Canada, through
one of its wholly-owned subsidiaries for approximately CAD$59 million
(approximately US$38 million), which was paid in the form of a note (the
"Note"). The purchaser agreed to obtain a revolving line of credit with a
lending institution, satisfactory to the Registrant, in an amount not less than
CAD$25 million (approximately US$17 million). Another wholly-owned subsidiary of
the Registrant was the assignor of the store leases involved in the transaction
and therefore retains potential liability for such leases. The Registrant also
entered into a credit agreement with the purchaser to provide a revolving credit
facility to be used to fund its working capital needs, up to a maximum of CAD$5
million (approximately US$3 million). The net amount of the assets and
liabilities of the former operations was written down to the estimated fair
value of the Note, approximately US$18 million. The transaction was accounted
for pursuant to SEC Staff Accounting Bulletin Topic 5:E "Accounting for
Divestiture of a Subsidiary or Other Business Operation," ("SAB Topic 5:E") as a
"transfer of assets and liabilities under contractual arrangement" as no cash
proceeds were received and the consideration comprised the Note, the repayment
of which is dependent on the future successful operations of the business. The
assets and liabilities related to the former operations were presented under the
balance sheet captions as "Assets of business transferred under contractual
arrangement (note receivable)" and "Liabilities of business transferred under
contractual arrangement."
In the fourth quarter of 2001, the Registrant further reduced its estimate
for real estate costs by $5 million based on then current negotiations, which
was completely offset by increased severance, personnel and other disposition
costs.
The Registrant recorded a charge of $18 million in the first quarter of
2002 reflecting the poor performance of the Northern Group stores in Canada
since the date of the transaction. There was no tax benefit recorded related to
the $18 million charge, which comprised a valuation allowance in the amount of
the operating losses incurred by the purchaser and a further reduction in the
carrying value of the net amount of the assets and liabilities of the former
operations to zero, due to greater uncertainty with respect to the
collectibility of the Note. This charge was recorded pursuant to SAB Topic 5:E,
which requires accounting for the Note in a manner somewhat analogous to equity
accounting for an investment in common stock.
In the third quarter of 2002, the Registrant recorded a charge of
approximately $1 million before-tax for lease exit costs in excess of previous
estimates. In addition, the Registrant recorded a tax benefit of $2 million,
which also reflected the impact of the tax planning strategies implemented
related to the discontinuance of the Northern Group.
-8-
On December 31, 2002, the Registrant-provided revolving credit facility
expired, without having been used. Furthermore, the operating results of
Northern Canada had significantly improved during the year such that the
Registrant had reached an agreement in principle to receive CAD$5 million
(approximately US$3 million) cash consideration in partial prepayment of the
Note and accrued interest due and agreed to reduce the face value of the Note to
CAD$17.5 million (approximately US$12 million). Based upon the improved results
of the Northern Canada business, the Registrant believes there is no substantial
uncertainty as to the amount of the future costs and expenses that could be
payable by the Registrant. As indicated above, as the assignor of the Northern
Canada leases, a wholly-owned subsidiary of the Registrant remains secondarily
liable under those leases. As of August 2, 2003, the Registrant estimates that
its gross contingent lease liability is between CAD$76 to $82 million
(approximately US$53 to $59 million). Based upon its assessment of the risk of
having to satisfy that liability and the resultant possible outcomes of lease
settlement, the Registrant currently estimates the expected value of the lease
liability to be approximately US$2 million. The Registrant believes that it is
unlikely that it would be required to make such contingent payments, and
further, such contingent obligations would not be expected to have a material
effect on the Registrant's consolidated financial position, liquidity or results
of operations. As a result of the aforementioned developments, during the fourth
quarter of 2002 circumstances changed sufficiently such that it became
appropriate to recognize the transaction as an accounting divestiture.
During the fourth quarter of 2002, as a result of the accounting
divestiture, the Note was recorded in the financial statements at its estimated
fair value of CAD$16 million (approximately US$10 million). The Registrant, with
the assistance of an independent third party, determined the estimated fair
value by discounting expected cash flows at an interest rate of 18 percent. This
rate was selected considering such factors as the credit rating of the
purchaser, rates for similar instruments and the lack of marketability of the
Note. As the net assets of the former operations were previously written down to
zero, the fair value of the Note was recorded as a gain on disposal within
discontinued operations. There was no tax expense recorded related to this gain.
The Registrant ceased presenting the assets and liabilities of Northern Canada
as "Assets of business transferred under contractual arrangement (note
receivable)" and "Liabilities of business transferred under contractual
arrangement," and has recorded the Note initially at its estimated fair value.
On May 6, 2003, the amendments to the Note were executed and a cash payment of
CAD$5.2 million (approximately US$3.5 million) was received representing
principal and interest through the date of the amendment. After taking into
account this payment, the remaining principal due under the Note was reduced to
CAD$17.5 million (approximately US$12 million). Under the terms of the
renegotiated Note, a principal payment of CAD$1 million is due January 15, 2004.
An accelerated principal payment of CAD$1 million may be due if certain events
occur. The remaining amount of the Note is required to be repaid upon the
occurrence of "payment events," as defined in the purchase agreement, but no
later than September 28, 2008. Interest is payable semiannually and began to
accrue on May 1, 2003 at a rate of 7.0 percent per annum. At August 2, 2003 and
February 1, 2003, US$1 million and US$4 million, respectively, are classified as
a current receivable, with the remainder classified as long term within other
assets in the accompanying Condensed Consolidated Balance Sheet.
Future adjustments, if any, to the carrying value of the Note will be
recorded pursuant to SEC Staff Accounting Bulletin Topic 5:Z:5, "Accounting and
Disclosure Regarding Discontinued Operations," which requires changes in the
carrying value of assets received as consideration from the disposal of a
discontinued operation to be classified within continuing operations. Interest
and accretion income will also be recorded within continuing operations. The
Registrant will recognize an impairment loss when, and if, circumstances
indicate that the carrying value of the Note may not be recoverable. Such
circumstances would include a deterioration in the business, as evidenced by
significant operating losses incurred by the purchaser or nonpayment of an
amount due under the terms of the Note.
As the stock transfer on September 28, 2001 was accounted for in
accordance with SAB Topic 5:E, a disposal was not achieved pursuant to APB No.
