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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 November 1, 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
or organization) Identification No.)
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 December 5, 2003: 143,315,584
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........ 14-23
Item 4. Controls and Procedures................................... 24
Part II. Other Information
Item 1. Legal Proceedings......................................... 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)
November 1, November 2, February 1,
2003 2002 2003
----------- ----------- -----------
(Unaudited) (Unaudited) *
ASSETS
Current assets
Cash and cash equivalents...................................... $ 305 $ 255 $ 357
Merchandise inventories........................................ 1,077 973 835
Assets of discontinued operations.............................. 2 2 2
Other current assets........................................... 102 138 90
------- -------- -------
1,486 1,368 1,284
Property and equipment, net....................................... 620 628 636
Deferred taxes ................................................... 253 234 240
Goodwill and intangible assets.................................... 227 205 216
Assets of business transferred under contractual arrangement
(note receivable).......................................... - 12 -
Other assets...................................................... 112 55 110
------- ------- -------
Total assets...................................................... $ 2,698 $ 2,502 $ 2,486
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................................... $ 375 $ 411 $ 251
Accrued liabilities............................................ 265 218 296
Current portion of repositioning and restructuring reserves.... 4 2 3
Current portion of reserve for discontinued operations......... 16 20 18
Liabilities of discontinued operations......................... 2 3 3
Current portion of long-term debt and obligations under
capital leases............................................... - 1 1
------- ------- -------
662 655 572
Long-term debt and obligations under capital leases............... 336 356 356
Liabilities of business transferred under contractual arrangement - 12 -
Other liabilities................................................. 438 354 448
------- ------- -------
Total liabilities................................................. 1,436 1,377 1,376
Shareholders' equity
Common stock and paid-in capital: 142,853,718;
141,083,270 and 141,180,455 shares issued, respectively...... 390 374 378
Retained earnings.............................................. 1,069 893 946
Accumulated other comprehensive loss........................... (196) (141) (213)
Less: Treasury stock at cost: 70,733; 100,220 and
105,220 shares, respectively................................. (1) (1) (1)
------- ------- -------
Total shareholders' equity........................................ 1,262 1,125 1,110
------- ------- -------
$ 2,698 $ 2,502 $ 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 Thirty-nine weeks ended
--------------------------- -----------------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
--------- --------- --------- --------
Sales........................................................ $ 1,194 $ 1,120 $ 3,445 $ 3,295
Costs and Expenses
Cost of sales.............................................. 805 777 2,380 2,320
Selling, general and administrative expenses............... 250 235 724 675
Depreciation and amortization.............................. 37 37 112 111
Restructuring charge (income).............................. - (1) 1 (2)
Interest expense, net...................................... 5 5 14 19
Other income............................................... - - - (3)
------- -------- -------- --------
1,097 1,053 3,231 3,120
------- -------- -------- --------
Income from continuing operations before income taxes........ 97 67 214 175
Income tax expense........................................... 35 24 76 61
------- -------- -------- --------
Income from continuing operations............................ 62 43 138 114
------- -------- -------- --------
Income (loss) on disposal of discontinued operations, net
of income tax benefit of $-, $1, $1, and $2, - 2 (1) (18)
respectively
Cumulative effect of accounting change, net of income
tax of $- - - (1) -
------- -------- -------- --------
Net income................................................... $ 62 $ 45 $ 136 $ 96
======= ======== ======== ========
Basic earnings per share:
Income from continuing operations....................... $ 0.43 $ 0.30 $ 0.97 $ 0.80
Income (loss) from discontinued operations.............. - 0.02 (0.01) (0.12)
Cumulative effect of accounting change.................. - - - -
------- -------- -------- --------
Net income.............................................. $ 0.43 $ 0.32 $ 0.96 $ 0.68
======= ======== ======== ========
Weighted-average common shares outstanding................... 141.7 140.9 141.4 140.6
Diluted earnings per share:
Income from continuing operations....................... $ 0.41 $ 0.29 $ 0.93 $ 0.77
Income (loss) from discontinued operations.............. - 0.02 (0.01) (0.11)
Cumulative effect of accounting change.................. - - - -
------- -------- -------- --------
Net income.............................................. $ 0.41 $ 0.31 $ 0.92 $ 0.66
======= ======== ======== ========
Weighted-average common shares assuming dilution............. 153.2 150.7 152.2 150.7
See Accompanying Notes to Condensed Consolidated Financial Statements.
