SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|x||ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the fiscal year ended February 1, 2014
|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 No. 1-10299
(Exact name of Registrant as specified in its charter)
|(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)|
Registrants telephone number, including area code: (212) 720-3700
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Name of each exchange on which registered|
|Common Stock, par value $0.01||New York Stock Exchange|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No x
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 Website, 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 x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
|Large accelerated filer 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 Act).Yes o No x
|Number of shares of Common Stock outstanding at March 17, 2014:||145,645,546|
|The aggregate market value of voting stock held by non-affiliates of the Registrant computed by reference to the closing price as of the last business day of the Registrants most recently completed second fiscal quarter, August 3, 2013, was approximately:||$||4,072,929,174*|
|*||For purposes of this calculation only (a) all directors plus three executive officers and owners of five percent or more of the Registrant are deemed to be affiliates of the Registrant and (b) shares deemed to be held by such persons include only outstanding shares of the Registrants voting stock with respect to which such persons had, on such date, voting or investment power.|
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive Proxy Statement (the Proxy Statement) to be filed in connection with the Annual Meeting of Shareholders to be held on May 21, 2014: Parts III and IV.
Unresolved Staff Comments
Mine Safety Disclosures
Market for the Companys Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Managements Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Directors, Executive Officers and Corporate Governance
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Foot Locker, Inc., incorporated under the laws of the State of New York in 1989, is a leading global retailer of athletically inspired shoes and apparel, operating 3,473 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand as of February 1, 2014. Foot Locker, Inc. and its subsidiaries hereafter are referred to as the Registrant, Company, we, our, or us. Information regarding the business is contained under the Business Overview section in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The Company maintains a website on the Internet at www.footlocker-inc.com. The Companys filings with the Securities and Exchange Commission, including its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge through this website as soon as reasonably practicable after they are filed with or furnished to the SEC by clicking on the SEC Filings link. The Corporate Governance section of the Companys corporate website contains the Companys Corporate Governance Guidelines, Committee Charters, and the Companys Code of Business Conduct for directors, officers and employees, including the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. Copies of these documents may also be obtained free of charge upon written request to the Companys Corporate Secretary at 112 West 34th Street, New York, N.Y. 10120. The Company intends to promptly disclose amendments to the Code of Business Conduct and waivers of the Code for directors and executive officers on the Corporate Governance section of the Companys corporate website.
The financial information concerning business segments, divisions and geographic areas is contained under the Business Overview and Segment Information sections in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. Information regarding sales, operating results and identifiable assets of the Company by business segment and by geographic area is contained under the Segment Information note in Item 8. Consolidated Financial Statements and Supplementary Data.
The service marks and trademarks appearing in this report (except for Nike, Inc. and Alshaya Trading Co. W.L.L.) are owned by Foot Locker, Inc. or its subsidiaries.
The Company and its consolidated subsidiaries had 14,267 full-time and 29,251 part-time employees at February 1, 2014. The Company considers employee relations to be satisfactory.
Financial information concerning competition is contained under the Business Risk section in the Financial Instruments and Risk Management note in Item 8. Consolidated Financial Statements and Supplementary Data.
Financial information concerning merchandise purchases is contained under the Liquidity section in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and under the Business Risk section in the Financial Instruments and Risk Management note in Item 8. Consolidated Financial Statements and Supplementary Data.
The statements contained in this Annual Report on Form 10-K (Annual Report) that are not historical facts, including, but not limited to, statements regarding our expected financial position, business and financing plans found in Item 1. Business and Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please also see Disclosure Regarding Forward-Looking Statements. Our actual results may differ materially due to the risks and uncertainties discussed in this Annual Report, including those discussed below. Additional risks and uncertainties that we do not presently know about or that we currently consider to be insignificant may also affect our business operations and financial performance.
Our ability to successfully implement and execute our long range plan is dependent on many factors. Our strategies may require significant capital investment and management attention, which may result in the diversion of these resources from our core business and other business issues and opportunities. Additionally, any new initiative is subject to certain risks including customer acceptance of our products and renovated store design, competition, product differentiation, and the ability to attract and retain qualified personnel. If we cannot successfully execute our strategic growth initiatives or if the long range plan does not adequately address the challenges or opportunities we face, our financial condition and results of operations may be adversely affected. Additionally, failure to meet market expectations, particularly with respect to sales, operating margins, and earnings per share, would likely result in volatility in the market value of our stock.
Our athletic footwear and apparel operations compete primarily with athletic footwear specialty stores, sporting goods stores and superstores, department stores, discount stores, traditional shoe stores, and mass merchandisers, many of which are units of national or regional chains that have significant financial and marketing resources. The principal competitive factors in our markets are selection of merchandise, reputation, store location, price, quality, advertising, and customer service. Our success also depends on our ability to differentiate ourselves from our competitors with respect to shopping convenience, a quality assortment of available merchandise and superior customer service. We cannot assure that we will continue to be able to compete successfully against existing or future competitors. Our expansion into markets served by our competitors and entry of new competitors or expansion of existing competitors into our markets could have a material adverse effect on our business, financial condition, and results of operations.
Although we sell merchandise via the Internet, a significant shift in customer buying patterns to purchasing athletic footwear, athletic apparel, and sporting goods via the Internet could have a material adverse effect on our business results. In addition, all of our significant vendors distribute products directly through the Internet and others may follow. Some vendors operate retail stores and some have indicated that further retail stores and venues will open. Should this continue to occur, and if our customers decide to purchase directly from our vendors, it could have a material adverse effect on our business, financial condition, and results of operations.
The athletic footwear and apparel industry is subject to changing fashion trends and customer preferences. In addition, retailers in the athletic industry rely on their vendors to maintain innovation in the products they develop. We cannot guarantee that our merchandise selection will accurately reflect customer preferences when it is offered for sale or that we will be able to identify and respond quickly to fashion changes, particularly given the long lead times for ordering much of our merchandise from vendors. A substantial portion of our highest margin sales are to young males (ages 12 25), many of whom we believe purchase athletic footwear and athletic and licensed apparel as a fashion statement and are frequent purchasers. Our failure to anticipate, identify or react appropriately in a timely manner to changes in fashion trends that would make athletic footwear or athletic and licensed apparel less attractive to these customers could have a material adverse effect on our business, financial condition, and results of operations.
We must maintain sufficient inventory levels to operate our business successfully. However, we also must guard against accumulating excess inventory. For example, we order the bulk of our athletic footwear four to six months prior to delivery to our stores. If we fail to anticipate accurately either the market for the merchandise in our stores or our customers purchasing habits, we may be forced to rely on markdowns or promotional sales to dispose of excess or slow moving inventory, which could have a material adverse effect on our business, financial condition, and results of operations.
Our business is dependent to a significant degree upon our ability to obtain exclusive product and the ability to purchase brand-name merchandise at competitive prices from a limited number of vendors. In addition, our vendors provide volume discounts, cooperative advertising, and markdown allowances, as well as the ability to negotiate returns of excess or unneeded merchandise. We cannot be certain that such assistance from our vendors will continue in the future.
