Attached files
file | filename |
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EX-15 - FOOT LOCKER, INC. | v187347_ex15.htm |
EX-12 - FOOT LOCKER, INC. | v187347_ex12.htm |
EX-99 - FOOT LOCKER, INC. | v187347_ex99.htm |
EX-31.1 - FOOT LOCKER, INC. | v187347_ex31-1.htm |
EX-31.2 - FOOT LOCKER, INC. | v187347_ex31-2.htm |
EX-32.1 - FOOT LOCKER, INC. | v187347_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended: May 1, 2010
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the transition period from __________ to __________
Commission
File Number: 1-10299
FOOT
LOCKER, INC.
(Exact
Name of Registrant as Specified in its Charter)
New
York
|
13-3513936
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S.
Employer Identification No.)
|
112
West 34th Street,
New York, New York, 10120
(Address
of Principal Executive Offices, Zip Code)
(212-720-3700)
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer x
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
Number of
shares of Common Stock outstanding at May 29, 2010:
156,206,118
FOOT LOCKER,
INC.
TABLE OF
CONTENTS
Page
|
||||
Part
I.
|
Financial
Information
|
|||
|
Item
1.
|
Financial
Statements
|
||
Condensed
Consolidated Balance Sheets
|
3
|
|||
Condensed
Consolidated Statements of Operations
|
4
|
|||
Condensed
Consolidated Statements of Comprehensive Income
|
5
|
|||
Condensed
Consolidated Statements of Cash Flows
|
6
|
|||
Notes
to Condensed Consolidated Financial Statements
|
7
|
|||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
||
Item
4.
|
Controls
and Procedures
|
19
|
||
Part
II.
|
Other
Information
|
|||
Item
1.
|
Legal
Proceedings
|
19
|
||
Item
1A.
|
Risk
Factors
|
19
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
||
Item
6.
|
Exhibits
|
19
|
||
Signature
|
20
|
|||
Index
to Exhibits
|
21
|
2
PART I - FINANCIAL
INFORMATION
Item 1. Financial
Statements
FOOT LOCKER,
INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in
millions, except shares)
May
1,
|
May
2,
|
January
30,
|
||||||||||
2010
|
2009
|
2010
|
||||||||||
|
(Unaudited)
|
|
(Unaudited)
|
|
*
|
|||||||
ASSETS
|
||||||||||||
Current
assets
|
||||||||||||
Cash
and cash equivalents
|
$
|
609
|
$
|
408
|
$
|
582
|
||||||
Short-term
investments
|
7
|
23
|
7
|
|||||||||
Merchandise
inventories
|
1,146
|
1,237
|
1,037
|
|||||||||
Other
current assets
|
169
|
212
|
146
|
|||||||||
1,931
|
1,880
|
1,772
|
||||||||||
Property
and equipment, net
|
378
|
429
|
387
|
|||||||||
Deferred
taxes
|
358
|
353
|
362
|
|||||||||
Goodwill
|
144
|
144
|
145
|
|||||||||
Other
intangibles and other assets
|
149
|
163
|
150
|
|||||||||
$
|
2,960
|
$
|
2,969
|
$
|
2,816
|
|||||||
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
||||||||||||
Current
liabilities
|
||||||||||||
Accounts
payable
|
$
|
359
|
$
|
292
|
$
|
215
|
||||||
Accrued
expenses and other current liabilities
|
213
|
201
|
218
|
|||||||||
572
|
493
|
433
|
||||||||||
Long-term
debt
|
137
|
142
|
138
|
|||||||||
Other
liabilities
|
301
|
383
|
297
|
|||||||||
1,010
|
1,018
|
868
|
||||||||||
Shareholders’
equity
|
||||||||||||
Common
stock and paid-in capital: 161,694,829, 160,400,218 and 161,267,025
shares, respectively
|
716
|
697
|
709
|
|||||||||
Retained
earnings
|
1,565
|
1,589
|
1,535
|
|||||||||
Accumulated
other comprehensive loss
|
(216
|
)
|
(232
|
)
|
(193
|
)
|
||||||
Less:
Treasury stock at cost: 5,575,436, 4,709,020, and 4,726,237
shares, respectively
|
(115
|
)
|
(103
|
)
|
(103
|
)
|
||||||
Total
shareholders’ equity
|
1,950
|
1,951
|
1,948
|
|||||||||
$
|
2,960
|
$
|
2,969
|
$
|
2,816
|
See
Accompanying Notes to Condensed Consolidated Financial
Statements.
|
*
The balance sheet at January 30, 2010 has been derived from the previously
reported audited financial statements at that date, but does not include
all of the information and footnotes required by U.S. generally accepted
accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company’s Annual Report on Form 10-K for the year
ended January 30, 2010.
|
3
FOOT LOCKER,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(in
millions, except per share amounts)
Thirteen-weeks ended
|
||||||||
May 1,
|
May 2,
|
|||||||
|
2010
|
|
2009
|
|||||
Sales
|
$
|
1,281
|
$
|
1,216
|
||||
Costs
and Expenses
|
||||||||
Cost
of sales
|
888
|
860
|
||||||
Selling,
general and administrative expenses
|
280
|
278
|
||||||
Depreciation
and amortization
|
26
|
28
|
||||||
Interest
expense, net
|
3
|
2
|
||||||
Other
income, net
|
—
|
(1
|
)
|
|||||
1,197
|
1,167
|
|||||||
Income
before income taxes
|
84
|
49
|
||||||
Income
tax expense
|
30
|
18
|
||||||
Net
income
|
$
|
54
|
$
|
31
|
||||
Basic
earnings per share:
|
||||||||
Net
income
|
$
|
0.35
|
$
|
0.20
|
||||
Weighted-average
common shares outstanding
|
156.5
|
155.3
|
||||||
Diluted
earnings per share:
|
||||||||
Net
income
|
$
|
0.34
|
$
|
0.20
|
||||
Weighted-average
common shares assuming dilution
|
157.3
|
155.5
|
See
Accompanying Notes to Condensed Consolidated Financial
Statements.
4
FOOT LOCKER,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in
millions)
Thirteen-weeks ended
|
||||||||
May 1,
|
May 2,
|
|||||||
2010
|
2009
|
|||||||
Net
income
|
$
|
54
|
$
|
31
|
||||
Other
comprehensive income (loss), net of tax
|
||||||||
Foreign
currency translation adjustments arising during the period
|
(23
|
)
|
15
|
|||||
Pension
and postretirement plan adjustments
|
2
|
1
|
||||||
Change
in fair value of derivatives
|
—
|
(1
|
)
|
|||||
Comprehensive
income
|
$
|
33
|
$
|
46
|
See
Accompanying Notes to Condensed Consolidated Financial
Statements.