-2-
FOOT LOCKER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
Thirteen weeks ended Thirty-nine weeks ended
--------------------------- -----------------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
---------- ---------- --------- ----------
Net income.................................................. $ 62 $ 45 $ 136 $ 96
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments arising during
the period................................................ 9 2 17 27
Change in fair value of derivatives accounted for as
hedges, net of deferred tax benefit of $-................. (1) 1 - -
---------- ---------- --------- ---------
Comprehensive income........................................ $ 70 $ 48 $ 153 $ 123
========== ========== ========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
-3-
FOOT LOCKER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Thirty-nine weeks ended
-----------------------
Nov. 1, Nov. 2,
2003 2002
---------- ---------
From Operating Activities:
Net income................................................................... $ 136 $ 96
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 (2)
Loss on disposal of discontinued operations, net of tax.................... 1 18
Depreciation and amortization.............................................. 112 111
Real estate gains.......................................................... - (3)
Deferred income taxes...................................................... (8) 1
Change in assets and liabilities:
Merchandise inventories.................................................. (228) (169)
Accounts payable and other accruals...................................... 87 125
Repositioning and restructuring reserves................................. - (2)
Pension contribution..................................................... (50) -
Other, net............................................................... 38 14
-------- ---------
Net cash provided by operating activities of continuing operations........... 90 189
-------- ---------
From Investing Activities:
Proceeds from disposal of real estate........................................ - 6
Lease acquisition costs...................................................... (14) (14)
Capital expenditures......................................................... (92) (105)
-------- ---------
Net cash used in investing activities of continuing operations............... (106) (113)
-------- ---------
From Financing Activities:
Reduction in long-term debt and capital lease obligations.................... (17) (41)
Dividends paid............................................................... (13) -
Issuance of common stock..................................................... 9 9
-------- ---------
Net cash used in financing activities of continuing operations............... (21) (32)
-------- ---------
Net Cash used in Discontinued Operations........................................ (6) (6)
Effect of exchange rate fluctuations on Cash and Cash Equivalents............... (9) 2
-------- ---------
Net change in Cash and Cash Equivalents......................................... (52) 40
Cash and Cash Equivalents at beginning of year.................................. 357 215
-------- ---------
Cash and Cash Equivalents at end of interim period.............................. $ 305 $ 255
======== =========
Cash paid during the period:
Interest..................................................................... $ 13 $ 15
Income taxes................................................................. $ 52 $ 29
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 Annual Report on 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 the Registrant's
financial 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 thirty-nine weeks ended November 1, 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 Thirty-nine weeks ended
----------------------------------------------------
November 1, November 2, November 1, November 2,
2003 2002 2003 2002
----------- ----------- ----------- -----------
(in millions, except per share amounts)
Net income, as reported: $ 62 $ 45 $ 136 $ 96
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 2 1 4 4
------- ------- ------- -------
Pro forma net income 60 44 $ 133 $ 92
======= ======= ======= =======
Basic earnings per share:
As reported $ 0.43 $ 0.32 $ 0.96 $ 0.68
Pro forma $ 0.43 $ 0.31 $ 0.94 $ 0.66
Diluted earnings per share:
As reported $ 0.41 $ 0.31 $ 0.92 $ 0.66
Pro forma $ 0.40 $ 0.30 $ 0.90 $ 0.64
-5-
The fair values 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.