The Company purchased approximately 88 percent of its merchandise in 2013 from its top five vendors and expects to continue to obtain a significant percentage of its athletic product from these vendors in future periods. Approximately 68 percent was purchased from one vendor Nike, Inc. (Nike). Each of our operating divisions is highly dependent on Nike; they individually purchased 39 to 80 percent of their merchandise from Nike. Merchandise that is high profile and in high demand is allocated by our vendors based upon their internal criteria. Although we have generally been able to purchase sufficient quantities of this merchandise in the past, we cannot be certain that our vendors will continue to allocate sufficient amounts of such merchandise to us in the future. Our inability to obtain merchandise in a timely manner from major suppliers (particularly Nike) as a result of business decisions by our suppliers or any disruption in the supply chain could have a material adverse effect on our business, financial condition, and results of operations. Because of our strong dependence on Nike, any adverse development in Nikes reputation, financial condition or results of operations or the inability of Nike to develop and manufacture products that appeal to our target customers could also have an adverse effect on our business, financial condition, and results of operations. We cannot be certain that we will be able to acquire merchandise at competitive prices or on competitive terms in the future. These risks could have a material adverse effect on our business, financial condition, and results of operations.
Our stores are located primarily in enclosed regional and neighborhood malls. Our sales are dependent, in part, on the volume of mall traffic. Mall traffic may be adversely affected by, among other factors, economic downturns, the closing of anchor department stores and/or specialty stores, and a decline in the popularity of mall shopping among our target customers. Further, any terrorist act, natural disaster, or public health or safety concern that decreases the level of mall traffic, or that affects our ability to open and operate stores in affected areas, could have a material adverse effect on our business.
To take advantage of customer traffic and the shopping preferences of our customers, we need to maintain or acquire stores in desirable locations such as in regional and neighborhood malls anchored by major department stores. We cannot be certain that desirable mall locations will continue to be available at favorable rates. Some traditional enclosed malls are experiencing significantly lower levels of customer traffic, driven by the overall poor economic conditions as well as the closure of certain mall anchor tenants.
Several large landlords dominate the ownership of prime malls, particularly in the United States and Canada, and because of our dependence upon these landlords for a substantial number of our locations, any significant erosion of their financial condition or our relationships with these landlords would negatively affect our ability to obtain and retain store locations. Additionally, further landlord consolidation may negatively affect our ability to negotiate favorable lease terms.
Our comparable-store sales have fluctuated significantly in the past, on both an annual and a quarterly basis, and we expect them to continue to fluctuate in the future. A variety of factors affect our comparable-store sales results, including, among others, fashion trends, product innovation, the highly competitive retail sales environment, economic conditions, timing of promotional events, changes in our merchandise mix, calendar shifts of holiday periods, and weather conditions. Many of our products represent discretionary purchases. Accordingly, customer demand for these products could decline in a recession or if our customers develop other priorities for their discretionary spending. These risks could have a material adverse effect on our business, financial condition, and results of operations.
A significant portion of our sales and operating income for 2013 was attributable to our operations in Europe, Canada, Australia, and New Zealand. As a result, our business is subject to the risks associated with doing business outside of the United States such as foreign customer preferences, political unrest, disruptions or delays in shipments, changes in economic conditions in countries in which we operate, foreign currency fluctuations, real estate costs, and labor and employment practices in non-U.S. jurisdictions that may differ significantly from those that prevail in the United States. In addition, because we and our suppliers have a substantial amount of our products manufactured in foreign countries, our ability to obtain sufficient quantities of merchandise on favorable terms may be affected by governmental regulations, trade restrictions, and economic, labor, and other conditions in the countries from which our suppliers obtain their product.
Our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions. Fluctuations in tax rates and duties and changes in tax legislation or regulation could have a material adverse effect on our results of operations and financial condition.
Fluctuations in the value of the euro may affect the value of our European earnings when translated into U.S. dollars. Although we enter into foreign exchange forward contracts and option contracts to reduce the effect of foreign currency exchange rate fluctuations, our operations may be adversely affected by significant changes in the foreign currencies relative to the U.S. dollar.
Our performance is subject to global economic conditions and the related impact on consumer spending levels. Continued uncertainty about global economic conditions poses a risk as consumers and businesses postpone spending in response to tighter credit, unemployment, negative financial news, and/or declines in income or asset values, which could have a material negative effect on demand for our products.
As a retailer that is dependent upon consumer discretionary spending, our results of operations are sensitive to changes in macroeconomic conditions. Our customers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, increased fuel and energy costs, higher interest rates, higher taxes, reduced access to credit, and lower home prices. There is also a risk that if negative economic conditions persist for a long period of time or worsen, consumers may make long-lasting reductions to their discretionary purchasing behavior. These and other economic factors could adversely affect demand for our products and services and our financial condition and operating results.
Past disruptions in the U.S. and global credit and equity markets made it difficult for many businesses to obtain financing on acceptable terms. Although we currently have a revolving credit agreement in place until January 27, 2017, and other than amounts used for standby letters of credit, do not have any borrowings under it, tightening of credit markets could make it more difficult for us to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness or obtain funding through the issuance of the Companys securities. Additionally, our borrowing costs can be affected by independent rating agencies ratings, which are based largely on our performance as measured by credit metrics, including lease-adjusted leverage ratios.
We rely on a few key vendors for a majority of our merchandise purchases (including a significant portion from one key vendor). The inability of key suppliers to access liquidity, or the insolvency of key suppliers, could lead to their failure to deliver merchandise to us. Our inability to obtain merchandise in a timely manner from major suppliers could have a material adverse effect on our business, financial condition, and results of operations.
At February 1, 2014, our cash, cash equivalents, and short-term investments totaled $867 million. The majority of our investments were short-term deposits in highly-rated banking institutions. As of February 1, 2014, we had $426 million of cash and cash equivalents held in foreign jurisdictions. We regularly monitor our counterparty credit risk and mitigate our exposure by making short-term investments only in highly-rated institutions and by limiting the amount we invest in any one institution. We continually monitor the creditworthiness of our counterparties. At February 1, 2014, almost all of the investments were in institutions rated A or better from a major credit rating agency. Despite those ratings, it is possible that the value or liquidity of our investments may decline due to any number of factors, including general market conditions and bank-specific credit issues.
Our U.S. pension plan trust holds assets totaling $575 million at February 1, 2014. The fair values of these assets held in the trust are compared to the plans projected benefit obligation to determine the pension funding liability. We attempt to mitigate funding risk through asset diversification, and we regularly monitor investment risk of our portfolio through quarterly investment portfolio reviews and periodic asset and liability studies. Despite these measures, it is possible that the value of our portfolio may decline in the future due to any number of factors, including general market conditions and credit issues. Such declines could have an impact on the funded status of our pension plans and future funding requirements.
We review our long-lived assets, goodwill and other intangible assets when events indicate that the carrying value of such assets may be impaired. Goodwill and other indefinite lived intangible assets are reviewed for impairment if impairment indicators arise and, at a minimum, annually. As of February 1, 2014, we have $163 million of goodwill; this asset is not amortized but is subject to an impairment test, which consists of either a qualitative assessment on a reporting unit level, or a two-step impairment test, if necessary. The determination of impairment losses are significantly affected by estimates of future operating cash flows and estimates of fair value. Our estimates of future operating cash flows are identified from our strategic long-range plans, which are based upon our experience, knowledge, and expectations; however, these estimates can be affected by such factors as our future operating results, future store profitability, and future economic conditions, all of which can be difficult to predict accurately. Any significant deterioration in macroeconomic conditions could affect the fair value of our long-lived assets, goodwill and other intangible assets and could result in future impairment charges, which would adversely affect our results of operations.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Our provision for income taxes is based on a jurisdictional mix of earnings, statutory rates, and enacted tax rules, including transfer pricing. Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis. Our effective tax rate could be adversely affected by a number of factors, including shifts in the mix of pretax results by tax jurisdiction, changes in tax laws or related interpretations in the jurisdictions in which we operate, and tax assessments and related interest and penalties resulting from income tax audits.