5
FOOT LOCKER,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(in
millions)
Thirteen-weeks ended
|
||||||||
May 1,
|
May 2,
|
|||||||
2010
|
|
2009
|
||||||
From
Operating Activities:
|
||||||||
Net
income
|
$
|
54
|
$
|
31
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
26
|
28
|
||||||
Share-based
compensation expense
|
3
|
2
|
||||||
Change
in assets and liabilities:
|
||||||||
Merchandise
inventories
|
(116
|
)
|
(110
|
)
|
||||
Accounts
payable
|
145
|
103
|
||||||
Other
accruals
|
3
|
(30
|
)
|
|||||
Qualified
pension plan contributions
|
(2
|
)
|
(11
|
)
|
||||
Gain
on termination of interest rate swaps
|
—
|
19
|
||||||
Other,
net
|
(17
|
)
|
35
|
|||||
Net
cash provided by operating activities
|
96
|
67
|
||||||
From
Investing Activities:
|
||||||||
Capital
expenditures
|
(25
|
)
|
(26
|
)
|
||||
Net
cash used in investing activities
|
(25
|
)
|
(26
|
)
|
||||
From
Financing Activities:
|
||||||||
Purchase
of treasury stock
|
(8
|
)
|
—
|
|||||
Issuance
of common stock
|
1
|
—
|
||||||
Dividends
paid
|
(24
|
)
|
(23
|
)
|
||||
Net
cash used in financing activities
|
(31
|
)
|
(23
|
)
|
||||
Effect
of exchange rate fluctuations on Cash and Cash Equivalents
|
(13
|
)
|
5
|
|||||
Net
change in Cash and Cash Equivalents
|
27
|
23
|
||||||
Cash
and Cash Equivalents at beginning of year
|
582
|
385
|
||||||
Cash
and Cash Equivalents at end of interim period
|
$
|
609
|
$
|
408
|
||||
Cash
paid during the period:
|
||||||||
Interest
|
$
|
—
|
$
|
1
|
||||
Income
taxes
|
$
|
17
|
$
|
7
|
See
Accompanying Notes to Condensed Consolidated Financial
Statements.
6
FOOT LOCKER,
INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant
Accounting Policies
Basis
of Presentation
The
accompanying condensed consolidated financial statements contained in this
report are unaudited. In the opinion of management, the condensed consolidated
financial statements include all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the results for the interim periods
of the fiscal year ending January 29, 2011 and of the fiscal year ended January
30, 2010. Certain items included in these statements are based on management’s
estimates. Actual results may differ from those estimates. The results of
operations for any interim period are not necessarily indicative of the results
expected for the year. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Company’s Form 10-K for the
year ended January 30, 2010, as filed with the Securities and Exchange
Commission (the “SEC”) on March 29, 2010.
Recent
Accounting Pronouncements
Recently
issued accounting pronouncements did not, or are not believed by management to,
have a material effect on the Company’s present or future consolidated financial
statements.
2.
Goodwill and Other
Intangible Assets
The
Company reviews goodwill and intangible assets with indefinite lives for
impairment annually during the first quarter of its fiscal year or more
frequently if impairment indicators arise. The annual review of goodwill and
assets with indefinite lives during the first quarters of 2010 and 2009 did not
result in any impairment charges. The following table provides a summary of
goodwill by reportable segment. The change represents foreign
exchange fluctuations.
May 1,
|
May 2,
|
January 30,
|
|||||||||||
Goodwill (in millions)
|
2010
|
2009
|
2010
|
||||||||||
Athletic
Stores
|
$ | 17 | $ | 17 | $ | 18 | |||||||
Direct-to-Customers
|
127 | 127 | 127 | ||||||||||
$ | 144 | $ | 144 | $ | 145 |
The
components of finite-lived intangible assets and intangible assets not subject
to amortization are as follows:
May 1, 2010
|
May 2, 2009
|
January 30, 2010
|
||||||||||||||||||||||||||||||||||
Gross
|
Accum.
|
Net
|
Gross
|
Accum.
|
Net
|
Gross
|
Accum.
|
Net
|
||||||||||||||||||||||||||||
(in millions)
|
value
|
amort.
|
value
|
value
|
amort.
|
value
|
value
|
amort.
|
value
|
|||||||||||||||||||||||||||
Finite
life intangible assets:
|
||||||||||||||||||||||||||||||||||||
Lease
acquisition costs
|
$
|
175
|
$
|
(139
|
)
|
$
|
36
|
$
|
175
|
$
|
(128
|
)
|
$
|
47
|
$
|
184
|
$
|
(143
|
)
|
$
|
41
|
|||||||||||||||
Trademark
|
20
|
(6
|
)
|
14
|
20
|
(5
|
)
|
15
|
20
|
(6
|
)
|
14
|
||||||||||||||||||||||||
Loyalty
program
|
1
|
(1
|
)
|
—
|
1
|
(1
|
)
|
—
|
1
|
(1
|
)
|
—
|
||||||||||||||||||||||||
Favorable
leases
|
9
|
(8
|
)
|
1
|
9
|
(7
|
)
|
2
|
9
|
(8
|
)
|
1
|
||||||||||||||||||||||||
CCS
customer relationships
|
21
|
(6
|
)
|
15
|
21
|
(2
|
)
|
19
|
21
|
(5
|
)
|
16
|
||||||||||||||||||||||||
Total
finite life intangible assets
|
226
|
(160
|
)
|
66
|
226
|
(143
|
)
|
83
|
235
|
(163
|
)
|
72
|
7
May
1, 2010
|
May
2, 2009
|
January
30, 2010
|
||||||||||||||||||||||||||||||||||
Gross
|
Accum.
|
Net
|
Gross
|
Accum.
|
Net
|
Gross
|
Accum.
|
Net
|
||||||||||||||||||||||||||||
(in
millions)
|
value
|
amort.
|
value
|
value
|
amort.
|
value
|
value
|
amort.
|
value
|
|||||||||||||||||||||||||||
Intangible
assets not subject to amortization:
|
||||||||||||||||||||||||||||||||||||
Republic
of Ireland trademark
|
2
|
—
|
2
|
2
|
—
|
2
|
2
|
—
|
2
|
|||||||||||||||||||||||||||
CCS
trade-name
|
25
|
—
|
25
|
25
|
—
|
25
|
25
|
—
|
25
|
|||||||||||||||||||||||||||
Total
indefinite life intangible assets
|
27
|
—
|
27
|
27
|
—
|
27
|
27
|
—
|
27
|
|||||||||||||||||||||||||||
Total
other intangible assets
|
$
|
253
|
$
|
(160
|
)
|
$
|
93
|
$
|
253
|
$
|
(143
|
)
|
$
|
110
|
$
|
262
|
$
|
(163
|
)
|
$
|
99
|
The
weighted-average amortization period as of May 1, 2010 was 11.8 years.