November 1, November 2, February 1,
Goodwill (in millions) 2003 2002 2003
- ----------------------------------------------- ----------- ----------- -----------
Athletic Stores $ 56 $ 55 $ 56
Direct-to-Customers 80 80 80
--------- ---------- ---------
$ 136 $ 135 $ 136
========= ========= =========
November 1, November 2, February 1,
Intangible Assets (in millions) 2003 2002 2003
- ----------------------------------------------- ----------- ----------- -----------
Intangible assets not subject to amortization $ 2 $ - $ 2
Intangible assets subject to amortization, net
of accumulated amortization of $46 million,
$32 million and $36 million, respectively 89 70 78
--------- --------- ---------
$ 91 $ 70 $ 80
========= ========= =========
Total $ 227 $ 205 $ 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 November 1, 2003 was
approximately 12 years. Amortization expense for lease acquisition costs was
approximately $3 million and $8 million for the thirteen and thirty-nine weeks
ended November 1, 2003, respectively. For the thirteen and thirty-nine weeks
ended November 2, 2002, amortization expense was approximately $2 million and $6
million, respectively. Annual estimated amortization expense for lease
acquisition costs is expected to be approximately $11 million for 2003, $12
million for 2004 and $11 million for 2005 and each of the succeeding three
years.
Intangible assets not subject to amortization relate to the
Registrant's U.S. defined benefit retirement plan.
-6-
Derivative Financial Instruments
During the thirty-nine weeks ended November 1, 2003 and November 2,
2002, ineffectiveness related to cash flow hedges recorded to earnings was not
material.
Accumulated comprehensive loss was increased by approximately $1
million after-tax due to both the changes in fair value of derivative financial
instruments designated as hedges and the reclassification of gains to earnings
during the third quarter of 2003.
During the quarter ended November 2, 2002, the decrease in accumulated
comprehensive loss due to both the changes in fair value of derivative
instruments designated as hedges and the reclassification of losses to earnings
was approximately $1 million after-tax.
The fair value of derivative contracts outstanding at November 1, 2003
was comprised of current liabilities of $12 million and non-current liabilities
of $3 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. Additional asset retirement obligations recorded during the second and
third quarters 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 thirty-nine weeks ended November 2, 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.
-7-
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of the following:
November 1, November 2, February 1,
2003 2002 2003
----------- ----------- -----------
Foreign currency translation adjustments $ 2 $ (26) $ (15)
Minimum pension liability adjustment (198) (115) (198)
Changes in fair value of derivatives designated as
hedges - - -
-------- -------- ---------
$ (196) $ (141) $ (213)
======== ======== =========
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."
-8-
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 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 November 1, 2003, the Registrant estimates that
its gross contingent lease liability is between CAD$71 to $76 million
(approximately US$54 to $58 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 November 1, 2003
and February 1, 2003, US$2 million and
-9-
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 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.
During the third quarter of 2003, a charge in the amount of $1 million
before-tax was recorded to cover additional liabilities related to the exiting
of a leased location in excess of the previous estimate. The remaining reserve
balance of $9 million at November 1, 2003 is expected to be utilized within
twelve months.
NORTHERN GROUP (in millions)
Balance Net Charge/ Balance
2/1/2003 Usage (1) (Income) 11/1/2003
-------------------------------------------
Real estate & lease liabilities $ 6 $ 1 $ 1 $ 8
Other costs 1 - - 1
-------------------------------------------
Total $ 7 $ 1 $ 1 $ 9
===========================================
(1) Includes payments of $2 million offset by an increase of $3 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,
-10-
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 $15 million as of November 1, 2003, $7 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(1) (Income) 11/1/2003
------------------------------------------
Woolco $ 1 $ (1) $ - $ -
The Bargain! Shop 6 - - 6
----------------------------------------
Total $ 7 $ (1) $ - $ 6
========================================
(1) Includes payments of $2 million offset by an increase of $1 million
resulting from foreign currency fluctuations.
SPECIALTY FOOTWEAR
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 11/1/2003
-------------------------------------
Real estate & lease liabilities $ 2 $ (1) $ - $ 1
Other costs 1 - - 1
------------------------------------
Total $ 3 $ (1) $ - $ 2
====================================
DOMESTIC GENERAL MERCHANDISE
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 11/1/2003
-------------------------------------------
Real estate & lease liabilities $ 7 $ (1) $ - $ 6
Legal and other costs 3 (3) 1 1
-------------------------------------------
Total $ 10 $ (4) $ 1 $ 7
===========================================
The following is a summary of the assets and liabilities of discontinued
operations:
DOMESTIC
NORTHERN SPECIALTY GENERAL
(in millions) GROUP FOOTWEAR MERCHANDISE TOTAL
-------- --------- ----------- -----
11/1/2003
Assets $ - $ - $ 2 $ 2
Liabilities 1 - 1 2
--------- --------- -------- --------
Net liabilities of discontinued operations $ (1) $ - $ 1 $ -
========= ========= ======== ========
11/2/2002
Assets $ - $ - $ 2 $ 2
Liabilities 1 - 2 3
--------- --------- -------- --------
Net liabilities of discontinued operations $ (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.