A substantial portion of our cash and investments is invested outside of the U.S. As we plan to permanently reinvest our foreign earnings outside the U.S., in accordance with U.S. GAAP, we have not provided for U.S. federal and state income taxes or foreign withholding taxes that may result from future remittances of undistributed earnings of foreign subsidiaries. Recent proposals to reform U.S. tax rules may result in a reduction or elimination of the deferral of U.S. income tax on our foreign earnings, which could adversely affect our effective tax rate. Any of these changes could have an adverse effect on our results of operations and financial condition.
Natural disasters, including earthquakes, hurricanes, floods, and tornados may affect store and distribution center operations. In addition, acts of terrorism, acts of war, and military action both in the United States and abroad can have a significant effect on economic conditions and may negatively affect our ability to purchase merchandise from vendors for sale to our customers. Public health issues, such as flu or other pandemics, whether occurring in the United States or abroad, could disrupt our operations and result in a significant part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business. Additionally, public health issues may disrupt the operations of our suppliers, our operations, our customers, or have an adverse effect on customer demand. Our ability to mitigate the adverse impact of these events depends, in part, upon the effectiveness of our disaster preparedness and response planning as well as business continuity planning. However, we cannot be certain that our plans will be adequate or implemented properly in the event of an actual disaster. We may be required to suspend operations in some or all of our locations, which could have a material adverse effect on our business, financial condition, and results of operations. Any significant declines in public safety or uncertainties regarding future economic prospects that affect customer spending habits could have a material adverse effect on customer purchases of our products.
We require our independent manufacturers to comply with our policies and procedures, which cover many areas including labor, health and safety, and environmental standards. We monitor compliance with our policies and procedures using internal resources, as well as third-party monitoring firms. Although we monitor their compliance with these policies and procedures, we do not control the manufacturers or their practices. Any failure of our independent manufacturers to comply with our policies and procedures or local laws in the country of manufacture could disrupt the shipment of merchandise to us, force us to locate alternate manufacturing sources, reduce demand for our merchandise, or damage our reputation.
We operate six distribution centers worldwide to support our businesses. In addition to the distribution centers that we operate, we have third-party arrangements to support our operations in the U.S., Canada, Australia, and New Zealand. If complications arise with any facility or any facility is severely damaged or destroyed, our other distribution centers may not be able to support the resulting additional distribution demands. This may adversely affect our ability to deliver inventory on a timely basis. We depend upon third-party carriers for shipment of a significant amount of merchandise. An interruption in service by these carriers for any reason could cause temporary disruptions in our business, a loss of sales and profits, and other material adverse effects.
Our freight cost is affected by changes in fuel prices through surcharges. Increases in fuel prices and surcharges and other factors may increase freight costs and thereby increase our cost of sales. We enter into diesel fuel forward and option contracts to mitigate a portion of the risk associated with the variability caused by these surcharges.
Information technology is a critically important part of our business operations. We depend on information systems to process transactions, manage inventory, operate our websites, purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. There is a risk that we could experience a business interruption, theft of information, or reputational damage as a result of a cyber-attack, such as an infiltration of a data center, or data leakage of confidential information either internally or at our third-party providers. We may experience operational problems with our information systems as a result of system failures, system implementation issues, viruses, malicious hackers, sabotage, or other causes.
Our business involves the storage and transmission of customers personal information, such as consumer preferences and credit card information. We invest in security technology to protect the Companys data and business processes against the risk of data security breaches and cyber-attacks. Our data security management program includes enforcement of standard data protection policies such as Payment Card Industry compliance. Additionally, we certify our major technology suppliers and any outsourced services through accepted security certification measures. We maintain and routinely test backup systems and disaster recovery, along with external network security penetration testing by an independent third party as part of our business continuity preparedness.
While we believe that our security technology and processes are adequate in preventing security breaches and in reducing cyber security risks, given the ever-increasing abilities of those intent on breaching cyber security measures and given our reliance on the security and other efforts of third-party vendors, the total security effort at any point in time may not be completely effective, and any such security breaches and cyber incidents could adversely affect our business. Failure of our systems, including failures due to cyber-attacks that would prevent the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and could have negative consequences to us, our employees, and those with whom we do business. Any security breach involving the misappropriation, loss, or other unauthorized disclosure of confidential information by us could also severely damage our reputation, expose us to the risks of litigation and liability, and harm our business. While we carry insurance that would mitigate the losses to an extent, such insurance may be insufficient to compensate us for potentially significant losses.
Our digital operations are subject to numerous risks, including risks related to the failure of the computer systems that operate our websites and mobile sites and their related support systems, computer viruses, telecommunications failures, and similar disruptions. Also, we may require additional capital in the future to sustain or grow our digital commerce. Business risks related to digital commerce include risks associated with the need to keep pace with rapid technological change, Internet security risks, risks of system failure or inadequacy, governmental regulation, legal uncertainties with respect to the Internet, and collection of sales or other taxes by additional states or foreign jurisdictions. If any of these risks materializes, it could have a material adverse effect on our business.
Future performance will depend upon our ability to attract, retain, and motivate our executive and senior management team. Our executives and senior management team have substantial experience and expertise in our business and have made significant contributions to our growth and success. Our success depends to a significant extent both upon the continued services of our current executive and senior management team, as well as our ability to attract, hire, motivate, and retain additional qualified management in the future. While we feel that we have adequate succession planning and executive development programs, competition for key executives in the retail industry is intense, and our operations could be adversely affected if we cannot retain and attract qualified executives.
Many of the store and field associates are in entry level or part-time positions with historically high rates of turnover. If we are unable to attract and retain quality associates, our ability to meet our growth goals or to sustain expected levels of profitability may be compromised. Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation, overtime regulations, and changing demographics. In addition, a large number of our retail employees are paid the prevailing minimum wage which, if increased, would negatively affect our profitability.
The National Labor Relations Board continually considers changes to labor regulations, many of which could significantly affect the nature of labor relations in the U.S. and how union elections and contract negotiations are conducted. In 2011, the National Labor Relations Boards definition of a bargaining unit changed, making it possible for smaller groups of employees to organize labor unions.
Furthermore, recent proposed regulations may streamline the election process, shortening the time between the filing of a petition and an election being held. These regulations and recent decisions could impose more labor relations requirements and union activity on our business conducted in the United States, thereby potentially increasing our costs, which could negatively affect our profitability.
In 2010, Congress enacted comprehensive health care reform legislation which, among other things, includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and health care benefits. Due to the breadth and complexity of the health reform legislation and the large number of eligible employees who currently choose not to participate in our plans, it is difficult to predict the overall effect of the statute and related regulations on our business over the coming years. Due to the health care law changes some eligible employees who had historically not chosen to participate in our health care plans have found it more advantageous to participate in our plans effective January 1, 2014. Such changes include tax penalties to persons for not obtaining healthcare coverage and being ineligible for certain health care subsidies if an employee is eligible for health care coverage under an employers plan. If a larger number of current eligible employees, who currently choose not to participate in our plans, choose to enroll over the next few years it may significantly increase our health care coverage costs and negatively affect our financial results.