Amortization expense was $5 million for each of the thirteen week periods ended
May 1, 2010 and May 2, 2009. Estimated amortization expense for
finite life intangible assets is expected to approximate $13 million for the
remainder of 2010, $16 million for 2011, $13 million for 2012, $9 million for
2013 and $3 million for 2014. The change in the net value of the intangible
assets for the thirteen week period ended May 1, 2010 reflects amortization of
$5 million, the effect of the weakening euro as compared with the U.S. dollar of
$2 million, partially offset by additions of $1 million.
3.
Financial
Instruments
The
Company operates internationally and utilizes certain derivative financial
instruments to mitigate its foreign currency exposures, primarily related to
third party and intercompany forecasted transactions. As a result of
the use of derivative instruments, the Company is exposed to the risk that
counterparties will fail to meet their contractual obligations. To mitigate the
counterparty credit risk, the Company has a policy of entering into contracts
only with major financial institutions selected based upon their credit ratings
and other financial factors. The Company monitors the creditworthiness of
counterparties throughout the duration of the derivative
instrument. Additional information is contained within Note 9, Fair Value
Measurements.
Derivative
Holdings Designated as Hedges
For
a derivative to qualify as a hedge at inception and throughout the hedged
period, the Company formally documents the nature of the hedged items and the
relationships between the hedging instruments and the hedged items, as well as
its risk-management objectives, strategies for undertaking the various hedge
transactions, and the methods of assessing hedge effectiveness and hedge
ineffectiveness. In addition, for hedges of forecasted transactions, the
significant characteristics and expected terms of a forecasted transaction must
be specifically identified, and it must be probable that each forecasted
transaction will occur. If it were deemed probable that the forecasted
transaction would not occur, the gain or loss would be recognized in earnings
immediately. No such gains or losses were recognized in earnings for any of the
periods presented. Derivative financial instruments qualifying for hedge
accounting must maintain a specified level of effectiveness between the hedging
instrument and the item being hedged, both at inception and throughout the
hedged period, which management evaluates periodically.
Cash Flow
Hedges
The
primary currencies to which the Company is exposed are the euro, British pound,
Canadian dollar and Australian dollar. For option and forward foreign exchange
contracts designated as cash flow hedges of the purchase of inventory, the
effective portion of gains and losses is deferred as a component of accumulated
other comprehensive loss and is recognized as a component of cost of sales when
the related inventory is sold. The amount reclassified to cost of sales related
to such contracts was not significant for any of the periods presented. The
ineffective portion of gains and losses related to cash flow hedges recorded to
earnings was not significant for any of the periods presented. When using a
forward contract as a hedging instrument, the Company excludes the time value
from the assessment of effectiveness. At each quarter-end, the Company had not
hedged forecasted transactions for more than the next twelve months, and the
Company expects all derivative-related amounts reported in accumulated other
comprehensive loss to be reclassified to earnings within twelve months. The net
change in the fair value of foreign exchange derivative financial instruments
designated as cash flow hedges of the purchase of inventory was not significant
for the thirteen-weeks ended May 1, 2010 and was $1 million for the
thirteen-weeks ended May 2, 2009.
8
Net Investment
Hedges
The
Company has numerous investments in foreign subsidiaries, and the net assets of
those subsidiaries are exposed to foreign exchange-rate volatility. In 2005, the
Company hedged a portion of its net investment in its European subsidiaries by
entering into a 10-year cross currency swap. In 2006, the Company
hedged a portion of its net investment in its Canadian subsidiaries. In 2008,
the Company terminated its European and Canadian hedges.
The
Company had designated these hedging instruments as hedges of the net
investments in foreign subsidiaries, and used the spot rate method of accounting
to value changes of the hedging instrument attributable to currency rate
fluctuations. As such, adjustments in the fair market value of the hedging
instrument due to changes in the spot rate were recorded in other comprehensive
income and offset changes in the net investment. Amounts recorded to foreign
currency translation within accumulated other comprehensive loss will remain
there until the net investment is disposed of.
The
amount recorded within the foreign currency translation adjustment included in
accumulated other comprehensive loss on the Company’s Consolidated Balance Sheet
related to the euro-denominated net investment hedge decreased shareholders’
equity by $15 million, net of tax, at May 1, 2010 and May 2, 2009. The effect on
the Consolidated Statements of Operations related to the net investment hedges
was not significant for the thirteen-week periods ended May 1, 2010 and May 2,
2009.
Derivative
Holdings Designated as Non-Hedges
The
Company mitigates the effect of fluctuating foreign exchange rates on the
reporting of foreign currency denominated earnings by entering into a variety of
derivative instruments, including option currency contracts. Changes in the fair
value of these foreign currency option contracts, which are designated as
non-hedges, are recorded in earnings immediately within other income. The
realized gains, premiums paid and changes in the fair market value recorded in
the Consolidated Statements of Operations were not significant for the
thirteen-week periods ended May 1, 2010 and May 2, 2009.
The
Company also enters into forward foreign exchange contracts to hedge
foreign-currency denominated merchandise purchases and intercompany
transactions. Net changes in the fair value of foreign exchange derivative
financial instruments designated as non-hedges were substantially offset by the
changes in value of the underlying transactions, which were recorded in selling,
general and administrative expenses. The amount recorded for all the periods
presented was not significant.
The
Company enters into diesel fuel forward and option contracts to mitigate a
portion of the Company’s freight expense due to the variability caused by fuel
surcharges imposed by our third-party freight carriers. The notional value of
the contracts outstanding at May 1, 2010 was $4 million and these contracts
extend through November 2010. Changes in the fair value of these contracts are
recorded in earnings immediately. The effect was not significant for any of the
periods presented.
In 2008,
the Company terminated the European net investment hedge by amending its
existing cross currency swap and entering simultaneously into a new cross
currency swap, thereby fixing the amount owed to the counterparty in 2015 at $24
million. During the remaining term of the agreement, the Company will remit to
its counterparty interest payments based on one-month U.S. LIBOR rates on the
$24 million liability. The agreement also includes a provision that may require
the Company to settle this transaction in August 2010, at the option of the
Company or the counterparty.