-11-
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 November 1, 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. The lease for the distribution center expires January
31, 2010 while the remaining store leases expire on January 31, 2004. As of
November 1, 2003, the Registrant estimates its gross contingent lease liability
for these leases to be approximately $4 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 November 1, 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) 11/1/2003
-------------------------------------
Real estate $ 1 $ - $ 1 $ 2
=====================================
1993 Repositioning and 1991 Restructuring
- -----------------------------------------
(in millions)
Balance Net Charge/ Balance
2/1/2003 Usage (Income) 11/1/2003
-------------------------------------
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) 11/1/2003
--------------------------------------
Real estate $ 2 $ - $ 1 $ 3
Other disposition costs 1 - - 1
--------------------------------------
Total $ 3 $ - $ 1 $ 4
======================================
-12-
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
from continuing operations.
Thirteen weeks ended Thirty-nine weeks ended
------------------------- --------------------------
(in millions) Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
---------- ---------- ----------- -----------
Numerator:
Income from continuing operations................. $ 62 $ 43 $ 138 $ 114
Effect of Dilution:
Convertible debt.................................. 1 1 4 3
---------- ---------- ---------- ----------
Income from continuing operations assuming
dilution........................................ $ 63 $ 44 $ 142 $ 117
========== ========== ========== ==========
Denominator:
Weighted-average common shares outstanding 141.7 140.9 141.4 140.6
Effect of Dilution:
Stock options and awards.......................... 2.0 0.3 1.3 0.6
Convertible debt.................................. 9.5 9.5 9.5 9.5
---------- ---------- ---------- ----------
Weighted-average common shares assuming dilution..
153.2 150.7 152.2 150.7
========== ========== ========== ==========
Options to purchase 1.4 million and 7.1 million shares of common stock
were not included in the computation for the thirteen weeks ended November 1,
2003 and November 2, 2002, respectively. Options to purchase 3.9 million shares
of common stock were not included in the computation for both the thirty-nine
weeks ended November 1, 2003 and November 2, 2002. 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.
Shareholder Rights Plan
On November 19, 2003 the Board of Directors of the Registrant amended
the Shareholder Rights Agreement between the Registrant and The Bank of New
York, successor Rights Agent, (the "Rights Agreement"), the effect of which will
be to accelerate the expiration date of the Rights, and to terminate the Rights
Agreement, effective January 31, 2004.
Segment Information
Sales and operating results for the Registrant's reportable segments
for the thirteen and thirty-nine weeks ended November 1, 2003 and November 2,
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 Thirty-nine weeks ended
-------------------------- ---------------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
-------- ------- ------- -------
(in millions)
Athletic Stores............................ $ 1,103 $ 1,036 $ 3,194 $ 3,058
Direct-to-Customers........................ 91 84 251 237
-------- -------- -------- --------
Total Sales................................ $ 1,194 $ 1,120 $ 3,445 $ 3,295
======== ======== ======== ========
-13-
Operating results:
Thirteen weeks ended Thirty-nine weeks ended
-------------------------- ---------------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
-------- ------- ------- -------
(in millions)
Athletic Stores............................ $ 105 $ 77 $ 248 $ 208
Direct-to-Customers........................ 13 8 30 22
------- -------- -------- --------
118 85 278 230
All Other (1).............................. - - (1) 1
------- -------- -------- --------
Total operating profit before corporate
expense, net............................ 118 85 277 231
Corporate expense.......................... 16 13 49 40
------- -------- -------- --------
Operating profit........................... 102 72 228 191
Non-operating income....................... - - - (3)
Interest expense, net...................... 5 5 14 19
------- -------- -------- --------
Income from continuing operations
before income taxes..................... $ 97 $ 67 $ 214 $ 175
======= ======== ======== ========
(1) The disposition of all other formats presented as "All Other" was completed
in 2001. The year-to-date 2003 period presented includes restructuring charges
of $1 million. The quarter and year-to-date periods in 2002 include a reduction
in restructuring charges of $1 million.