30. If the Registrant had applied the provisions of Emerging Issues Task Force
90-16, "Accounting for Discontinued Operations Subsequently Retained" ("EITF
90-16"), prior reporting periods would not be restated, accordingly reported net
income would not have changed. However, the results of operations of the
Northern business segment in all prior periods would have been
-9-
reclassified from discontinued operations to continuing operations. The incurred
loss on disposal at September 28, 2001 would continue to be classified as
discontinued operations, however, the remaining accrued loss on disposal at this
date, of US$24 million, primarily relating to the lease liability of the
Northern U.S. business, would have been reversed as part of discontinued
operations. Since the liquidation of this business was complete, this liability
would have been recorded in continuing operations in the same period pursuant to
EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." With respect to Northern Canada, the business was legally sold
as of September 28, 2001 and thus operations would no longer be recorded, but
instead the business would be accounted for pursuant to SAB Topic 5:E. In the
first quarter of 2002, the $18 million charge recorded within discontinued
operations would have been classified as continuing operations. Similarly, the
$1 million benefit recorded in the third quarter of 2002 would also have been
classified as continuing operations. Having achieved divestiture accounting in
the fourth quarter of 2002 and applying the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Registrant
would have then reclassified all prior periods' results of the Northern Group to
discontinued operations. Reported net income in each of the periods would not
have changed and therefore the Registrant did not amend any of its prior
filings.
The remaining reserve balance of $8 million at August 2, 2003 is expected
to be utilized within twelve months.
NORTHERN GROUP (in millions)
Balance Net Charge/ Balance
2/1/2003 Usage (1) (Income) 8/2/2003
-------- --------- -------- --------
Real estate & lease liabilities .. $ 6 $ 1 $ -- $ 7
Other costs ...................... 1 -- -- 1
--------- --------- ------- ---------
Total ............................ $ 7 $ 1 $ -- $ 8
========= ========= ======= =========
(1) Includes payments of $1 million offset by an increase of $2 million
resulting from foreign currency fluctuations.
In 1998, the Registrant exited both its International General Merchandise
and Specialty Footwear segments. In 1997, the Registrant announced that it was
exiting its Domestic General Merchandise segment. The successor-assignee of the
leases of a former business included in the Domestic General Merchandise segment
filed a petition in bankruptcy during 2002, and rejected in the bankruptcy
proceeding 15 leases it originally acquired from a subsidiary of the Registrant.
There are currently several actions pending against this subsidiary by former
landlords for the lease obligations. In the fourth quarter of 2002, the
Registrant recorded a charge of $1 million after-tax and in the second quarter
of 2003 recorded an additional after-tax charge of $1 million, related to
certain actions. The Registrant estimates the gross contingent lease liability
related to the remaining actions to be approximately $6 million. The Registrant
believes that it may have valid defenses, however, given the current procedural
status of these cases, their outcome cannot be predicted with any degree of
certainty.
The remaining reserve balances for these three discontinued segments
totaled $17 million as of August 2, 2003, $9 million of which is expected to be
utilized within twelve months and the remaining $8 million thereafter.
Disposition activity related to the reserves is presented below:
(in millions)
INTERNATIONAL GENERAL MERCHANDISE
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 8/2/2003
-------- ----- -------- --------
Woolco ............. $ 1 $ (1) $ -- $ --
The Bargain! Shop .. 6 -- -- 6
-------- -------- -------- --------
Total .............. $ 7 $ (1) $ -- $ 6
======== ======== ======== ========
-10-
(in millions)
SPECIALTY FOOTWEAR
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 8/2/2003
-------- ----- -------- --------
Real estate & lease liabilities .. $ 2 $ -- $ -- $ 2
Other costs ...................... 1 (1) -- --
-------- -------- -------- --------
Total ............................ $ 3 $ (1) $ -- $ 2
======== ======== ======== ========
DOMESTIC GENERAL MERCHANDISE
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 8/2/2003
-------- ----- -------- --------
Real estate & lease liabilities .. $ 7 $ (1) $ -- $ 6
Legal and other costs ............ 3 (2) 2 3
-------- -------- -------- --------
Total ............................ $ 10 $ (3) $ 2 $ 9
======== ======== ======== ========
The following is a summary of the assets and liabilities of discontinued
operations:
DOMESTIC
NORTHERN SPECIALTY GENERAL
(in millions) GROUP FOOTWEAR MERCHANDISE TOTAL
- ------------- ----- -------- ----------- -----
8/2/2003
Assets ...................................... $ -- $ -- $ 2 $ 2
Liabilities ................................. -- -- 2 2
-------- -------- -------- --------
Net liabilities of discontinued operations .. $ -- $ -- $ -- $ --
======== ======== ======== ========
8/3/2002
Assets ...................................... $ -- $ 1 $ 2 $ 3
Liabilities ................................. 2 -- 2 4
-------- -------- -------- --------
Net liabilities of discontinued operations .. $ (2) $ 1 $ -- $ (1)
======== ======== ======== ========
2/1/2003
Assets ...................................... $ -- $ -- $ 2 $ 2
Liabilities ................................. 1 -- 2 3
-------- -------- -------- --------
Net liabilities of discontinued operations .. $ (1) $ -- $ -- $ (1)
======== ======== ======== ========
The Northern Group assets and liabilities of discontinued operations
primarily comprised the Northern Group stores in the U.S. The net assets of the
Specialty Footwear and Domestic General Merchandise segments consist primarily
of fixed assets and accrued liabilities.
Restructuring Programs
1999 Restructuring
Total restructuring charges of $96 million before-tax were recorded in
1999 for the Registrant's restructuring program to sell or liquidate non-core
businesses. The restructuring plan also included an accelerated store-closing
program in the United States and Asia, corporate headcount reduction and a
distribution center shutdown. The disposition of all non-core businesses was
completed by November 2001. The remaining reserve balance at August 2, 2003
totaled $2 million, which is expected to be utilized within twelve months.
The Registrant sold The San Francisco Music Box Company ("SFMB") in 2001;
however, the Registrant remains as an assignor or guarantor of leases of SFMB
related to a distribution center and five store locations. In May 2003, SFMB
filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the U.S.
Bankruptcy Court for the District of Delaware. During July and August 2003, SFMB
rejected five of the leases and assumed one of the store leases in the
bankruptcy proceedings. As of August 2, 2003, the Registrant estimates its gross
contingent lease liability for these leases to be approximately $5 million.