Fair
Value of Derivative Contracts
The
following represents the fair value of the Company’s derivative
contracts. Many of the Company’s agreements allow for a netting
arrangement. The following is presented on a gross basis, by type of
contract:
Balance
Sheet
|
May
1,
|
May
2,
|
January
30,
|
|||||||||||
(in millions)
|
Caption
|
2010
|
2009
|
2010
|
||||||||||
Hedging
Instruments:
|
||||||||||||||
Forward
foreign exchange contracts
|
Current
assets
|
$
|
—
|
$
|
1
|
$
|
—
|
|||||||
Total
|
$
|
—
|
$
|
1
|
$
|
—
|
||||||||
Non-Hedging
Instruments:
|
||||||||||||||
Forward
foreign exchange contracts
|
Current
assets
|
$
|
—
|
$
|
1
|
$
|
1
|
|||||||
European
cross currency swap
|
Non
current liability
|
(24
|
)
|
(24
|
)
|
(24
|
)
|
|||||||
Total
|
$
|
(24
|
)
|
$
|
(23
|
)
|
$
|
(23
|
)
|
9
Interest
Rate Risk Management
The
Company historically has employed various interest rate swaps to minimize its
exposure to interest rate fluctuations. On March 20, 2009, the Company
terminated its interest rate swaps for a gain of $19 million. This gain is
amortized as part of interest expense over the remaining term of the debt using
the effective-yield method. The amount amortized during the thirteen-weeks ended
May 1, 2010 and May 2, 2009 was $1 million in each respective
period.
Fair
Value of Financial Instruments
The
carrying value and estimated fair value of long-term debt was $137 million and
$131 million, respectively, at May 1, 2010 and $138 million and $127 million,
respectively, at January 30, 2010. The carrying values of cash and cash
equivalents, short-term investments and other current receivables and payables
approximate their fair value.
4.
Accumulated Other
Comprehensive Loss
Accumulated
other comprehensive loss comprised the following:
May
1,
|
May
2,
|
January
30,
|
||||||||||
(in
millions)
|
2010
|
|
2009
|
|
2010
|
|||||||
Foreign
currency translation adjustments
|
$
|
52
|
$
|
25
|
$
|
75
|
||||||
Cash
flow hedges
|
—
|
1
|
—
|
|||||||||
Unrecognized
pension cost and postretirement benefit
|
(266
|
)
|
(253
|
)
|
(266
|
)
|
||||||
Unrealized
loss on available-for-sale security
|
(2
|
)
|
(5
|
)
|
(2
|
)
|
||||||
$
|
(216
|
)
|
$
|
(232
|
)
|
$
|
(193
|
)
|
5.
Earnings Per
Share
The
Company accounts for and discloses net earnings per share using the treasury
stock method. The Company’s basic earnings per share is computed by
dividing the Company’s reported net income for the period by the
weighted-average number of common shares outstanding at the end of the period.
The Company’s restricted stock awards, which contain non-forfeitable rights to
dividends, are considered participating securities and are included in the
calculation of basic earnings per share. Diluted earnings per share reflects the
weighted-average number of common shares outstanding during the period used in
the basic earnings per share computation plus dilutive common stock equivalents.
The Company’s basic and diluted weighted-average number of common shares
outstanding as of May 1, 2010 and May 2, 2009, were as follows:
Thirteen-weeks
ended
|
||||||||
May
1,
|
May
2,
|
|||||||
(in
millions)
|
2010
|
2009
|
||||||
Weighted-average
common shares outstanding
|
156.5 | 155.3 | ||||||
Effect of
Dilution:
|
||||||||
Stock
options and awards
|
0.8 | 0.2 | ||||||
Weighted-average
common shares assuming dilution
|
157.3 | 155.5 |
Options
to purchase 4.0 million and 6.4 million shares of common stock were not included
in the computation for the thirteen-weeks ended May 1, 2010 and May 2, 2009,
respectively. These options were not included primarily because the exercise
prices of the options were greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
10
6.
Segment
Information
The
Company has determined that its reportable segments are those that are based on
its method of internal reporting. As of May 1, 2010, the Company has two
reportable segments, Athletic Stores and Direct-to-Customers. Sales and division
results for the Company’s reportable segments for the thirteen-weeks ended May
1, 2010 and May 2, 2009 are presented below. Division profit reflects income
before income taxes, corporate expense, non-operating income and net interest
expense.
Sales
Thirteen-weeks
ended
|
|||||||||
May
1,
|
May
2,
|
||||||||
(in
millions)
|
2010
|
2009
|
|||||||
Athletic
Stores
|
$ | 1,181 | $ | 1,118 | |||||
Direct-to-Customers
|
100 | 98 | |||||||
Total
sales
|
$ | 1,281 | $ | 1,216 |
Operating
Results
Thirteen-weeks
ended
|
||||||||
May
1,
|
May
2,
|
|||||||
(in
millions)
|
|
2010
|
|
2009
|
||||
Athletic
Stores
|
$
|
101
|
$
|
61
|
||||
Direct-to-Customers
|
10
|
8
|
||||||
Division
profit
|
111
|
69
|
||||||
Corporate
expense, net
|
24
|
19
|
||||||
Operating
profit
|
87
|
50
|
||||||
Other
income (1)
|
—
|
(1
|
)
|
|||||
Interest
expense, net
|
3
|
2
|
||||||
Income
before income taxes
|
$
|
84
|
$
|
49
|
(1)
|
Other
income for the thirteen-weeks ended May 2, 2009 is primarily comprised of
changes in fair value, realized gains and premiums paid on foreign
currency option contracts and royalty
income.
|
7.
Pension
and Postretirement Plans
The
Company has defined benefit pension plans covering most of its North American
employees, which are funded in accordance with the provisions of the laws where
the plans are in effect. In addition to providing pension benefits, the Company
sponsors postretirement medical and life insurance plans, which are available to
most of its retired U.S. employees. These medical and life insurance plans are
contributory and are not funded.
The
following are the components of net periodic pension benefit cost and net
periodic postretirement benefit income:
Pension
|
Postretirement
|
|||||||||||||||
Benefits
|
Benefits
|
|||||||||||||||
May
1,
|
May
2,
|
May
1,
|
May
2,
|
|||||||||||||
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|||||||||
Service
cost
|
$
|
3
|
$
|
3
|
$
|
—
|
$
|
—
|
||||||||
Interest
cost
|
8
|
9
|
—
|
—
|
||||||||||||
Expected
return on plan assets
|
(10
|
)
|
(10
|
)
|
—
|
—
|
||||||||||
Amortization
of net loss (gain)
|
5
|
3
|
(2
|
)
|
(2
|
)
|
||||||||||
Net
benefit expense (income)
|
$
|
6
|
$
|
5
|
$
|
(2
|
)
|
$
|
(2
|
)
|
During
the thirteen-weeks ended May 1, 2010 the Company made a $2 million contribution
to its Canadian qualified plan. No further pension contributions to
its U.S. or Canadian qualified plans are required in 2010; however, the Company
may make additional contributions to its U.S. qualified plan depending on the
pension fund’s asset performance and other factors.
11
8.
Share-Based
Compensation
The
Company uses a Black-Scholes option-pricing model to estimate the fair value of
share-based awards. The Black-Scholes option-pricing model incorporates various
and highly subjective assumptions, including expected term and expected
volatility.