There has been an increasing focus and significant debate on global climate change recently, including increased attention from regulatory agencies and legislative bodies. This increased focus may lead to new initiatives directed at regulating an as-yet unspecified array of environmental matters. Legislative, regulatory, or other efforts in the United States to combat climate change could result in future increases in taxes or in the cost of transportation and utilities, which could decrease our operating profits and could necessitate future additional investments in facilities and equipment. We are unable to predict the potential effects that any such future environmental initiatives may have on our business.
We are exposed to the risk that federal or state legislation may negatively impact our operations. Changes in federal or state wage requirements, employee rights, health care, social welfare or entitlement programs such as health insurance, paid leave programs, or other changes in workplace regulation could increase our cost of doing business or otherwise adversely affect our operations. Additionally, we are regularly involved in various litigation matters, including class actions and patent infringement claims, which arise in the ordinary course of our business. Litigation or regulatory developments could adversely affect our business operations and financial performance.
The U.S. Foreign Corrupt Practices Act (FCPA) and similar worldwide anti-corruption laws, including the U.K. Bribery Act of 2010, which is broader in scope than the FCPA, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption laws. Despite our training and compliance programs, we cannot be assured that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or agents.
Our continued expansion outside the U.S., including in developing countries, could increase the risk of such violations in the future. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations or financial condition.
We continue to document, test, and monitor our internal controls over financial reporting in order to satisfy all of the requirements of Section 404 of the Sarbanes-Oxley Act of 2002; however we cannot be assured that our disclosure controls and procedures and our internal controls over financial reporting will prove to be completely adequate in the future. Failure to fully comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively affect our business, the price of our common stock, and market confidence in our reported financial information.
During the second quarter of 2013, the Company acquired Runners Point Group, a specialty athletic store and online retailer based in Recklinghausen, Germany. The acquisition of Runners Point Group involves a number of risks, which could significantly and adversely affect our business, financial condition, and results of operations, including:
|||failure of Runners Point Group to achieve the results that we expect;|
|||diversion of managements attention from operational matters;|
|||difficulties integrating the operations and personnel;|
|||potential difficulties associated with the retention of key personnel; and|
|||increased business concentration in Germany.|
The properties of the Company and its consolidated subsidiaries consist of land, leased stores, administrative facilities, and distribution centers. Gross square footage and total selling area for the Athletic Stores segment at the end of 2013 were approximately 12.71 and 7.47 million square feet, respectively. These properties, which are primarily leased, are located in the United States, Canada, various European countries, Australia, and New Zealand.
The Company currently operates six distribution centers, of which three are owned and three are leased, occupying an aggregate of 2.6 million square feet. Three distribution centers are located in the United States, two in Germany, and one in the Netherlands. The two locations in Germany relate to the central warehouse distribution center for the Runners Point Group store locations as well as the distribution center for its direct-to-customer business. We also own a cross-dock facility and operate a leased manufacturing facility in the U.S., both of which we operate in support of our Team Edition apparel business.
Information regarding the Companys legal proceedings is contained in the Legal Proceedings note under Item 8. Consolidated Financial Statements and Supplementary Data.
Information with respect to Executive Officers of the Company, as of March 31, 2014, is set forth below:
|Chairman of the Board, President and Chief Executive Officer||Ken C. Hicks|
|Executive Vice President and Chief Operating Officer||Richard A. Johnson|
|Executive Vice President Operations Support||Robert W. McHugh|
|Executive Vice President and Chief Financial Officer||Lauren B. Peters|
|Senior Vice President and Chief Human Resources Officer||Paulette R. Alviti|
|Senior Vice President, General Counsel and Secretary||Gary M. Bahler|
|Senior Vice President Real Estate||Jeffrey L. Berk|
|Senior Vice President and Chief Information Officer||Peter D. Brown|
|Senior Vice President and Chief Accounting Officer||Giovanna Cipriano|
|Vice President, Treasurer and Investor Relations||John A. Maurer|
Ken C. Hicks, age 61, has served as Chairman of the Board since January 31, 2010 and President and Chief Executive Officer since August 17, 2009. Mr. Hicks served as President and Chief Merchandising Officer of J.C. Penney Company, Inc. (JC Penney) from 2005 through 2009. He was President and Chief Operating Officer of Stores and Merchandise Operations of JC Penney from 2002 through 2004, and he served as President of Payless ShoeSource, Inc. from 1999 to 2002. Mr. Hicks is also a director of Avery Dennison Corporation.
Richard A. Johnson, age 56, has served as Executive Vice President and Chief Operating Officer since May 16, 2012. He served as Executive Vice President and Group President from July 2011 to May 15, 2012; President and Chief Executive Officer of Foot Locker U.S., Lady Foot Locker, Kids Foot Locker, and Footaction from January 2010 to July 2011; President and Chief Executive Officer of Foot Locker Europe from August 2007 to January 2010; and President and Chief Executive Officer of Footlocker.com/Eastbay from April 2003 to August 2007. Mr. Johnson was a director of Maidenform Brands, Inc. from January 2013 to October 2013.
Robert W. McHugh, age 55, has served as Executive Vice President Operations Support since July 2011. He served as Executive Vice President and Chief Financial Officer from May 2009 to July 2011; and Senior Vice President and Chief Financial Officer from November 2005 through April 2009.
Lauren B. Peters, age 52, has served as Executive Vice President and Chief Financial Officer since July 2011. She served as Senior Vice President Strategic Planning from April 2002 to July 2011.
Paulette R. Alviti, age 43, has served as Senior Vice President and Chief Human Resources Officer since June 2013. Ms. Alviti served as Senior Vice President and Chief Human Resources Officer Asia, Middle East, Africa at PepsiCo, Inc. from February to May 2013. From July 2012 to February 2013 she served as Senior Vice President Global Talent Acquisition and Deployment at PepsiCo, Inc. From March 2010 to July 2012, she served as Senior Vice President Human Resources of Pepsi Beverages Company at PepsiCo, Inc. and from March 2008 to March 2010 as Vice President Human Resources of The Pepsi Bottling Group, Inc.
Gary M. Bahler, age 62, has served as Senior Vice President since August 1998, General Counsel since February 1993 and Secretary since February 1990.
Jeffrey L. Berk, age 58, has served as Senior Vice President Real Estate since February 2000.
Peter D. Brown, age 59, has served as Senior Vice President and Chief Information Officer since February 2011. He served as Senior Vice President, Chief Information Officer and Investor Relations from September 2006 to February 2011; and as Vice President Investor Relations and Treasurer from October 2001 to September 2006.
Giovanna Cipriano, age 44, has served as Senior Vice President and Chief Accounting Officer since May 2009. Ms. Cipriano served as Vice President and Chief Accounting Officer from November 2005 through April 2009.
John A. Maurer, age 54, has served as Vice President, Treasurer and Investor Relations since February 2011. Mr. Maurer served as Vice President and Treasurer from September 2006 to February 2011. He served as Divisional Vice President and Assistant Treasurer from April 2006 to September 2006.