During the second quarter of 2003, the Registrant recorded a charge of $1
million, primarily related to the distribution center lease, representing the
expected costs to exit these leases.
-11-
1993 Repositioning and 1991 Restructuring
The Registrant recorded charges of $558 million in 1993 and $390 million
in 1991 to reflect the anticipated costs to sell or close under-performing
specialty and general merchandise stores in the United States and Canada. Under
the 1993 repositioning program, approximately 970 stores were identified for
closing. Approximately 900 stores were closed under the 1991 restructuring
program. The remaining reserve balance of $2 million at August 2, 2003 comprises
future lease obligations and is expected to be substantially utilized within
twelve months. Disposition activity related to the reserves within the
restructuring programs is presented below.
1999 Restructurings
(in millions)
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 8/2/2003
-------- ----- -------- --------
Real estate .. $ 1 $ -- $ 1 $ 2
======== ======== ======== ========
1993 Repositioning and 1991 Restructuring
(in millions)
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 8/2/2003
-------- ----- -------- --------
Real estate .............. $ 1 $ -- $ -- $ 1
Other disposition costs .. 1 -- -- 1
-------- -------- -------- --------
Total .................... $ 2 $ -- $ -- $ 2
======== ======== ======== ========
Total Restructuring Reserves
(in millions)
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 8/2/2003
-------- ----- -------- --------
Real estate ............... $ 2 $ -- $ 1 $ 3
Other disposition costs ... 1 -- -- 1
-------- -------- -------- --------
Total ..................... $ 3 $ -- $ 1 $ 4
======== ======== ======== ========
Earnings Per Share
Basic earnings per share is computed as net earnings 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 stock-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.
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
(in millions) Aug. 2, Aug. 3, Aug. 2, Aug. 3,
2003 2002 2003 2002
---- ---- ---- ----
Numerator:
Income from continuing operations ................... $ 37 $ 33 $ 76 $ 71
Effect of Dilution:
Convertible debt .................................... 1 1 2 2
-------- -------- -------- --------
Income from continuing operations assuming
dilution .......................................... $ 38 $ 34 $ 78 $ 73
======== ======== ======== ========
Denominator:
Weighted-average common shares outstanding .......... 141.3 140.7 141.2 140.4
Effect of Dilution:
Stock options and awards ............................ 1.3 0.8 1.0 1.0
Convertible debt .................................... 9.5 9.5 9.5 9.5
-------- -------- -------- --------
Weighted-average common shares assuming dilution .... 152.1 151.0 151.7 150.9
======== ======== ======== ========
-12-
Options to purchase 4.0 million and 4.1 million shares of common stock
were not included in the computation for the thirteen weeks ended August 2, 2003
and August 3, 2002, respectively. Options to purchase 5.7 million and 3.5
million shares of common stock were not included in the computation for the
twenty-six weeks ended August 2, 2003 and August 3, 2002, respectively. These
amounts were not included because the exercise price of the options was greater
than the average market price of the common shares and, therefore, the effect
would be antidilutive.
Segment Information
Sales and operating results for the Registrant's reportable segments for
the thirteen and twenty-six weeks ended August 2, 2003 and August 3, 2002,
respectively, are presented below. Operating profit before corporate expense,
net reflects income from continuing operations before income taxes, corporate
expense, non-operating income and net interest expense.
Sales:
Thirteen weeks ended Twenty-six weeks ended
------------------------------ -------------------------------
Aug. 2, 2003 Aug. 3, 2002 Aug. 2, 2003 Aug. 3, 2002
------------ ------------ ------------ ------------
(in millions)
Athletic Stores............................ $ 1,050 $ 1,016 $ 2,091 $ 2,022
Direct-to-Customers........................ 73 69 160 153
-------- --------- --------- --------
Total Sales................................ $ 1,123 $ 1,085 $ 2,251 $ 2,175
======== ========= ========= ========
Operating results:
Thirteen weeks ended Twenty-six weeks ended
----------------------------- ------------------------------
Aug. 2, 2003 Aug. 3, 2002 Aug. 2, 2003 Aug. 3, 2002
------------ ------------ ------------ ------------
(in millions)
Athletic Stores............................ $ 68 $ 62 $ 143 $ 131
Direct-to-Customers........................ 8 6 17 14
------- ------- -------- --------
76 68 160 145
All Other (1).............................. (1) 1 (1) 1
------- ------- -------- --------
Total operating profit before corporate
expense, net............................ 75 69 159 146
Corporate expense.......................... 16 14 33 27
------- ------- -------- --------
Operating profit........................... 59 55 126 119
Non-operating income....................... - (3) - (3)
Interest expense, net...................... 4 7 9 14
------- ------- -------- --------
Income from continuing operations
before income taxes..................... $ 55 $ 51 $ 117 $ 108
======= ======= ======== =======
(1) The disposition of all other formats presented as "All Other" was completed
in 2001. Both 2003 periods presented include restructuring charges of $1
million. Both periods in 2002 include a reduction in restructuring charges of $1
million.
Recently Issued Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Among other
things, the statement does not affect the classification or measurement of
convertible bonds, puttable stock, or other outstanding shares that are
conditionally redeemable. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of
-13-
the first interim period beginning after June 15, 2003. The statement is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
The Registrant does not expect that the adoption of SFAS No. 150 will have a
significant impact on its financial position and results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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. All comparable-store sales increases and decreases exclude the impact
of foreign currency fluctuations.
RESULTS OF OPERATIONS
Sales of $1,123 million for the second quarter of 2003 increased 3.5
percent from sales of $1,085 million for the second quarter of 2002. For the
twenty-six weeks ended August 2, 2003, sales of $2,251 million increased 3.5
percent from sales of $2,175 million for the twenty-six weeks ended August 3,
2002. Excluding the impact of foreign currency fluctuations , sales decreased
0.8 percent and 0.4 percent for the second quarter and year-to-date periods of
2003, respectively, as compared with the corresponding prior-year periods. These
changes included comparable-store sales decreases of 4.4 percent and 3.5
percent, respectively, while benefiting from the Registrant's closing of
under-performing stores and the continuation of the new store opening program.