Compensation expense related to the
Company’s stock option and stock purchase plans was $1.5 million and $0.7
million for the thirteen-weeks ended May 1, 2010 and May 2, 2009, respectively.
The following table shows the Company’s assumptions used to compute the
share-based compensation expense:
Stock
Option Plans
|
Stock
Purchase Plan
|
|||||||||||||||
May
1,
|
May
2,
|
May
1,
|
May
2,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Weighted-average
risk free rate of interest
|
2.34 | % | 1.72 | % | 1.14 | % | 2.00 | % | ||||||||
Expected
volatility
|
45 | % | 53 | % | 39 | % | 39 | % | ||||||||
Weighted-average
expected award life
|
5.0
years
|
4.8
years
|
1.0
year
|
1.0
year
|
||||||||||||
Dividend
yield
|
4.0 | % | 6.0 | % | 5.3 | % | 4.1 | % | ||||||||
Weighted-average
fair value
|
$ | 4.47 | $ | 2.85 | $ | 2.26 | $ | 3.11 |
The
information set forth in the following table covers options granted under the
Company’s stock option plans for the thirteen-weeks ended May 1,
2010:
(in thousands, except price per share)
|
Shares
|
Weighted-
Average
Term
|
Weighted-
Average
Exercise
Price
|
|||||||||
Options
outstanding at the beginning of the year
|
7,002 | $ | 16.88 | |||||||||
Granted
|
1,309 | 15.10 | ||||||||||
Exercised
|
(132 | ) | 11.08 | |||||||||
Expired
or cancelled
|
(99 | ) | 20.99 | |||||||||
Options
outstanding at May 1, 2010
|
8,080 | 5.71 | $ | 16.64 | ||||||||
Options
exercisable at May 1, 2010
|
5,625 | 4.09 | $ | 18.26 | ||||||||
Options
available for future grant at May 1, 2010
|
991 |
The total
intrinsic value of options exercised (the difference between the market price of
the Company’s common stock on the exercise date and the price paid by the
optionee to exercise the option) for the thirteen-weeks ended May 1, 2010 was
$0.5 million and was not significant for the thirteen-weeks ended May 2, 2009.
The aggregate intrinsic value for stock options outstanding and exercisable (the
difference between the Company’s closing stock price on the last trading day of
the period and the exercise price of the options, multiplied by the number of
in-the-money stock options) as of May 1, 2010 was $15.3 million and $9.2
million, respectively. The aggregate intrinsic value for stock options
outstanding and exercisable as of May 2, 2009 was $3.9 million and $1.7 million,
respectively.
The cash
received from option exercises for the thirteen-weeks ended May 1, 2010 and May
2, 2009 was $1.0 million and $0.1 million, respectively. The tax benefit
realized from option exercises was not significant for any of the periods
presented.
12
The
following table summarizes information about stock options outstanding and
exercisable at May 1, 2010:
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||||||||
Range of Exercise Prices
|
Number
Outstanding
|
Weighted-
Average
Remaining
Contractual
Life
|
Weighted-
Average
Exercise Price
|
Number
Exercisable
|
Weighted-
Average
Exercise Price
|
||||||||||||||||||||||
(in
thousands, except price per share)
|
|||||||||||||||||||||||||||
$ | 9.51 | $ | 10.25 | 1,844 | 7.24 | $ | 10.05 | 925 | $ | 10.09 | |||||||||||||||||
$ | 10.31 | $ | 15.10 | 2,878 | 6.45 | $ | 13.45 | 1,355 | $ | 12.13 | |||||||||||||||||
$ | 15.41 | $ | 23.92 | 2,014 | 4.35 | $ | 20.66 | 2,001 | $ | 20.68 | |||||||||||||||||
$ | 24.04 | $ | 27.10 | 922 | 3.76 | $ | 25.70 | 922 | $ | 25.70 | |||||||||||||||||
$ | 28.16 | $ | 28.16 | 422 | 4.76 | $ | 28.16 | 422 | $ | 28.16 | |||||||||||||||||
$ | 9.51 | $ | 28.16 | 8,080 | 5.71 | $ | 16.64 | 5,625 | $ | 18.26 |
Changes
in the Company’s nonvested options for the thirteen-weeks ended May 1, 2010 are
summarized as follows:
(in thousands, except price per share)
|
Number of
Shares
|
Weighted-
Average Grant
Date Fair Value
per Share
|
||||||
Nonvested
at January 30, 2010
|
1,918
|
$
|
11.67
|
|||||
Granted
|
1,309
|
15.10
|
||||||
Vested
|
(673
|
)
|
12.46
|
|||||
Expired
or cancelled
|
(99
|
)
|
20.99
|
|||||
Nonvested
at May 1, 2010
|
2,455
|
As of May
1, 2010, there was $6.2 million of total unrecognized compensation cost, related
to nonvested stock options, which is expected to be recognized over a
weighted-average period of 1.5 years.
Restricted
Stock and Units
Restricted
shares of the Company’s common stock may be awarded to certain officers and key
employees of the Company. For executives outside of the United States the
Company issues restricted stock units. The Company also issues restricted stock
units to its non-employee directors. Each restricted stock unit represents the
right to receive one share of the Company’s common stock provided that the
vesting conditions are satisfied. As of May 1, 2010, 127,500 restricted stock
units were outstanding. Compensation expense is recognized using the fair market
value at the date of grant and is amortized over the vesting period, provided
the recipient continues to be employed by the Company. These awards fully vest
after the passage of time, generally three years. Restricted stock is considered
outstanding at the time of grant, as the holders of restricted stock are
entitled to receive dividends and have voting rights.
Restricted
shares and units activity for the thirteen-weeks ended May 1, 2010 and May 2,
2009 is summarized as follows:
Number of Shares and Units
|
||||||||
(in thousands)
|
May
1, 2010
|
May
2, 2009
|
||||||
Outstanding
at beginning of period
|
1,680
|
844
|
||||||
Granted
|
—
|
565
|
||||||
Vested
|
(432
|
)
|
(39
|
)
|
||||
Cancelled
or forfeited
|
(70
|
)
|
—
|
|||||
Outstanding
at end of period
|
1,178
|
1,370
|
||||||
Aggregate
value (in millions)
|
$
|
12.4
|
$
|
21.3
|
||||
Weighted-average
remaining contractual life
|
1.76
years
|
1.67
years
|
The
Company did not grant any restricted stock or unit awards during the first
quarter of 2010. The weighted-average grant-date fair value per share was $9.67
for the thirteen-weeks ended May 2, 2009. The total value of awards for which
restrictions lapsed during the thirteen-weeks ended May 1, 2010 and May 2, 2009
was $9.2 million and $0.9 million, respectively. As of May 1, 2010, there was
$6.4 million of total unrecognized compensation cost related to nonvested
restricted awards. The Company recorded compensation expense related to
restricted stock awards, net of forfeitures, of $1.5 million and $1.7 million
for the thirteen-weeks ended May 1, 2010 and May 2, 2009,
respectively.