Recent 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 adoption of SFAS No. 150 did not impact the Registrant's
financial position and results of operations.
In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities." The Interpretation introduces a new consolidation
model, referred to as the variable interest model, which determines control and
consolidation not based on who has the majority of voting ownership rights, but
rather on who absorbs the majority of the potential variability in gains and
losses of the entity being evaluated for consolidation. On October 9, 2003, a
FASB Staff Position was issued in which the effective date of this statement was
deferred to periods ending after December 15, 2003. The Registrant does not
anticipate that the adoption of this statement will have a material effect on
the Registrant's financial position or 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.
-14-
RESULTS OF OPERATIONS
Sales of $1,194 million for the third quarter of 2003 increased 6.6
percent from sales of $1,120 million for the third quarter of 2002. For the
thirty-nine weeks ended November 1, 2003, sales of $3,445 million increased by
4.6 percent from sales of $3,295 million for the thirty-nine weeks ended
November 2, 2002. Excluding the impact of foreign currency fluctuations, sales
increased by 3.4 percent and 0.9 percent for the third quarter and year-to-date
periods of 2003, respectively, as compared with the corresponding prior-year
periods. These changes included a comparable-store sales increase of 0.4 percent
and a decrease of 2.2 percent, respectively.
Gross margin, as a percentage of sales, improved 200 basis points to
32.6 percent for the thirteen weeks ended November 1, 2003 as compared with the
corresponding prior year period. For the thirty-nine weeks ended November 1,
2003, gross margin, as a percentage of sales improved by 130 basis points to
30.9 percent as compared with the corresponding prior year period. Better
merchandise purchasing primarily drove the improvements in gross margin. Vendor
allowances contributed approximately 20 basis points and 50 basis points to the
gross margin rate improvement for the thirteen and thirty-nine weeks ended
November 1, 2003, respectively. Inventory levels at November 1, 2003 are in line
with the Registrant's plan.
Selling, general and administrative expenses ("SG&A") of $250 million
increased by 6.4 percent for the third quarter of 2003 as compared with the
third quarter of 2002. SG&A for the thirty-nine weeks ended November 1, 2003 of
$724 million increased by 7.3 percent as compared with the corresponding
prior-year period. Excluding the effect of foreign currency fluctuations, the
increase in SG&A was 3.0 percent and 3.7 percent for the thirteen and
thirty-nine weeks in 2003, respectively, as compared with the corresponding
prior-year periods. These increases primarily related to new store openings
across several formats. SG&A also included net increases in expense of $4
million for both the thirteen and thirty-nine weeks ended November 1, 2003
related to the pension and postretirement plans. SG&A, as a percentage of sales,
decreased to 20.9 percent for the thirteen weeks ended November 1, 2003 as
compared with 21.0 percent in the corresponding prior-year period. SG&A, as a
percentage of sales, increased to 21.0 percent for the thirty-nine weeks ended
November 1, 2003 as compared to 20.5 percent in the corresponding prior-year
period.
Depreciation and amortization of $37 million remained flat for the
third quarter of 2003 and increased by $1 million to $112 million for the
year-to-date period of 2003 as compared with the corresponding prior-year
periods.
Net interest expense of $5 million remained flat for the thirteen weeks
ended November 1, 2003 and declined by $5 million or 26.3 percent to $14 million
for the thirty-nine weeks ended November 1, 2003, as compared with the
corresponding prior-year periods. Interest expense decreased to $6 million and
$19 million for the thirteen and thirty-nine weeks ended November 1, 2003,
respectively, from $8 million and $25 million for the respective corresponding
prior year periods. The decreases in interest expense 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 two
quarters of 2003, to convert the fixed interest rate on the 8.5 percent
debentures to a floating rate. Additionally, the repayment in October 2002 of
the remaining $32 million of the $40 million 7.0 percent medium-term notes
contributed to the decreases in interest expense. Interest income decreased to
$1 million for the thirteen weeks ended November 1, 2003 from $3 million in the
corresponding prior-year period. Interest income decreased to $5 million for the
thirty-nine weeks ended November 1, 2003 from $6 million in the corresponding
prior-year period. These decreases were primarily due to lower interest income
related to income tax settlements and refunds, which were offset by the
recognition of interest and accretion income related to the Northern note.