Gross margin, as a percentage of sales, of 29.5 percent and 30.0 percent
for the thirteen and twenty-six weeks ended August 2, 2003, respectively,
improved as compared with 28.8 percent and 29.1 percent, respectively, in the
corresponding prior-year periods. These improvements were primarily driven by
better merchandise purchasing, including increased vendor allowances, which
improved gross margin, as a percentage of sales, by 110 basis points and 70
basis points for the second quarter and year-to-date periods, respectively.
Inventory levels at August 2, 2003 are in line with the Registrant's plan.
Selling, general and administrative expenses ("SG&A") of $233 million
increased by 5.9 percent for the second quarter of 2003 as compared with the
second quarter of 2002. SG&A for the twenty-six weeks ended August 2, 2003 of
$474 million increased by 7.7 percent as compared with the corresponding
prior-year period. Excluding the effect of foreign currency fluctuations, the
increase in SG&A was 1.6 percent and 4.1 percent for the thirteen and twenty-six
weeks in 2003, respectively, as compared with the corresponding prior-year
periods. These 2003 increases in the second quarter and year-to-date periods
primarily related to new store openings across several formats. SG&A, as a
percentage of sales, increased to 20.7 percent and 21.1 percent for the thirteen
and twenty-six weeks ended August 2, 2003, respectively, as compared with 20.3
percent and 20.2 percent, respectively in the corresponding prior-year periods.
Depreciation and amortization of $38 million remained flat for the second
quarter of 2003 and increased by $1 million to $75 million for the first half of
2003 as compared with the corresponding prior-year periods.
Net interest expense of $4 million and $9 million for the thirteen and
twenty-six weeks ended August 2, 2003, declined by 42.9 percent and 35.7
percent, respectively, as compared with the corresponding prior-year periods.
These decreases were primarily related to savings obtained from the $100 million
of interest rate swaps that the Registrant entered into during the fourth
quarter of 2002 and the first and second quarters of 2003, to convert the fixed
interest rate on the 8.5 percent debentures to a lower rate instrument. The
decreases were also attributed to the repayment in October 2002 of the remaining
$32 million of the $40 million 7.0 percent medium-term notes. Interest income
remained flat at $2 million for the second quarters of 2003 and
-14-
2002. Interest income increased to $4 million for the twenty-six weeks ended
August 2, 2003 from $3 million in the corresponding prior-year period. The
increase in 2003 was primarily related to the recognition of interest and
accretion income related to the Northern Note.
The Registrant's effective tax rates for the thirteen and twenty-six weeks
ended August 2, 2003 were approximately 33 percent and 35 percent, respectively,
as compared with 34 percent for both corresponding prior-year periods. The
effective tax rate during 2003 was lower than expected due to the impact of
state tax law changes, the implementation of tax planning strategies and a
higher proportion of earnings being attributed to lower tax jurisdictions.
During the second quarter of 2003 and the first quarter of 2002, the Registrant
recorded $2 million and $3 million, respectively, of tax benefits related to
multi-state tax planning strategies. These tax planning strategies resulted in a
reduction in the valuation allowance. The Registrant expects its effective tax
rate to approximate 37 percent for the remainder of 2003.
Income from continuing operations of $37 million, or $0.25 per diluted
share, for the thirteen weeks ended August 2, 2003, improved by $0.03 per
diluted share from $33 million, or $0.22 per diluted share, for the thirteen
weeks ended August 3, 2002. Income from continuing operations of $76 million, or
$0.52 per diluted share, for the twenty-six weeks ended August 2, 2003 improved
by $0.04 per diluted share from $71 million in the prior year. A restructuring
charge of $1 million was included in income from continuing operations for the
second quarter and the first half of 2003 as compared with restructuring income
of $1 million for the thirteen and twenty-six weeks ended August 3, 2002. Other
income of $3 million was included in both periods of 2002 related to the
disposition of real estate. For the quarter ended August 2, 2003, the Registrant
reported net income of $36 million, or $0.24 per diluted share, which included a
$1 million, after-tax, loss on the disposal of discontinued operations, or $0.01
per diluted share, compared with net income of $31 million, or $0.21 per diluted
share, for the corresponding prior-year period. The quarter ended August 3, 2002
included an after-tax loss of $2 million, or $0.01 per diluted share, for
discontinued operations. For the year-to-date periods, the Registrant reported
net income of $74 million, or $0.51 per diluted share, for 2003, as compared
with net income of $51 million, or $0.35 per diluted share, in 2002. The 2003
and 2002 year-to-date periods included after-tax losses related to discontinued
operations of $1 million, or $0.01 per diluted share, and $20 million, or $0.13
per diluted share, respectively. The twenty-six weeks ended August 2, 2003 also
included a $1 million after-tax charge for the cumulative effect of the adoption
of SFAS No. 143 during the first quarter.
STORE COUNT
At August 2, 2003, the Registrant operated 3,608 stores as compared with
3,625 at February 1, 2003. During the first half of the year, the Registrant
opened 55 stores, remodeled or relocated 178 stores and closed 72 stores.
SALES
The following table summarizes sales by segment.
Sales:
Thirteen weeks ended Twenty-six weeks ended
----------------------------- -------------------------------
Aug. 2, 2003 Aug. 3, 2002 Aug. 2, 2003 Aug. 3, 2002
------------ ------------ ------------ ------------
(in millions)
Athletic Stores......................... $ 1,050 $ 1,016 $ 2,091 $ 2,022
Direct-to-Customers..................... 73 69 160 153
--------- --------- --------- ---------
Total Sales............................. $ 1,123 $ 1,085 $ 2,251 $ 2,175
========= ========= ========= =========
The increase in total sales was primarily driven by Foot Locker Europe's
strong sales performance. Sales in the primarily mall-based U.S. Foot Locker
formats declined primarily due to the continued weak retail environment.
Comparable-store sales declined by 4.4 percent for the second quarter of 2003
and by 3.5 percent for the first half of 2003.
-15-
Athletic Stores sales increased by 3.3 percent and 3.4 percent,
respectively, for the thirteen and twenty-six weeks ended August 2, 2003,
respectively, as compared with the corresponding prior-year periods. Excluding
the effect of foreign currency fluctuations, sales decreased by 1.3 percent and
0.8 percent, respectively, for the thirteen and twenty-six weeks ended August 2,
2003, as compared to the corresponding periods of the prior year.