13
9.
Fair Value
Measurements
The
following tables provide a summary of the Company’s recognized assets and
liabilities that are measured at fair value on a recurring basis:
At
May 1, 2010
|
||||||||||||||||
(in
millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Short-term
investment
|
$ | — | $ | — | $ | 7 | $ | 7 | ||||||||
Auction
rate security
|
— | 5 | — | 5 | ||||||||||||
Total
Assets
|
$ | — | $ | 5 | $ | 7 | $ | 12 | ||||||||
Liabilities
|
||||||||||||||||
European
net investment hedge
|
$ | — | $ | 24 | $ | — | $ | 24 | ||||||||
Total
Liabilities
|
$ | — | $ | 24 | $ | — | $ | 24 |
At
January 30, 2010
|
||||||||||||||||
(in
millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Short-term
investment
|
$ | — | $ | — | $ | 7 | $ | 7 | ||||||||
Auction
rate security
|
— | 5 | — | 5 | ||||||||||||
Forward
foreign exchange contracts
|
— | 1 | — | 1 | ||||||||||||
Total
Assets
|
$ | — | $ | 6 | $ | 7 | $ | 13 | ||||||||
Liabilities
|
||||||||||||||||
European
net investment hedge
|
$ | — | $ | 24 | $ | — | $ | 24 | ||||||||
Total
Liabilities
|
$ | — | $ | 24 | $ | — | $ | 24 |
The
Company’s auction rate security is classified as available-for-sale and,
accordingly, is reported at fair value. The fair value of the security is
determined by review of the underlying security at each reporting period. The
Company’s derivative financial instruments are valued using market-based inputs
to valuation models. These valuation models require a variety of inputs,
including contractual terms, market prices, yield curves, and measures of
volatility.
The
Company’s Level 3 assets represent the Company’s investment in the Reserve
International Liquidity Fund, Ltd. (the “Fund”), a money market fund classified
in short-term investments. The Company assesses the fair value of its investment
in the Fund, which includes an impairment evaluation, on a quarterly basis,
through a review of the underlying securities within the Fund. There was no
activity for this investment during the thirteen-weeks ended May 1,
2010.
14
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
BUSINESS
OVERVIEW
Foot
Locker, Inc., through its subsidiaries, operates in two reportable segments –
Athletic Stores and Direct-to-Customers. The Athletic Stores segment is one of
the largest athletic footwear and apparel retailers in the world, whose formats
include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports,
Footaction, and CCS.
The
Direct-to-Customers segment is multi-branded and multi-channeled. This segment
sells, through its affiliates, directly to customers through catalogs and its
Internet websites. Eastbay, one of the affiliates, is among the largest direct
marketers in the United States. This segment also operates websites
aligned with the brand names of the retail store banners (footlocker.com,
ladyfootlocker.com, kidsfootlocker.com, footaction.com, champssports.com, and
ccs.com).
STORE
COUNT
At May 1,
2010, the Company operated 3,485 stores as compared with 3,500 and 3,633 stores
at January 30, 2010 and May 2, 2009, respectively. During the thirteen-weeks
ended May 1, 2010, the Company opened 14 stores, remodeled or relocated 42
stores and closed 29 stores.
A total
of 22 franchised stores were operating at May 1, 2010 and at January 30, 2010,
as compared with 19 stores at May 2, 2009. Revenue from the franchised stores
was not significant for the thirteen-weeks ended May 1, 2010 and May 2, 2009.
These stores are not included in the Company’s operating store count
above.
SALES AND OPERATING
RESULTS
All
references to comparable-store sales for a given period relate to sales of
stores that are open at the period-end and that have been open for more than one
year. Accordingly, stores opened and closed during the period are not included.
Sales from the Direct-to-Customers segment are included in the total Company
calculation of comparable-store sales for all periods presented. Sales from
acquired businesses that include the purchase of inventory are included in the
computation of comparable-store sales after 15 months of operations.
Accordingly, effective with the first quarter of 2010, CCS sales have been
included in the computation of comparable-store sales. Division profit reflects
income before income taxes, corporate expense, non-operating income and net
interest expense.
The
following table summarizes results by segment:
Sales
Thirteen-weeks
ended
|
||||||||
May
1,
|
May
2,
|
|||||||
(in
millions)
|
2010
|
2009
|
||||||
Athletic
Stores
|
$ | 1,181 | $ | 1,118 | ||||
Direct-to-Customers
|
100 | 98 | ||||||
Total
sales
|
$ | 1,281 | $ | 1,216 |
Operating
Results
Thirteen-weeks
ended
|
||||||||
May
1,
|
May
2,
|
|||||||
(in
millions)
|
|
2010
|
|
2009
|
||||
Athletic
Stores
|
$
|
101
|
$
|
61
|
||||
Direct-to-Customers
|
10
|
8
|
||||||
Division
profit
|
111
|
69
|
||||||
Corporate
expense, net
|
24
|
19
|
||||||
Operating
profit
|
87
|
50
|
||||||
Other
income (1)
|
—
|
(1
|
)
|
|||||
Interest
expense, net
|
3
|
2
|
||||||
Income
before income taxes
|
$
|
84
|
$
|
49
|
(1)
|
Other
income for the thirteen-weeks ended May 2, 2009 is primarily comprised of
changes in fair value, realized gains and premiums paid on foreign
currency option contracts and royalty
income.
|
15
Sales
increased by $65 million, or 5.3 percent, to $1,281 million for the
thirteen-weeks ended May 1, 2010, from $1,216 million for the thirteen-weeks
ended May 2, 2009. Excluding the effect of foreign currency fluctuations,
total sales for the thirteen-week period increased 3.0 percent, as compared with
the corresponding prior-year period. Comparable-store sales increased by 4.8
percent for the thirteen-weeks ended May 1, 2010.
Gross
margin, as a percentage of sales, increased to 30.7 percent for the
thirteen-weeks ended May 1, 2010 as compared with 29.3 percent in the
corresponding prior-year period. The cost of merchandise rate for the
thirteen-weeks ended May 1, 2010 decreased by 80 basis points as compared
with the corresponding prior-year period, reflecting a lower markdown rate as
the Company was less promotional during the current quarter. For the
thirteen-weeks ended May 1, 2010, the occupancy and buyers’ salary expense rate
decreased 60 basis points, as a percentage of sales, as compared with the prior
year thirteen-week period reflecting improved leverage. Vendor allowances
were not significant for any of the periods presented.