The Registrant's effective tax rates for the thirteen and thirty-nine
weeks ended November 1, 2003 were approximately 36.5 percent and 35.5 percent,
respectively, as compared with 36.2 percent and 34.9 percent for the
corresponding prior-year periods. The effective tax rates during 2003 were
slightly higher than the corresponding prior year period due to the impact of
state tax law changes offset by more favorable effective foreign tax rates.
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. During the
-15-
second quarter of 2002, the Registrant recorded a $2 million tax benefit related
to a reduction in the valuation allowance for deferred tax assets related to
foreign tax credits. The Registrant expects its effective tax rate to
approximate 37 percent for the remainder of 2003.
Income from continuing operations of $62 million, or $0.41 per diluted
share, for the thirteen weeks ended November 1, 2003, improved by $0.12 per
diluted share from $43 million, or $0.29 per diluted share, for the thirteen
weeks ended November 2, 2002. Income from continuing operations of $138 million,
or $0.93 per diluted share, for the thirty-nine weeks ended November 1, 2003
improved by $0.16 per diluted share from $114 million in the prior year.
The quarter ended November 2, 2002 included an after-tax gain of $2
million, or $0.02 per diluted share, for discontinued operations. For the
year-to-date periods, the Registrant reported net income of $136 million, or
$0.92 per diluted share, for 2003, as compared with net income of $96 million,
or $0.66 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 $18 million, or $0.11 per diluted share,
respectively, primarily related to the Northern Group. The thirty-nine weeks
ended November 1, 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 November 1, 2003, the Registrant operated 3,619 stores as compared
with 3,625 at February 1, 2003. During the thirty-nine weeks ended November 1,
2003, the Registrant opened 87 stores, remodeled or relocated 244 stores and
closed 93 stores.
SALES
The following table summarizes sales by segment.
Sales:
Thirteen weeks ended Thirty-nine weeks ended
---------------------- -------------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
------ ------ ------ ------
(in millions)
Athletic Stores......................... $ 1,103 $ 1,036 $ 3,194 $ 3,058
Direct-to-Customers..................... 91 84 251 237
------- ------- ------- -------
Total Sales............................. $ 1,194 $ 1,120 $ 3,445 $ 3,295
======= ======= ======= =======
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 increased by 0.4 percent for the third quarter of 2003
and declined by 2.2 percent for the year-to-date period of 2003.
Athletic Stores sales increased by 6.5 percent and 4.4 percent,
respectively, for the thirteen and thirty-nine weeks ended November 1, 2003,
respectively, as compared with the corresponding prior-year periods. Excluding
the effect of foreign currency fluctuations, sales increased by 3.0 percent and
0.5 percent, respectively, for the thirteen and thirty-nine weeks ended November
1, 2003, as compared to the corresponding periods of the prior year.
Comparable-store sales decreased by 0.2 percent and 2.7 percent, respectively,
for the thirteen and thirty-nine week periods ended November 1, 2003. Most of
the international formats, Foot Locker Europe in particular, continued to
achieve strong sales during the third quarter and year-to-date period of 2003
and produced mid-single digit comparable-store sales increases. During the
thirty-nine weeks ended November 1, 2003, the continuing current trend of
classic shoes led footwear sales across most of the U.S. Athletic Store formats.
Apparel sales, including both licensed and private label categories were
particularly strong during both the thirteen and thirty-nine weeks ended
November 1, 2003. Sales for the prior-year periods ended November 2, 2002 were
primarily led by footwear, basketball in particular.
-16-
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 third
quarter of 2003 to accommodate this expected continuing trend, to meet the
holiday selling season as well as to support the growth of Foot Locker Europe in
the upcoming quarter.