Comparable-store sales decreased by 5.0 percent and 4.0 percent, respectively,
for the thirteen and twenty-six week periods ended August 2, 2003. Most of the
international formats, Foot Locker Europe in particular, continued to achieve
strong sales during the second quarter and first half of 2003 and produced
mid-single digit comparable-store sales increases. During the first half of
2003, the continuing current trend of classic shoes led footwear sales across
most of the Athletic Store formats. Apparel sales, including both licensed and
private label categories were particularly strong during both the thirteen and
twenty-six weeks ended August 2, 2003. Sales for the prior-year periods ended
August 3, 2002 were primarily led by footwear, basketball in particular.
Management expects the current trend of classic footwear and licensed
apparel to continue to be strong performers throughout the balance of 2003 and
into 2004. The Registrant accelerated the receipt of inventory during the second
quarter of 2003 to accommodate this expected continuing trend as well as to
support the growth of Foot Locker Europe and to meet the back-to-school demand.
The Registrant purchases the largest portion of its merchandise from Nike,
Inc. ("Nike"). The Registrant had previously estimated that approximately 32 to
38 percent of its 2003 merchandise purchases would be made from Nike. Based upon
its current understanding, the Registrant currently estimates that its 2003
purchases of Nike products could reach to between 38 percent and 40 percent of
total purchases.
Direct to Customers sales increased by 5.8 percent and by 4.6 percent for
the thirteen and twenty-six weeks ended August 2, 2003, respectively, as
compared with the corresponding prior-year periods. Internet sales of $38
million and $80 million for the thirteen and twenty-six weeks ended August 2,
2003, respectively, increased by 56.2 percent and by 40.8 percent, as compared
with the corresponding prior-year periods. This increase in Internet sales was
substantially offset by a decline in catalog sales, reflecting the continuing
trend of the Registrant's customers to browse and select products through its
catalogs and then make their purchases via the Internet. During the first
quarter of 2003, the Registrant entered into an arrangement with the NBA and
Amazon.com whereby Foot Locker will provide the fulfillment services for NBA
licensed products sold over the Internet at NBAstore.com and the NBA store on
Amazon.com.
-16-
OPERATING RESULTS
Operating profit before corporate expense, net reflects income from
continuing operations before income taxes, corporate expense, non-operating
income and net interest expense. The following table reconciles operating profit
before corporate expense, net by segment to income from continuing operations
before income taxes.
Operating results:
Thirteen weeks ended Twenty-six weeks ended
---------------------------- ----------------------------
Aug. 2, 2003 Aug. 3, 2002 Aug. 2, 2003 Aug. 3, 2002
------------ ------------ ------------ ------------
(in millions)
Athletic Stores............................... $ 68 $ 62 $ 143 $ 131
Direct-to-Customers........................... 8 6 17 14
-------- -------- -------- --------
76 68 160 145
Restructuring income (charge)................. (1) 1 (1) 1
-------- -------- -------- --------
Operating profit before corporate expense, net 75 69 159 146
Corporate expense............................. 16 14 33 27
-------- -------- -------- --------
Operating profit.............................. 59 55 126 119
Non-operating income.......................... - (3) - (3)
Interest expense, net......................... 4 7 9 14
-------- -------- -------- --------
Income from continuing operations
before income taxes........................ $ 55 $ 51 $ 117 $ 108
======== ======== ======== ========
Athletic Stores operating profit before corporate expense, net increased
by 9.7 percent and by 9.2 percent for the thirteen and twenty-six weeks ended
August 2, 2003, respectively, as compared with the corresponding prior-year
periods. These improvements were primarily driven by better merchandise
purchasing and increased vendor allowances, which improved gross margin, as a
percentage of sales, by 110 basis points and 70 basis points for the second
quarter and year-to-date periods, respectively. The corresponding periods in
2002 reflected an increase in markdowns taken to sell slow-moving marquee
product, which were offset, in part, by operating expense reductions. Operating
profit before corporate expense, net as a percentage of sales, increased to 6.5
percent and 6.8 percent for the thirteen and twenty-six weeks ended August 2,
2003, respectively, as compared to 6.1 percent and 6.5 percent in the
corresponding prior-year periods.
The Registrant initiated changes to Lady Foot Locker's management team in
the third quarter of 2002 and is continuing the process of developing various
merchandising initiatives in an effort to improve its performance. However,
operating results during the first half of 2003 were less than anticipated.
Management expects to continue to monitor the progress of the format and will
assess, if necessary, the impact of these initiatives on the projected
performance of the division, which may include an analysis of the recoverability
of store long-lived assets pursuant to SFAS No. 144.
Direct to Customers operating profit before corporate expense, net
increased by $2 million for the thirteen weeks ended August 2, 2003 and
increased by $3 million for the twenty-six weeks ended August 2, 2003 as
compared with the corresponding periods ended August 3, 2002. Operating profit
before corporate expense, net, as a percentage of sales, increased to 11.0
percent and 10.6 percent for the thirteen and twenty-six weeks ended August 2,
2003, respectively, as compared to 8.7 percent and 9.2 percent in the
corresponding prior-year periods.
STRATEGIC DISPOSITIONS AND REPOSITIONING
Discontinued operations
On January 23, 2001, the Registrant announced that it was exiting its 694
store Northern Group segment. The Registrant recorded a charge to earnings of
$252 million before-tax, or $294 million after-tax, in
-17-
2000 for the loss on disposal of the segment. Major components of the charge
included expected cash outlays for lease buyouts and real estate disposition
costs of $68 million, severance and personnel related costs of $23 million and
operating losses and other exit costs from the measurement date through the
expected date of disposal of $24 million. Non-cash charges included the
realization of a $118 million currency translation loss, resulting from the
movement in the Canadian dollar during the period the Registrant held its
investment in the segment and asset write-offs of $19 million. The Registrant
also recorded a tax benefit for the liquidation of the Northern U.S. stores of
$42 million, which was offset by a valuation allowance of $84 million to reduce
the deferred tax assets related to the Canadian operations to an amount that is
more likely than not to be realized.