Segment
Analysis
Athletic
Stores
Athletic
Stores sales increased by 5.6 percent to $1,181 million for the thirteen-weeks
ended May 1, 2010, as compared with the corresponding prior-year period of
$1,118 million. Excluding the effect of foreign currency fluctuations, sales
from athletic store formats increased 3.2 percent for the thirteen-weeks ended
May 1, 2010, as compared with the corresponding prior-year period.
Comparable-store sales increased by 5.1 percent for the thirteen-weeks ended May
1, 2010. The increase in sales for the thirteen-weeks ended May 1, 2010 was
principally a result of increased consumer demand coupled with warmer weather
that coincided with school holidays and the Easter selling season. Additionally,
sales reflect a shift from lower-priced casual and lifestyle styles towards
higher-priced technical running styles, as well as a modest increase in the
sales of basketball footwear styles. Lady Foot Locker benefited from increased
sales of toning and higher-priced running styles. International sales increased
in Europe and Canada, and declined in Australia and New Zealand. The decline in
Australia reflects the effect of the prior year government stimulus
program.
Athletic
Stores division profit increased 65.6 percent for the thirteen-weeks ended May
1, 2010, as compared with the corresponding prior-year period. Athletic Stores
division profit, as a percentage of sales, increased to 8.6 percent for the
thirteen-weeks ended May 1, 2010, from 5.5 percent in the corresponding
prior-year period. The increase in division profit was mainly attributable to
improved sales, as well as a higher gross margin rate as the Company was
less promotional during the current period and inventories were properly
positioned. The Athletic Stores segment also benefited from initiatives
implemented during 2009 to reduce overhead costs.
Direct-to-Customers
Direct-to-Customers
sales increased by 2.0 percent to $100 million for the thirteen-weeks ended
May 1, 2010, as compared with the corresponding prior-year period of $98
million. Internet sales increased by 2.4 percent to $85 million for the
thirteen-weeks ended May 1, 2010, as compared with the corresponding prior-year
period. This increase was primarily a result of the strong sales performance
through the Company’s store banner websites, which benefited from improved
functionality and style.
Direct-to-Customers
division profit for the thirteen-weeks ended May 1, 2010 increased by $2
million to $10 million as compared with the corresponding prior-year period.
Division profit, as a percentage of sales, was 10 percent for the thirteen-weeks
ended May 1, 2010 as compared with 8.2 percent for the corresponding prior-year
period. The increase reflects an improved gross margin rate and reduced catalog
costs reflecting lower circulation, offset, in part, by additional internet
costs.
Corporate
Expense
Corporate
expense consists of unallocated general and administrative expenses, as well as
depreciation and amortization related to the Company’s corporate headquarters,
centrally managed departments, unallocated insurance and benefit programs,
certain foreign exchange transaction gains and losses and other items. Corporate
expense for the thirteen-weeks ended May 1, 2010 increased by $5 million to
$24 million from the corresponding prior-year period. This increase primarily
reflects additional incentive compensation costs.
16
Selling, General and
Administrative
Selling,
general and administrative expenses (“SG&A”) of $280 million increased by $2
million or 0.7 percent, for the thirteen-weeks ended May 1, 2010 as compared
with the corresponding prior-year period. SG&A, as a percentage of sales,
decreased to 21.9 percent for the thirteen-weeks ended May 1, 2010, as compared
with 22.9 percent in the corresponding prior-year period. Excluding the effect
of foreign currency fluctuations, SG&A decreased by $4 million for the
thirteen-weeks ended May 1, 2010, as compared with the corresponding prior-year
period. This decrease principally reflects reduced store costs,
primarily wages, related to operating fewer stores and expense management
efforts. These decreases were offset, in part, by a $5 million
increase in corporate expense as well as increased variable costs, such as
banking expenses.
Depreciation and
Amortization
Depreciation
and amortization decreased by $2 million in the first quarter of 2010 to $26
million as compared with $28 million for the first quarter of 2009. Excluding
the effect of foreign currency fluctuations, primarily related to the euro,
depreciation and amortization decreased by $3 million. The decrease primarily
reflects reduced depreciation and amortization associated with store long-lived
asset impairment charges recorded during the third quarter of 2009.
Interest
Expense
Thirteen-weeks
ended
|
||||||||
May
1,
|
May
2,
|
|||||||
(in
millions)
|
|
2010
|
|
2009
|
||||
Interest
expense
|
$
|
4
|
$
|
3
|
||||
Interest
income
|
(1
|
)
|
(1
|
)
|
||||
Interest
expense, net
|
$
|
3
|
$
|
2
|
The
increase in interest expense is due primarily to higher fees associated with the
Company’s revolving credit facility, which was amended March 9,
2009.
Income
Taxes
The
Company’s effective tax rate for the thirteen weeks ended May 1, 2010 decreased
to 35.8 percent from 37.1 percent for the corresponding prior-year period,
primarily as a result of favorable audit settlements in the current period and
unfavorable tax law changes in the prior-year period. The Company expects its
second quarter and full year tax rate to approximate 36 to 37 percent. The
actual rate will primarily depend on the percentage of income earned in the
United States as compared with international operations.
Net
Income
Net
income of $54 million, or $0.34 per diluted share, for the thirteen-weeks ended
May 1, 2010 increased by $0.14 per diluted share from $31 million, or $0.20 per
diluted share, for the thirteen-weeks ended May 2, 2009.
LIQUIDITY AND CAPITAL
RESOURCES
Generally,
the Company’s primary source of cash has been from operations. The Company
generally finances real estate with operating leases. The principal uses of cash
have been to finance inventory requirements, capital expenditures related to
store openings, store remodelings, information systems, and other support
facilities, retirement plan contributions, quarterly dividend payments, interest
payments, other cash requirements to support the development of its short-term
and long-term operating strategies, and to fund other working capital
requirements.
Management
believes its cash, cash equivalents, future cash flow from operations, and the
Company’s current revolving credit facility will be adequate to fund these
requirements. The Company’s management does not currently expect to borrow under
the facility in 2010. The Company may, from time to time, repurchase its common
stock or seek to retire or purchase outstanding debt through open market
purchases, privately negotiated transactions or otherwise. Such repurchases, if
any, will depend on prevailing market conditions, liquidity requirements,
contractual restrictions, and other factors. The amounts involved may be
material. On February 16, 2010, the Company’s Board of Directors approved an
extension of the Company’s 2007 common share repurchase program for an
additional three years in the amount of $250 million.
The
Company terminated its European net investment hedge during 2008. The
agreement includes a provision that may require the Company to settle this $24
million liability in August 2010, at the option of the Company or the
counterparty. The Company’s liquidity is sufficient to meet this obligation in
August 2010, if required.