The Registrant purchases the largest portion of its merchandise from
Nike, Inc. ("Nike"). On November 19, 2003, Nike announced, in part, that it
"plans to execute joint marketing programs with Foot Locker, Inc. to develop
innovative retail presentations of Nike performance products at select Foot
Locker, Inc. locations in the U.S., beginning with the Fall 2004 season." As
part of these programs, additional Nike and Brand Jordan statement and launch
products will be available at select Foot Locker locations.
Direct to Customers sales increased by 8.3 percent and by 5.9 percent
for the thirteen and thirty-nine weeks ended November 1, 2003, respectively, as
compared with the corresponding prior-year periods. Internet sales of $47
million and $127 million for the thirteen and thirty-nine weeks ended November
1, 2003, respectively, increased by 45.0 percent and by 42.3 percent, as
compared with the corresponding prior-year periods. This increase in Internet
sales was partially 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. During the third quarter of 2003, the Registrant signed a five-year
extension with the National Football League, which will become effective in
April 2004, whereby Foot Locker designs, merchandises and fulfills the NFL's
official catalog and E-commerce site. The agreement calls for annual royalty
payments, calculated as a percentage of sales, with guaranteed minimums over the
contract term. The Registrant does not anticipate that it will encounter
difficulties in meeting the commitments called for in this contract.
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 Thirty-nine weeks ended
----------------------- -----------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
2003 2002 2003 2002
------- ------- ------- -------
(in millions)
Athletic Stores............................... $ 105 $ 76 $ 248 $ 207
Direct-to-Customers........................... 13 8 30 22
------ ------ ------- -------
118 84 278 229
Restructuring income (charge)................. - 1 (1) 2
------ ------ ------- -------
Operating profit before corporate expense, net 118 85 277 231
Corporate expense............................. 16 13 49 40
------ ------ ------- -------
Operating profit.............................. 102 72 228 191
Non-operating income.......................... - - - (3)
Interest expense, net......................... 5 5 14 19
------ ------ ------- -------
Income from continuing operations before
income taxes............................ $ 97 $ 67 $ 214 $ 175
====== ====== ======= =======
-17-
Athletic Stores operating profit before corporate expense, net
increased by 38.2 percent and by 19.8 percent for the thirteen and thirty-nine
weeks ended November 1, 2003, respectively, as compared with the corresponding
prior-year periods. Better merchandise purchasing primarily drove the
improvements in gross margin. Vendor allowances contributed approximately 20
basis points and 60 basis points to the Athletic Stores gross margin rate
improvement for the thirteen and thirty-nine weeks ended November 1, 2003,
respectively.
The corresponding periods in 2002 reflected an increase in markdowns
taken to sell slow-moving U.S. marquee product, which were offset, in part, by
operating expense reductions from cost-cutting programs. Operating profit before
corporate expense, net as a percentage of sales, increased to 9.5 percent and
7.8 percent for the thirteen and thirty-nine weeks ended November 1, 2003,
respectively, as compared to 7.3 percent and 6.8 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. The results
for the third quarter ended November 1, 2003 were better than planned, however,
operating results during the thirty-nine weeks 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 $5 million for the thirteen weeks ended November 1, 2003 and
increased by $8 million for the thirty-nine weeks ended November 1, 2003 as
compared with the corresponding respective periods ended November 2, 2002.
Operating profit before corporate expense, net, as a percentage of sales,
increased to 14.3 percent and 12.0 percent for the thirteen and thirty-nine
weeks ended November 1, 2003, respectively, as compared to 9.5 percent and 9.3
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 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).
-18-
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 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 November 1, 2003, the Registrant estimates that
its gross contingent lease liability is between CAD$71 to $76 million
(approximately US$54 to $58 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
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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 November 1, 2003 and February 1, 2003, US$2 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. During the third quarter of 2003, a charge in the
amount of $1 million before-tax was recorded to cover additional liabilities
related to the exiting of a leased location in excess of the previous estimate.
The remaining reserve balance of US$9 million at November 1, 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 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 $15 million as of November 1, 2003, $7 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 November 1, 2003
totaled $2 million, which is expected to be utilized within twelve months.