There are no family relationships among the executive officers or directors of the Company.
|Item 5.||Market for the Companys Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities|
Foot Locker, Inc. common stock (ticker symbol FL) is listed on The New York Stock Exchange as well as on the Börse Stuttgart stock exchange in Germany. As of February 1, 2014, the Company had 16,207 shareholders of record owning 145,426,822 common shares.
The following table provides, for the period indicated, the intra-day high and low sales prices for the Companys common stock:
During each of the quarters of 2013 the Company declared a dividend of $0.20 per share. The Board of Directors reviews the dividend policy and rate, taking into consideration the overall financial and strategic outlook for our earnings, liquidity, and cash flow projections. On February 18, 2014, the Board of Directors declared a quarterly dividend of $0.22 per share to be paid on May 2, 2014. This dividend represents a 10 percent increase over the Companys previous quarterly per share amount.
The following table is a summary of our fourth quarter share repurchases:
|Total Number of Shares
Part of Publicly
Dollar Value of
Shares that may
yet be Purchased
|Nov. 3, 2013 Nov. 30, 2013||164,322||$||38.96||164,322||$||426,826,201|
|Dec. 1, 2013 Jan. 4, 2014||1,411,993||$||39.87||1,410,713||$||370,576,339|
|Jan. 5, 2014 Feb. 1, 2014||||$||||||$||370,576,339|
|(1)||These columns also reflect shares purchased in connection with stock swaps. The calculation of the average price paid per share includes all fees, commissions, and other costs associated with the repurchase of such shares.|
|(2)||On February 20, 2013, the Board of Directors approved a new 3-year, $600 million share repurchase program extending through January 2016, replacing the Companys previous $400 million program which terminated on that date. Through February 1, 2014, 6.4 million shares of common stock were purchased under the current program, for an aggregate cost of $229 million.|
The following graph compares the cumulative five-year total return to shareholders on Foot Locker, Inc.s common stock relative to the total returns of the S&P 400 Retailing Index and the Russell Midcap Index.
The following Performance Graph and related information shall not be deemed soliciting material or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
|Foot Locker, Inc.||$||100.00||$||153.40||$||241.44||$||359.24||$||469.57||$||524.46|
|S&P 400 Retailing Index||$||100.00||$||173.46||$||245.62||$||296.27||$||362.94||$||405.97|
|Russell Midcap Index||$||100.00||$||143.76||$||185.84||$||189.87||$||221.05||$||266.70|
The selected financial data below should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and other information contained elsewhere in this report.
|($ in millions, except per share amounts)||2013||2012(1)||2011||2010||2009|
|Summary of Continuing Operations
|Selling, general and administrative expenses||1,334||1,294||1,244||1,138||1,099|
|Impairment and other charges||2||12||5||10||41|
|Depreciation and amortization||133||118||110||106||112|
|Interest expense, net||5||5||6||9||10|
|Income from continuing operations, after-tax||429||397||278||169||47|
|Per Common Share Data
|Common stock dividends declared per share||0.80||0.72||0.66||0.60||0.60|
|Weighted-average Common Shares Outstanding
|Cash, cash equivalents, and short-term investments||$||867||928||851||696||589|
|Property and equipment, net||590||490||427||386||387|
|Long-term debt and obligations under capital leases||139||133||135||137||138|
|Total shareholders equity||2,496||2,377||2,110||2,025||1,948|
|Sales per average gross square foot(2)||$||460||443||406||360||333|
|Earnings before interest and taxes (EBIT)(3)||668||612||441||266||83|
|EBIT margin (non-GAAP)(4)||10.4||%||9.9||7.9||5.4||2.8|
|Net income margin(3)||6.6||%||6.4||4.9||3.3||1.0|
|Net income margin (non-GAAP)(4)||6.6||%||6.2||5.0||3.4||1.8|
|Return on assets (ROA)||12.5||%||12.4||9.4||5.9||1.7|
|Return on invested capital (ROIC)(4)||14.1||%||14.2||11.8||8.3||5.3|
|Net debt capitalization percent(4),(5)||42.5||%||37.2||36.0||39.0||43.0|
|Number of stores at year end||3,473||3,335||3,369||3,426||3,500|
|Total selling square footage at year end (in millions)||7.47||7.26||7.38||7.54||7.74|
|Total gross square footage at year end (in millions)||12.71||12.32||12.45||12.64||12.96|
|(1)||2012 represents the 53 weeks ended February 2, 2013.|
|(2)||Calculated as Athletic Store sales divided by the average monthly ending gross square footage of the last thirteen months. The computation for each of the years presented reflects the foreign exchange rate in affect for such year. The 2012 amount has been calculated excluding the sales of the 53rd week.|
|(3)||Calculated using results from continuing operations.|
|(4)||See Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations for additional information and calculation.|
|(5)||Represents total debt and obligations under capital leases, net of cash, cash equivalents, and short-term investments. Additionally, this calculation includes the present value of operating leases, and accordingly is considered a non-GAAP measure.|
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, with formats that include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, SIX:02, as well as the retail stores of Runners Point Group, including Runners Point, Sidestep, and Run2, which was acquired during the second quarter of 2013. The Direct-to-Customers segment includes Footlocker.com, Inc. and other affiliates, including Eastbay, Inc., CCS, and Tredex, the direct-to-customer subsidiary of Runners Point Group, which sell to customers through their Internet websites, mobile devices, and catalogs.
The Foot Locker brand is one of the most widely recognized names in the markets in which the Company operates, epitomizing high quality for the active lifestyle customer. This brand equity has aided the Companys ability to successfully develop and increase its portfolio of complementary retail store formats, such as Lady Foot Locker, and Kids Foot Locker, as well as Footlocker.com, its direct-to-customers business. Through various marketing channels, including broadcast, digital, print, and various sports sponsorships and events, the Company reinforces its image with a consistent message-namely, that it is the destination for athletically inspired shoes and apparel with a wide selection of merchandise in a full-service environment.
|February 2, 2013||Opened||Closed||February 1,
|Foot Locker US||1,072||7||35||1,044||153||2,492||4,301|
|Foot Locker Europe||590||26||12||604||23||836||1,815|
|Foot Locker Canada||129||||1||128||15||270||423|
|Foot Locker Asia Pacific||92||3||3||92||9||126||205|
|Lady Foot Locker||303||8||54||257||3||351||592|
|Kids Foot Locker||305||31||||336||24||477||830|
|Runners Point Group(2)||||196||3||193||||214||366|
|(1)||During the second quarter of 2013, the Company closed all CCS store locations. The CCS brand is operated solely as an e-commerce business.|
|(2)||The Company acquired 194 existing Runners Point Group stores in July 2013; subsequently, the Company opened 2 additional stores.|
The Company operates 3,473 stores in the Athletic Stores segment. The following is a brief description of the Athletic Stores segments operating businesses:
Foot Locker Sneaker Central Foot Locker is a leading global athletic footwear and apparel retailer. Its stores offer the latest in athletically-inspired performance products, manufactured primarily by the leading athletic brands. Foot Locker offers products for a wide variety of activities including basketball, running, and training. Additionally, we operate 127 House of Hoops, primarily a shop-in-shop concept, which sells premier basketball inspired products. Foot Lockers 1,868 stores are located in 23 countries including 1,044 in the United States, Puerto Rico, U.S. Virgin Islands, and Guam, 128 in Canada, 604 in Europe, and a combined 92 in Australia and New Zealand. The domestic stores have an average of 2,400 selling square feet and the international stores have an average of 1,500 selling square feet.