In the first quarter of 2001, the Registrant recorded a tax benefit of $5
million as a result of the implementation of tax planning strategies related to
the discontinuance of the Northern Group. During the second quarter of 2001, the
Registrant completed the liquidation of the 324 stores in the United States and
recorded a charge to earnings of $12 million before-tax, or $19 million
after-tax. The charge comprised the write-down of the net assets of the Canadian
business to their net realizable value pursuant to the then pending transaction,
which was partially offset by reduced severance costs as a result of the
transaction and favorable results from the liquidation of the U.S. stores and
real estate disposition activity. On September 28, 2001, the Registrant
completed the stock transfer of the 370 Northern Group stores in Canada, through
one of its wholly-owned subsidiaries for approximately CAD$59 million
(approximately US$38 million), which was paid in the form of a note (the
"Note"). The purchaser agreed to obtain a revolving line of credit with a
lending institution, satisfactory to the Registrant in an amount not less than
CAD$25 million (approximately US$17 million). Another wholly owned subsidiary of
the Registrant was the assignor of the store leases involved in the transaction
and therefore retains potential liability for such leases. The Registrant also
entered into a credit agreement with the purchaser to provide a revolving credit
facility to be used to fund its working capital needs, up to a maximum of CAD$5
million (approximately US$ 3 million). The net amount of the assets and
liabilities of the former operations was written down to the estimated fair
value of the Note, approximately US$18 million. The transaction was accounted
for pursuant to SEC Staff Accounting Bulletin Topic 5:E "Accounting for
Divestiture of a Subsidiary or Other Business Operation," ("SAB Topic 5:E") as a
"transfer of assets and liabilities under contractual arrangement" as no cash
proceeds were received and the consideration comprised the Note, the repayment
of which is dependent on the future successful operations of the business. The
assets and liabilities related to the former operations were presented under the
balance sheet captions as "Assets of business transferred under contractual
arrangement (note receivable)" and "Liabilities of business transferred under
contractual arrangement."
In the fourth quarter of 2001, the Registrant further reduced its estimate
for real estate costs by $5 million based on then current negotiations, which
was completely offset by increased severance, personnel and other disposition
costs.
The Registrant recorded a charge of $18 million in the first quarter of
2002 reflecting the poor performance of the Northern Group stores in Canada
since the date of the transaction. There was no tax benefit recorded related to
the $18 million charge, which comprised a valuation allowance in the amount of
the operating losses incurred by the purchaser and a further reduction in the
carrying value of the net amount of the assets and liabilities of the former
operations to zero, due to greater uncertainty with respect to the
collectibility of the Note. This charge was recorded pursuant to SAB Topic 5:E,
which requires accounting for the Note in a manner somewhat analogous to equity
accounting for an investment in common stock.
In the third quarter of 2002, the Registrant recorded a charge of
approximately $1 million before-tax for lease exit costs in excess of previous
estimates. In addition, the Registrant recorded a tax benefit of $2 million,
which also reflected the impact of the tax planning strategies implemented
related to the discontinuance of the Northern Group.
On December 31, 2002, the Registrant-provided revolving credit facility
expired, without having been used. Furthermore, the operating results of
Northern Canada had significantly improved during the year such that the
Registrant had reached an agreement in principle to receive CAD$5 million
(approximately US$3 million) cash consideration in partial prepayment of the
Note and accrued interest due and agreed to reduce the
-18-
face value of the Note to CAD$17.5 million (approximately US$12 million). Based
upon the improved results of the Northern Canada business, the Registrant
believes there is no substantial uncertainty as to the amount of the future
costs and expenses that could be payable by the Registrant. As indicated above,
as the assignor of the Northern Canada leases, a wholly-owned subsidiary of the
Registrant remains secondarily liable under those leases. As of August 2, 2003,
the Registrant estimates that its gross contingent lease liability is between
CAD$76 to $82 million (approximately US$53 to $59 million). Based upon its
assessment of the risk of having to satisfy that liability and the resultant
possible outcomes of lease settlement, the Registrant currently estimates the
expected value of the lease liability to be approximately US$2 million. The
Registrant believes that it is unlikely that it would be required to make such
contingent payments, and further, such contingent obligations would not be
expected to have a material effect on the Registrant's consolidated financial
position, liquidity or results of operations. As a result of the aforementioned
developments, during the fourth quarter of 2002 circumstances changed
sufficiently such that it became appropriate to recognize the transaction as an
accounting divestiture.
During the fourth quarter of 2002, as a result of the accounting
divestiture, the Note was recorded in the financial statements at its estimated
fair value of CAD$16 million (approximately US$10 million). The Registrant, with
the assistance of an independent third party, determined the estimated fair
value by discounting expected cash flows at an interest rate of 18 percent. This
rate was selected considering such factors as the credit rating of the
purchaser, rates for similar instruments and the lack of marketability of the
Note. As the net assets of the former operations were previously written down to
zero, the fair value of the Note was recorded as a gain on disposal within
discontinued operations. There was no tax expense recorded related to this gain.
The Registrant ceased presenting the assets and liabilities of Northern Canada
as "Assets of business transferred under contractual arrangement (note
receivable)" and "Liabilities of business transferred under contractual
arrangement," and has recorded the Note initially at its estimated fair value.
On May 6, 2003, the amendments to the Note were executed and a cash payment of
CAD$5.2 million (approximately US$3.5 million) was received representing
principal and interest through the date of the amendment. After taking into
account this payment, the remaining principal due under the Note was reduced to
CAD$17.5 million (approximately US$12 million). Under the terms of the
renegotiated Note, a principal payment of CAD$1 million is due January 15, 2004.
An accelerated principal payment of CAD$1 million may be due if certain events
occur. The remaining amount of the Note is required to be repaid upon the
occurrence of "payment events," as defined in the purchase agreement, but no
later than September 28, 2008. Interest is payable semiannually and began to
accrue on May 1, 2003 at a rate of 7.0 percent per annum. At August 2, 2003 and
February 1, 2003, US$1 million and US$4 million, respectively, are classified as
a current receivable, with the remainder classified as long term within other
assets in the accompanying Condensed Consolidated Balance Sheet. The remaining
reserve balance of US$8 million at August 2, 2003 is expected to be utilized
within twelve months.
Future adjustments, if any, to the carrying value of the Note will be
recorded pursuant to SEC Staff Accounting Bulletin Topic 5:Z:5, "Accounting and
Disclosure Regarding Discontinued Operations," which requires changes in the
carrying value of assets received as consideration from the disposal of a
discontinued operation to be classified within continuing operations. Interest
and accretion income will also be recorded within continuing operations. The
Registrant will recognize an impairment loss when, and if, circumstances
indicate that the carrying value of the Note may not be recoverable. Such
circumstances would include a deterioration in the business, as evidenced by
significant operating losses incurred by the purchaser or nonpayment of an
amount due under the terms of the Note.