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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. The lease for the distribution center expires January
31, 2010 while the remaining store leases expire on January 31, 2004. As of
November 1, 2003, the Registrant estimates its gross contingent lease liability
for these leases to be approximately $4 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 November
1, 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 $24 million reserved to meet stand-by
letter of credit requirements, this revolving credit facility was not used
during the thirty-nine weeks ended November 1, 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 $90
million for the thirty-nine weeks ended November 1, 2003 as compared with $189
million for the thirty-nine weeks ended November 2, 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 and a $50 million contribution made by the Registrant to
its U.S. qualified retirement plan in February 2003, in advance of ERISA funding
requirements. These decreases were partially offset by increasing profitability
from continuing operations. The decrease due to working capital resulted from a
higher net cash outflow for merchandise inventories in the thirty-nine weeks
ended November 1, 2003 as compared to the same period of the prior year. The
Registrant increased its inventory position to accommodate the planned growth in
Europe in addition to the increased requirements for the holiday selling season.
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Net cash used in investing activities of continuing operations of $106
million and $113 million for the thirty-nine weeks ended November 1, 2003 and
November 2, 2002, respectively, primarily reflected capital expenditures for
store remodelings, new stores and lease acquisition costs. The Registrant
currently anticipates capital expenditures of $150 million for 2003. Anticipated
capital expenditures comprise $82 million for new store openings and
modernizations of existing stores, $50 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 the
disposal of real estate of $6 million for the thirty-nine weeks ended November
2, 2002 primarily related to the condemnation of a part-owned and part-leased
property in the second quarter of 2002. This real estate transaction resulted in
a gain of $3 million, which was recorded in other income. Real estate proceeds
during the current period were not material.
Financing activities for the Registrant's continuing operations used
cash of $21 million for the thirty-nine weeks ended November 1, 2003 as compared
with cash used by financing activities of $32 million for the corresponding
prior-year period. The Registrant repurchased $17 million of its 8.50%
debentures due in 2022, during the thirty-nine weeks ended November 1, 2003.
During the thirty-nine weeks ended November 2, 2002, the Registrant repaid the
remaining $32 million of the $40 million 7.00% medium-term notes due in October
2002 and retired approximately $9 million of its 8.50% debentures. The
Registrant declared and paid $0.03 per share dividends in each of the first
three quarters of 2003 totaling $13 million for the thirty-nine week period.
During each of the 2003 and 2002 year-to-date periods, the Registrant issued $9
million in common stock in connection with employee stock programs.
Following the end of the quarter, the Registrant repurchased $2 million
of its 8.50% debentures, bringing the total amount repurchased to date to $28
million. On November 19, 2003, the Registrant's Board of Directors declared a
dividend of $0.06 per share on its common stock which will be payable on January
30, 2004 to shareholders of record on January 16, 2004. This is double the
Registrant's previous dividend. Annual dividend payments are expected to amount
to approximately $32 million per year. 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 to
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.
RECENT 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. Additional asset retirement obligations recorded during the second and
third quarters 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 thirty-nine weeks ended November 2, 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.
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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.
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 adoption of SFAS No. 150 did not have an impact on the
Registrant's financial position and results of operations.
In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities." The Interpretation introduces a new consolidation
model, referred to as the variable interest model, which determines control and
consolidation not based on who has the majority of voting ownership rights, but
rather on who absorbs the majority of the potential variability in gains and
losses of the entity being evaluated for consolidation. On October 9, 2003, a
FASB Staff Position was issued in which the effective date of this statement was
deferred to periods ending after December 15, 2003. The Registrant does not
anticipate that the adoption of this statement will have a material effect on
the Registrant's financial position or 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, disruptions to
transportation services and distribution, 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.
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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.
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 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 August 7, 2003, under Items 7 and 12, reporting the
Registrant's sales results for the second quarter of 2003.
Form 8-K, dated August 21, 2003, under Items 7 and 12, reporting the
Registrant's operating results for the second quarter of 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: December 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 Restricted Stock Agreement with Matthew D. Serra
dated as of September 11, 2003.
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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