Lady Foot Locker The Place for Her Lady Foot Locker is a leading U.S. retailer of athletic footwear, apparel, and accessories for active women. Its stores carry major athletic footwear and apparel brands, as well as casual wear and an assortment of apparel designed for a variety of activities, including running, walking, training, and fitness. In November 2012, the Company announced the introduction of a new banner named SIX:02. This new banner is an elevated retail concept featuring top brands in fitness apparel and athletic footwear for women for a variety of activities, including CrossFit, yoga, strength training, and dance. Lady Foot Locker and SIX:02 operate 250 and 7 stores, respectively, and are located in the United States, Puerto Rico, and the U.S. Virgin Islands. These stores have an average of 1,400 selling square feet.
Kids Foot Locker Where Kids Come First Kids Foot Locker is a childrens athletic retailer that offers the largest selection of brand-name athletic footwear, apparel and accessories for children. Its stores feature an environment geared to appeal to both parents and children. Its 336 stores are located in the United States, Puerto Rico, the U.S. Virgin Islands, Europe, and Canada. These stores have an average of 1,400 selling square feet.
Footaction Head-to-Toe Sport Inspired Style Footaction is a national athletic footwear and apparel retailer. The primary customer is a confident, influential young male who is driven by style and is always thoughtful about his look. Its 277 stores are located throughout the United States and Puerto Rico and focus on marquee footwear and branded apparel. The Footaction stores have an average of 2,900 selling square feet.
Champs Sports We Know Game Champs Sports is one of the largest mall-based specialty athletic footwear and apparel retailers in North America. Its product categories include athletic footwear and apparel, and sport-lifestyle inspired accessories. This assortment allows Champs Sports to differentiate itself from other mall-based stores by presenting complete head-to-toe merchandising stories representing the most powerful athletic brands, sports teams, and athletes in North America. Its 542 stores are located throughout the United States, Canada, Puerto Rico, and the U.S. Virgin Islands. The Champs Sports stores have an average of 3,500 selling square feet.
Runners Point During the second quarter of 2013, the Company acquired the German retailer, Runners Point Group. The Athletic Stores Segment includes the retail stores of Runners Point Group, including Runners Point, specializing in running footwear, sneakers, running apparel, and equipment, Sidestep, a predominantly sports fashion footwear banner, and Run2, a newer concept aimed at the high performance serious runner. Runners Point, Sidestep, and Run2 operate, 100, 78, and 15 stores, respectively. These stores are located in Germany, Austria, and the Netherlands and have an average of 1,100 selling square feet.
The Companys Direct-to-Customers segment is multi-branded and multi-channeled. This segment sells, through its affiliates, directly to customers through its Internet websites, mobile devices, and catalogs.
The Direct-to-Customers segment operates the websites for eastbay.com, final-score.com, eastbayteamservices.com, ccs.com, as well as websites aligned with the brand names of its store banners (footlocker.com, ladyfootlocker.com, six02.com kidsfootlocker.com, footaction.com, and champssports.com). Additionally, this segment includes Tredex, the direct-to-customer subsidiary of Runners Point Group, which operates the websites for runnerspoint.com, sidestep-sneakers.com, and sp24.com. These sites offer one of the largest online selections of running sport items in Europe, while providing a seamless link between e-commerce and store banners.
Eastbay Prepare to Win Eastbay is among the largest direct marketers in the United States, providing the high school athlete with a complete sports solution including athletic footwear, apparel, equipment, team licensed, and private-label merchandise for a broad range of sports.
CCS We are Board Culture In 2008, the Company purchased CCS, an Internet and catalog retailer of skateboard equipment, apparel, footwear, and accessories. CCS serves the needs of the 12-24 year old seeking an authentic board lifestyle shop. CCS is anchored in skate but appealing to the surrounding board culture. The CCS format offers board lifestyle merchandise that will fit the needs of the customer all year long and stocks the best selection of both core and lifestyle brands.
In 2006, the Company entered into a ten-year area development agreement with the Alshaya Trading Co. W.L.L., for the operation of Foot Locker stores located within the Middle East, subject to certain restrictions. In 2007, the Company entered into a ten-year agreement with another third party for the exclusive right to open and operate Foot Locker stores in the Republic of Korea. Additionally, franchise stores located in Germany and Switzerland operate under the Runners Point and Stepside banners.
A total of 73 franchised stores were operating at February 1, 2014. Of these stores, 27 are operating in the Middle East, 27 are operating in Germany and Switzerland, and 19 are operating in the Republic of Korea. Royalty income from the franchised stores was not significant for any of the periods presented. These stores are not included in the Companys operating store count above.
In the following tables, the Company has presented certain financial measures and ratios identified as non-GAAP. The Company believes this non-GAAP information is a useful measure to investors because it allows for a more direct comparison of the Companys performance for 2013 as compared with prior years and is useful in assessing the Companys progress in achieving its long-term financial objectives. The 2013 results represent the 52 weeks ended February 1, 2014 as compared with 53 weeks in 2012, and 52 weeks in the 2011 reporting year.
The following represents a reconciliation of the non-GAAP measures discussed throughout the Overview of Consolidated Results:
|(in millions, except per share amounts)|
|Sales excluding 53rd week (non-GAAP)||$||6,505||$||6,101||$||5,623|
|Income before income taxes||$||663||$||607||$||435|
|Pre-tax amounts excluded from GAAP:
|Runners Point Group integration and acquisition costs||6|||||
|Impairment and other charges||2||12||5|
|Total pre-tax amounts excluded||8||(10||)||5|
|Income before income taxes (non-GAAP)||$||671||$||597||$||440|
|Calculation of Earnings Before Interest and Taxes (EBIT):
|Income before income taxes||$||663||$||607||$||435|
|Interest expense, net||5||5||6|
|Income before income taxes (non-GAAP)||$||671||$||597||$||440|
|Interest expense, net||5||5||6|
|EBIT margin %||10.3||%||9.9||%||7.8||%|
|EBIT margin % (non-GAAP)||10.4||%||9.9||%||7.9||%|
|After-tax amounts excluded from GAAP:
|Runners Point Group acquisition and integration costs||5|||||
|Impairment and other charges||1||7||3|
|Settlement of foreign tax audits||(3||)||(9||)|||
|Canadian tax rate changes||||(1||)|||
|Net income (non-GAAP)||$||432||$||380||$||281|
|(in millions, except per share amounts)|
|Net income margin %||6.6||%||6.4||%||4.9||%|
|Net income margin % (non-GAAP)||6.6||%||6.2||%||5.0||%|
|Diluted earnings per share:
|Runners Point Group acquisition and integration costs||0.03|||||
|Impairment and other charges||0.01||0.05||0.02|
|Settlement of foreign tax audits||(0.02||)||(0.06||)|||
|Canadian tax rate changes||||(0.01||)|||
|Net income (non-GAAP)||$||2.87||$||2.47||$||1.82|
The Company estimates the tax effect of the non-GAAP adjustments by applying its marginal tax rate to each of the respective items.