In 1998, the Registrant exited both its International General Merchandise and
Specialty Footwear segments. In 1997, the Registrant announced that it was
exiting its Domestic General Merchandise segment. The successor-assignee of the
leases of a former business included in the Domestic General Merchandise segment
filed a petition in bankruptcy during 2002, and rejected in the bankruptcy
proceeding 15 leases it originally acquired from a subsidiary of the Registrant.
There are currently several actions pending against this subsidiary by former
landlords for the lease obligations. In the fourth quarter of 2002, the
Registrant recorded a charge of $1 million after-tax and in the second quarter
of 2003 recorded an additional after-tax charge of $1 million, related to
certain actions. The Registrant estimates the gross contingent lease liability
related to the remaining actions to be approximately $6 million. The Registrant
believes that it may have valid defenses, however, given the
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current procedural status of these cases, as these actions are in the
preliminary stage of proceedings, their outcome cannot be predicted with any
degree of certainty.
The remaining reserve balances for these three discontinued segments
totaled $17 million as of August 2, 2003, $9 million of which is expected to be
utilized within twelve months and the remaining $8 million thereafter.
1999 Restructuring
Total restructuring charges of $96 million before-tax were recorded in
1999 for the Registrant's restructuring program to sell or liquidate non-core
businesses. The restructuring plan also included an accelerated store-closing
program in the United States and Asia, corporate headcount reduction and a
distribution center shutdown. The disposition of all non-core businesses was
completed by November 2001. The remaining reserve balance at August 2, 2003
totaled $2 million, which is expected to be utilized within twelve months.
The Registrant sold The San Francisco Music Box Company ("SFMB") in 2001;
however, the Registrant remains as an assignor or guarantor of leases of SFMB
related to a distribution center and five store locations. In May 2003, SFMB
filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the U.S.
Bankruptcy Court for the District of Delaware. During July and August 2003, SFMB
rejected five of the leases and assumed one of the store leases in the
bankruptcy proceedings. As of August 2, 2003, the Registrant estimates its gross
contingent lease liability for these leases to be approximately $5 million.
During the second quarter of 2003, the Registrant recorded a charge of $1
million, primarily related to the distribution center lease, representing the
expected costs to exit these leases.
1993 Repositioning and 1991 Restructuring
The Registrant recorded charges of $558 million in 1993 and $390 million
in 1991 to reflect the anticipated costs to sell or close under-performing
specialty and general merchandise stores in the United States and Canada. Under
the 1993 repositioning program, approximately 970 stores were identified for
closing. Approximately 900 stores were closed under the 1991 restructuring
program. The remaining reserve balance of $2 million at August 2, 2003 comprises
future lease obligations and is expected to be substantially utilized within
twelve months.
LIQUIDITY AND CAPITAL RESOURCES
Generally, the Registrant's primary source of cash is from operations. The
Registrant has a revolving credit facility which was amended on July 30, 2003.
As a result of the amendment, the credit facility was increased by $10 million
to $200 million and the maturity date was extended to July 2006 from June 2004.
The amendment also provided for a lower pricing structure and increased covenant
flexibility. Other than $22 million reserved to meet stand-by letter of credit
requirements, this revolving credit facility was not used during the twenty-six
weeks ended August 2, 2003. The Registrant 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
and management information systems, and to fund other general working capital
requirements.
Operating activities of continuing operations provided cash of $54 million
for the twenty-six weeks ended August 2, 2003 as compared with $153 million for
the twenty-six weeks ended August 3, 2002. These amounts reflect income from
continuing operations adjusted for non-cash items and working capital changes.
The decrease in cash from operations was primarily due to working capital
changes. The Registrant made a $50 million contribution to its U.S. qualified
retirement plan in February 2003, in advance of ERISA funding requirements. The
remaining decrease resulted in a net cash outflow for merchandise inventories
and accounts
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payable and accrued liabilities in the first half of 2003 whereas the increase
in merchandise inventories for the first half of 2002 was more than offset by
the increase in accounts payable and accrued liabilities.
Net cash used in investing activities of continuing operations of $68
million and $65 million for the first half of 2003 and 2002, respectively,
primarily reflected capital expenditures for store remodelings and new stores
and lease acquisition costs. The Registrant currently anticipates capital
expenditures of $149 million for 2003. Anticipated capital expenditures comprise
$85 million for new store openings and modernizations of existing stores, $46
million for the development of information systems and other support facilities
and lease acquisition costs of $18 million related to the Registrant's European
operations. The Registrant has the ability to further revise and reschedule the
anticipated capital expenditure program should the Registrant's financial
position require it. Proceeds from disposal of real estate of $6 million for the
twenty-six weeks ended August 3, 2002 primarily related to the condemnation of a
part-owned and part-leased property in the second quarter of 2002. Real estate
proceeds during the current period were not material.
Financing activities for the Registrant's continuing operations used cash
of $3 million for the twenty-six weeks ended August 2, 2003 as compared with
cash provided by financing activities of $5 million for the corresponding
prior-year period. The Registrant declared and paid $0.03 per share dividends in
both the first and second quarters of 2003 totaling $4 million and $8 million,
for the thirteen and twenty-six week periods, respectively. Management believes
that operating cash flows and current credit facilities will be adequate to
finance its working capital requirements, to make scheduled pension
contributions for the Registrant's retirement plans, to fund quarterly dividend
payments and support the development of its short-term and long-term strategies.
Net cash used in discontinued operations includes the change in assets and
liabilities of the discontinued segments and disposition activity charged to the
reserves for both periods presented.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
The Registrant adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations" as of February 2, 2003. The statement requires that the fair value
of a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate can be made. The carrying amount
of the related long-lived asset shall be increased by the same amount as the
liability and that amount will be amortized over the useful life of the
underlying long-lived asset. The difference between the fair value and the value
of the ultimate liability will be accreted over time using the credit-adjusted
risk-free interest rate in effect when the liability is initially recognized.