17
Any
materially adverse change in customer demand, fashion trends, competitive market
forces, or customer acceptance of the Company’s merchandise mix and retail
locations, uncertainties related to the effect of competitive products and
pricing, the Company’s reliance on a few key vendors for a significant portion
of its merchandise purchases and risks associated with foreign global sourcing,
economic conditions worldwide, the effects of currency fluctuations, as well as
other factors listed under the heading “Disclosure Regarding Forward-Looking
Statements,” could affect the ability of the Company to continue to fund its
needs from business operations.
Net
cash provided by operating activities was $96 million and $67 million for the
thirteen-weeks ended May 1, 2010 and May 2, 2009, respectively. These amounts
reflect net income adjusted for non-cash items and working capital changes. This
improvement primarily reflects better working capital management and the results
of strong sales during the first quarter of 2010. During the first quarter of
2009, the Company terminated its interest rate swaps for a gain of $19 million.
Additionally, during the first quarter of 2010, the Company contributed $2
million to its Canadian qualified pension plan as compared with $11 million to
its U.S. and Canadian qualified pension plans in the corresponding prior-year
period. Operating cash flows also includes a normal seasonal increase
in merchandise inventory in each period presented.
Net
cash used in investing activities was $25 million and $26 million for the
thirteen-weeks ended May 1, 2010 and May 2, 2009, respectively, reflecting
capital expenditures. The Company’s full year forecast for capital expenditures
is $105 million, of which $72 million relates to the modernizations of existing
stores and new store openings and $33 million for the development of information
systems and other support facilities.
Net
cash used in financing was $31 million and $23 million for the thirteen-weeks
ended May 1, 2010 and May 2, 2009, respectively. The Company declared and
paid dividends during the first quarters of 2010 and 2009 of $24 million and $23
million, respectively. This represents a quarterly rate of $0.15 per share.
During the first quarter of 2010, the Company repurchased 500,000 shares of its
common stock under the 2007 common share repurchase program for $8
million.
Recent
Accounting Pronouncements
Recently
issued accounting pronouncements did not, or are not believed by management to,
have a material effect on the Company’s present or future consolidated financial
statements.
CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
There
have been no significant changes to the Company’s critical accounting policies
and estimates from the information provided in Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” included in the
Annual Report on Form 10-K for the fiscal year ended January 30,
2010.
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements within the meaning of the federal
securities laws. All statements, other than statements of historical facts,
which address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including, but not limited to, such
things as future capital expenditures, expansion, strategic plans, dividend
payments, stock repurchases, growth of the Company’s business and operations,
including future cash flows, revenues and earnings, and other such matters are
forward-looking statements. These forward-looking statements are based on many
assumptions and factors detailed in the Company’s filings with the Securities
and Exchange Commission, including the effects of currency fluctuations,
customer demand, fashion trends, competitive market forces, uncertainties
related to the effect of competitive products and pricing, customer acceptance
of the Company’s merchandise mix and retail locations, the Company’s reliance on
a few key vendors for a majority of its merchandise purchases (including a
significant portion from one key vendor), pandemics and similar major health
concerns, unseasonable weather, further deterioration of global financial
markets, economic conditions worldwide, further deterioration of business and
economic conditions, any changes in business, political and economic conditions
due to the threat of future terrorist activities in the United States or in
other parts of the world and related U.S. military action overseas, the ability
of the Company to execute its business and strategic plans effectively with
regard to each of its business units, and risks associated with foreign global
sourcing, including political instability, changes in import regulations, and
disruptions to transportation services and distribution.
Any
changes in such assumptions or factors could produce significantly different
results. The Company undertakes no obligation to update forward-looking
statements, whether as a result of new information, future events, or
otherwise.
18
Item 4. Controls and
Procedures
During
the quarter ended May 1, 2010, there were no changes in the Company’s internal
control over financial reporting (as defined in Rules 13a-15(f) of the Exchange
Act) that materially affected or are reasonably likely to affect the Company’s
internal control over financial reporting.
Item 1. Legal
Proceedings
Legal
proceedings pending against the Company or its consolidated subsidiaries consist
of ordinary, routine litigation, including administrative proceedings,
incidental to the business of the Company or businesses that have been sold or
disposed of by the Company in past years. These legal proceedings include
commercial, intellectual property, customer, and labor-and-employment-related
claims.
Certain
of the Company’s subsidiaries are defendants in a number of lawsuits filed in
state and federal courts containing various class action allegations under state
wage and hour laws, including allegations concerning classification of employees
as exempt or nonexempt, unpaid overtime, meal and rest breaks, and uniforms. In
Pereira v. Foot Locker
(United States District Court, E.D. Pennsylvania), one of the class actions,
plaintiff alleged that the Company permitted unpaid off-the-clock hours in
violation of the Fair Labor Standards Act. In September 2009, the court
conditionally certified a nationwide collective action.
Management
does not believe that the outcome of any such proceedings would have a material
adverse effect on the Company’s consolidated financial position, liquidity, or
results of operations, taken as a whole.
Item 1A. Risk
Factors
There
were no material changes to the risk factors disclosed in the 2009 Annual Report
on Form 10-K.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
The
following table provides information with respect to shares of the Company’s
common stock that the Company repurchased during the
thirteen-weeks ended May 1, 2010.
Date Purchased
|
Total
Number of
Shares
Purchased (1)
|
Average
Price Paid
per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program (2)
|
Approximate
Dollar Value of
Shares that may yet
be Purchased
Under the Program
(2)
|
||||||||||||
January
31, 2010 through February 27, 2010
|
90,933 | $ | 11.39 | — | $ | 250,326,223 | ||||||||||
February
28, 2010 through April 3, 2010
|
208,266 | $ | 13.86 | — | $ | 250,326,223 | ||||||||||
April
4, 2010 through May 1, 2010
|
500,000 | $ | 15.47 | 500,000 | $ | 242,592,598 | ||||||||||
799,199 | $ | 14.58 | 500,000 |
|
(1)
|
These
columns also reflect shares purchased in connection with stock swaps and
shares acquired in satisfaction of the tax withholding obligation of
holders of restricted stock which vested during the
quarter.
|
|
(2)
|
On
February 16, 2010, the Company’s Board of Directors approved the extension
of the Company’s 2007 common share repurchase program for an additional
three years in the amount of $250
million.
|
(a)
|
Exhibits
|
The
exhibits that are in this report immediately follow the
index.
|
19
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
FOOT
LOCKER, INC.
|
|
Date:
June 9, 2010
|
(Company)
|
/s/ Robert W.
McHugh
|
|
ROBERT
W. MCHUGH
|
|
Executive
Vice President and Chief Financial
Officer
|
20
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.
|
||
Item 601
|
|
Description
|
12
|
Computation
of Ratio of Earnings to Fixed Charges.
|
|
15
|
Accountants’
Acknowledgement.
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley act of
2002.
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley act of
2002.
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
99
|
Report
of Independent Registered Public Accounting
Firm.
|
21