During 2013 and 2012, the Company recorded benefits of $3 million and $9 million, or $0.02 per diluted share and $0.06 per diluted share, respectively, to reflect the settlement of foreign tax audits, which resulted in a reduction in tax reserves established in prior periods. Additionally in 2012, the Company recorded a benefit of $1 million, or $0.01 per diluted share, to reflect the repeal of the last two stages of certain Canadian provincial tax rate changes.
When assessing Return on Invested Capital (ROIC), the Company adjusts its results to reflect its operating leases as if they qualified for capital lease treatment. Operating leases are the primary financing vehicle used to fund store expansion and, therefore, we believe that the presentation of these leases as if they were capital leases is appropriate. Accordingly, the asset base and net income amounts are adjusted to reflect this in the calculation of ROIC. ROIC, subject to certain adjustments, is also used as a measure in executive long-term incentive compensation.
The closest GAAP measure is Return on Assets (ROA) and is also represented below. ROA increased to 12.5 percent as compared with 12.4 percent in the prior year reflecting the Companys overall performance in 2013. Our ROIC decreased slightly as compared with the prior year due to an increase in our average invested capital primarily as a result of the inclusion of Runners Point Group during the second quarter of 2013. This was partly offset by an increase in our earnings before interest and income taxes.
|ROIC % (non-GAAP)(2)||14.1||%||14.2||%||11.8||%|
|(1)||Represents net income of $429 million, $397 million, and $278 million divided by average total assets of $3,427 million, $3,209 million, and $2,973 million for 2013, 2012, and 2011, respectively.|
|(2)||See below for the calculation of ROIC.|
|+ Rent expense||600||560||544|
|- Estimated depreciation on capitalized operating leases(3)||(443||)||(409||)||(389||)|
|Net operating profit||833||753||601|
|- Adjusted income tax expense(4)||(298||)||(274||)||(218||)|
|= Adjusted return after taxes||$||535||$||479||$||383|
|Average total assets||$||3,427||$||3,209||$||2,973|
|- Average cash, cash equivalents and short-term investments||(898||)||(890||)||(774||)|
|- Average non-interest bearing current liabilities||(630||)||(592||)||(519||)|
|- Average merchandise inventories||(1,194||)||(1,118||)||(1,064||)|
|+ Average estimated asset base of capitalized operating leases(3)||1,829||1,552||1,429|
|+ 13-month average merchandise inventories||1,269||1,200||1,192|
|= Average invested capital||$||3,803||$||3,361||$||3,237|
|(3)||The determination of the capitalized operating leases and the adjustments to income have been calculated on a lease-by-lease basis and have been consistently calculated in each of the years presented above. Capitalized operating leases represent the best estimate of the asset base that would be recorded for operating leases as if they had been classified as capital or as if the property were purchased. The present value of operating leases is discounted using various interest rates ranging from 2.8 percent to 14.5 percent, which represent the Companys incremental borrowing rate at inception of the lease.|
|(4)||The adjusted income tax expense represents the marginal tax rate applied to net operating profit for each of the periods presented.|
The following represents our long-term financial objectives and our progress towards meeting those objectives. The following represents non-GAAP results for all the periods presented. In addition, the 2012 results are shown on a 52-week basis.
|Sales (in millions)||$||7,500||$||6,505||$||6,101||$||5,623|
|Sales per gross square foot||$||500||$||460||$||443||$||406|
|Net income margin||7.0||%||6.6||%||6.2||%||5.0||%|
Highlights of our 2013 financial performance include:
|||Sales and comparable-store sales, as noted in the table below, both increased and continued to benefit from exciting assortments and enhanced store formats across our various banners, as well as improved performance of the Companys store banner.com websites. Our recent acquisition, Runners Point Group, contributed $164 million to the 2013 sales results; these sales are not included in the computation of comparable-store sales.|
|Comparable-store sales increase||4.2||%||9.4||%||9.8||%|
|||Gross margin, as a percentage of sales, was 32.8 percent in 2013 which was unchanged as compared with the prior-year period.|
|||SG&A expenses on a non-GAAP basis were 20.4 percent of sales, an improvement of 60 basis points as compared with the prior year, as we carefully managed expenses.|
|||Net income on a non-GAAP basis was $432 million or $2.87 diluted earnings per share, an increase of 16.2 percent from the prior-year period.|
|||Cash, cash equivalents, and short-term investments at February 1, 2014 were $867 million, representing a decrease of $61 million. This reflects both the execution of various key initiatives noted in the items below and the Companys strong performance. The Company ended the year in a strong financial position, with $728 million of cash, cash equivalents and short-term investments, net of debt and obligations under capital leases.|
|||The Company completed the acquisition of Runners Point Group during the second quarter of 2013 for $81 million, net of cash acquired. The Runners Point Group is a leading specialty athletic footwear and apparel multi-channel German retailer. The acquisition increases the Companys market position in Germany. While only a partial year, its operations were accretive to the 2013 results.|
|||Capital expenditures during 2013 totaled $206 million and were primarily directed to the remodeling or relocation of 320 stores, the build-out of 84 new stores, as well as other technology and infrastructure projects.|
|||Dividends totaling $118 million were declared and paid during 2013, returning significant value to our shareholders.|
|||A total of 6.4 million shares were repurchased in the first year of our current share repurchase program at a cost of $229 million.|
|(in millions, except per share data)|
|Selling, general and administrative expenses||1,334||1,294||1,244|
|Depreciation and amortization||133||118||110|
|Interest expense, net||5||5||6|
|Diluted earnings per share||$||2.85||$||2.58||$||1.80|
All references to comparable-store sales for a given period relate to sales of stores that are open at the period-end and have been open for more than one year. The computation of comparable-store sales also includes the sales of the Direct-to-Customers segment. Stores opened or closed during the period are not included in the comparable-store base; however, stores closed temporarily for relocation or remodeling are included. Computations exclude the effects of foreign currency fluctuations.
Sales from acquired businesses that include inventory are included in the computation of comparable-store sales after 15 months of operations. Accordingly, sales of Runners Point Group have been excluded from the computation of comparable-store sales. Runners Point Group sales will be included in the computation beginning in October 2014.
Sales of $6,505 million in 2013 increased by 5.2 percent from sales of $6,182 million in 2012, this represented a comparable-store sales increase of 4.2 percent. Excluding the effect of foreign currency fluctuations and sales of Runners Point Group, sales increased 2.4 percent as compared with the 53 weeks of 2012. Results for 2012 include the effect of the 53rd week, which represented sales of $81 million. Overall in 2013, footwear sales and apparel and accessories sales represented 77 percent and 23 percent of total sales, respectively.
Sales in 2012 increased to $6,182 million, or by 9.9 percent as compared with 2011. Excluding the effect of foreign currency fluctuations, sales increased 11.4 percent as compared with 2011. Comparable-store sales increased by 9.4 percent. This increase primarily reflected higher footwear sales, which represented approximately 76 percent of sales. Apparel and accessories sales, also increased during 2012 and represented 24 percent of total sales.
|Gross margin rate||32.8||%||32.9||%||31.9||%|
Gross margin as a percentage of sales was 32.8 percent in 2013, representing a decrease of 10 basis points as compared with the prior year. The decrease in the gross margin rate included an increase in the cost of merchandise of 10 basis points. Occupancy and buyers compensation expense rate remained unchanged, as a percentage of sales, as compared with the 53 weeks of 2012. The decline in the merchandise margin rate primarily reflects the effect of lower initial markups. Vendor allowances had no effect on the gross margin rate, as compared with the prior year. Excluding the effect of the 53rd week in 2012, the gross margin rate was flat as compared with the prior year.