Asset retirement obligations of the Registrant may at any time include
structural alterations to store locations and equipment removal costs from
distribution centers required by certain leases. On February 2, 2003, the
Registrant recorded a liability of $2 million for the expected present value of
future retirement obligations, increased property and equipment by $1 million
and recognized a $1 million after tax charge for the cumulative effect of the
accounting change. There were no additions recorded during the first quarter of
2003 and additional asset retirement obligations recorded during the second
quarter of 2003 were not material. The amortization and accretion expenses
recorded during these periods were also not material. Pro forma effects for the
thirteen and twenty-six weeks ended August 3, 2002, assuming adoption of SFAS
No. 143 as of February 3, 2002, were not material to the liability, the net
earnings or the per share amounts, and therefore, have not been presented.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In general, SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS No. 149 did not have a
significant impact on financial position and results of operations.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Among other
things, the statement does not affect the classification or measurement of
convertible bonds, puttable stock, or other outstanding shares that are
conditionally redeemable. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
statement is to be implemented by reporting the cumulative effect of a change in
an accounting principle for financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim period
of adoption. The Registrant does not expect that the adoption of SFAS No. 150
will have a significant impact on its financial position and results of
operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations 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 Registrant 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 re-purchases, growth of the Registrant'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 including, but not limited to, 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
Registrant's reliance on a few key vendors for a majority of its merchandise
purchases (including a significant portion from one key vendor), unseasonable
weather, risks associated with foreign global sourcing, including political
instability, changes in import regulations and the presence of severe acute
respiratory syndrome, economic conditions worldwide, 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, and the ability of the Company to execute its business
plans effectively with regard to each of its business units, including its plans
for the marquee and launch footwear component of its business. 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 Registrant's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Registrant's disclosure controls and
procedures, as such term is defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered
by this report. Based on that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that the disclosure controls and procedures
are effective in ensuring that all material information required to be included
in this quarterly report has been made known to them in a timely fashion.
The Registrant's Chief Executive Officer and Chief Financial Officer also
conducted an evaluation of the Registrant's internal control over financial
reporting to determine whether any changes occurred during the quarter covered
by this report that have materially affected, or are reasonably likely to affect
the Registrant's internal control over financial reporting. Based on the
evaluation, there have been no such changes during the quarter covered by this
report.
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There have been no material changes in the Registrant's internal controls,
or in the factors that could materially affect internal controls, subsequent to
the date the Chief Executive Officer and the Chief Financial Officer completed
their evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The only legal proceedings pending against the Registrant or its
consolidated subsidiaries consist of ordinary, routine litigation,
including administrative proceedings, incident to the businesses of the
Registrant, as well as litigation incident to the sale and disposition of
businesses that have occurred in the past several years. Management does
not believe that the outcome of such proceedings will have a material
effect on the Registrant's consolidated financial position, liquidity, or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's annual meeting of shareholders was held on June 25,
2003, in New York, New York. Proxies were solicited by management of
the Registrant pursuant to Regulation 14A under the Securities
Exchange Act of 1934; there was no solicitation in opposition to
management's nominees as listed in the Notice of 2003 Annual Meeting
and Proxy Statement, both dated May 22, 2003.
(b) Each of Jarobin Gilbert Jr., David Y. Schwartz and Cheryl N. Turpin
was elected as a director in Class III for a three-year term ending
at the annual meeting of shareholders of the Registrant in 2006. All
of such individuals previously served as directors of the
Registrant. J. Carter Bacot, Purdy Crawford, Nicholas DiPaolo,
Philip H. Geier Jr., James E. Preston, Matthew D. Serra, Christopher
A. Sinclair, and Dona D. Young, having previously been elected
directors of the Registrant for terms continuing beyond the 2003
annual meeting of shareholders, continue in office as directors.
(c) The matters voted upon and the results of the voting were as
follows:
(1) Election of Directors:
Abstentions and
Name Votes For Votes Withheld Broker Non-Votes
---- --------- -------------- ----------------
Jarobin Gilbert Jr. 96,136,502 30,968,473 0
David Y. Schwartz 96,826,107 30,278,868 0
Cheryl N. Turpin 92,161,690 34,943,285 0
(2) Proposal to ratify the appointment of independent accountants:
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
124,581,444 2,450,276 73,255 0
(3) Proposal to approve the Foot Locker 2003 Stock Option and
Award Plan:
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
98,770,834 28,016,022 318,119 0
(4) Proposal to approve the 2003 Foot Locker Employees Stock
Purchase Plan:
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
122,828,553 4,186,338 90,084 0
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(5) Proposal to approve the Foot Locker Annual Incentive
Compensation Plan, as amended and restated:
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
121,129,951 5,681,747 293,277 0
At the close of business on the record date of May 1, 2003, there were
outstanding 141,800,896 shares of the Registrant's Common Stock, par value
$0.01 per share ("Common Stock"). There were represented at the meeting,
in person or by proxy, 127,104,975 shares of Common Stock. Such shares
represented 89.64 percent of the total number of shares of such class of
stock outstanding on the record date.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits that are in this report immediately follow the index.
(b) Reports on Form 8-K
Form 8-K, dated May 8, 2003, under Items 7, 9 and 12, reporting the
Registrant's sales results for the first quarter of 2003.
Form 8-K, dated May 19, 2003, under Items 7, 9 and 12, reporting
that the Company had filed its Annual Report on Form 10-K for the
2002 fiscal year.
Form 8-K, dated May 22, 2003, under Items 7, 9 and 12, reporting the
Registrant's operating results for the first quarter of 2003.
Form 8-K, dated May 23, 2003, under Item 9, reporting additional
information with regard to certain statements made in response to
analysts' questions on the Registrant's 2003 first quarter
conference call held on May 22, 2003.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOOT LOCKER, INC.
(Registrant)
Date: September 15, 2003 /s/ Bruce L. Hartman
---------------------------
BRUCE L. HARTMAN
Executive Vice President
and Chief Financial Officer
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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
of Regulation
S-K Description
- ------------- -----------
10.1 Fourth Amended and Restated Credit Agreement dated as of April
9, 1997, amended and restated as of July 30, 2003.
10.2 Foot Locker 2003 Stock Option and Award Plan.
10.3 Foot Locker Annual Incentive Compensation Plan, as Amended and
Restated.
12 Computation of Ratio of Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Statements.
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 Independent Accountants' Review Report.
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