Gross margin as a percentage of sales was 32.9 percent in 2012, representing an increase of 100 basis points as compared with the prior year. The increase in the gross margin rate included a decrease of 110 basis points in the occupancy and buyers compensation expense rate reflecting improved leverage on largely fixed costs, offset by an increase in the cost of merchandise of 10 basis points. The decline in the merchandise margin rate primarily reflected the effect of lower initial markups, higher markdowns in Europe, and the effect of lower shipping and handling income. The markdowns in Europe were necessary to ensure that merchandise inventories remained current and in line with sales trend. The Direct-to-Customers segment continued to provide free
shipping offers to remain competitive with other Internet retailers. Vendor allowances had no effect on the gross margin rate, as compared with the prior year. Excluding the effect of the 53rd week in 2012, gross margin increased by 90 basis points as compared with 2011.
|SG&A as a percentage of sales||20.5||%||20.9||%||22.1||%|
Selling, general and administrative (SG&A) expenses increased by $40 million, or 3.1 percent, to $1,334 million in 2013, as compared with 2012. Excluding the effect of foreign currency fluctuations, SG&A increased by $34 million. Runners Point Group, which was acquired in early July 2013, represented an incremental $45 million in expenses. Additionally, the Company incurred $6 million in integration and acquisition costs during 2013. Excluding foreign currency fluctuations, the effect of the recent acquisition, and the effect of the 53rd week in 2012, SG&A decreased by $4 million. The decrease reflects effective expense management, specifically variable costs.
SG&A expenses increased by $50 million, or 4.0 percent, to $1,294 million in 2012, as compared with 2011. Excluding the effect of foreign currency fluctuations, SG&A increased by $69 million. This increase reflects the effect of the 53rd week, which contributed $13 million in additional expenses, as well as higher variable expenses to support sales, such as store wages and banking expenses. The Company also increased its marketing and advertising spending by $8 million during 2012 in order to support the Companys strategic objective of differentiating its formats.
The increases in both 2013 and 2012 reflect increased capital spending on store improvements and technology. In addition, the increase in the current year reflects the inclusion of depreciation and amortization relating to the Runners Point Group of $6 million. The effect of foreign currency fluctuations was not significant for 2013.
|Interest expense, net||$||5||$||5||$||6|
|Weighted-average interest rate (excluding fees)||7.1||%||7.6||%||7.6||%|
Net interest expense in 2013 was essentially unchanged from the prior year. The overall reduction in net interest expense in 2012 as compared with 2011 primarily reflected lower expenses associated with the Companys revolving credit facility, which was amended at the end of 2011 with lower annual fees.
The Company did not have any short-term borrowings, other than amounts outstanding in connection with capital leases, for any of the periods presented.
The effective tax rate for 2013 was 35.3 percent, as compared with 34.6 percent in 2012. The Company regularly assesses the adequacy of the provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes. As a result, the reserves for unrecognized tax benefits may be adjusted as a result of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitation. During the third quarter of 2013, the Company settled a foreign tax audit resulting in a reserve release of $3 million. The effective tax rate for 2013 also includes other reserve releases totaling $3 million due to audit settlements and lapses of statutes of limitations. Additionally, in connection with the purchase of Runners Point
Group, the Company recorded a tax expense of $1 million related to non-deductible acquisition costs. Excluding these items as well as the reserve releases in 2012, the effective tax rate for 2013 decreased as compared with 2012 primarily due to the effect of full implementation of international tax planning initiatives in 2013.
The effective tax rate for 2012 was 34.6 percent, as compared with 36.0 percent in 2011. The effective tax rate for 2012 includes reserve releases of $13 million due to foreign and domestic audit settlements and lapses of statute of limitations. Additionally, included in 2012 are one time benefits totaling $4 million, representing foreign tax law changes of $2 million, additional U.S. tax credits of $1 million, and a $1 million benefit related to a Canadian provincial tax rate change that increased the value of the Companys net deferred tax assets. The 2011 effective rate included a benefit of $3 million from reserve releases as well as other true-up adjustments. Excluding these items, the effective tax rate increased primarily due to the higher proportion of income earned in higher tax jurisdictions in 2012.
The Companys two reportable segments, Athletic Stores and Direct-to-Customers, are based on its method of internal reporting. The Company evaluates performance based on several factors, the primary financial measure of which is division results. Division profit reflects income before income taxes, corporate expense, non-operating income, and net interest expense.
|Less: Corporate expense(4)||76||108||102|
|Earnings before interest expense and income taxes||668||612||441|
|Interest expense, net||5||5||6|
|Income before income taxes||$||663||$||607||$||435|
|(1)||The results for 2013 include a $2 million charge recorded in connection with the closure of all CCS stores. The results of 2012 include a non-cash impairment charge of $5 million to write down long-lived assets of the CCS stores as a result of the Companys decision to close the stores during the first quarter of 2013.|
|(2)||Included in the results for 2012 and 2011 are non-cash impairment charges of $7 million and $5 million, respectively, related to the CCS business.|
|(3)||In 2011, the Company increased its 1993 Repositioning and 1991 Restructuring reserve by $1 million for repairs necessary to one of the locations comprising this reserve. This amount is included in selling, general and administrative expenses.|
|(4)||Corporate expense for 2013 reflects the reallocation of expense between corporate and the operating divisions. Based upon an internal study of corporate expense, the allocation of such expenses to the operating divisions was increased by $27 million thereby reducing corporate expense.|
|(5)||Other income includes non-operating items such as: gains from insurance recoveries; discounts/premiums paid on the repurchase and retirement of bonds; royalty income; and the changes in fair value, premiums paid, and realized gains associated with foreign currency option contracts.|
|Division profit margin||11.3||%||11.7||%||9.7||%|
Athletic Stores sales were $5,790 million in 2013, an increase of 4.0 percent as compared with the prior year. Excluding the effect of foreign currency fluctuations, primarily related to the euro, sales from the Athletic Stores segment increased by 3.7 percent in 2013. Comparable-store sales increased by 3.0 percent. The Athletic Stores segment includes $146 million of sales related to the Runners Point stores, which was acquired in early July 2013. Excluding the sales of the Runners Point stores, the increase was primarily driven by Kids Foot Locker, Foot Locker Europe, and domestic Foot Locker. Kids Foot Locker and Foot Locker Europe increased their store count by 31 and 14 stores, respectively, during 2013. The increase in these banners was partially offset by sales declines in Lady Foot Locker, Footaction, and Champs Sports. Lady Foot Lockers sales declined in 2013 as management continues to close underperforming stores and redefine the product offerings. Lady Foot Lockers store count declined by 46 stores during 2013. Test locations, including SIX:02 stores, are performing better than the balance of the chain and continue to be evaluated. Various initiatives are being implemented including the recent launch of the SIX:02 e-commerce website, in order to optimize performance before a roll-out strategy is determined. On a comparable-store sales basis, Footaction reported a modest increase for the year. Comparable-store sales for Champs Sports were negatively affected, in part, by the level of store remodel projects, which require temporary store closure during remodel.
Within the Athletic Stores segment footwear was the biggest driver, led by our childrens category, which had strong gains across all banners. Footwear sales increased in our largest category, basketball, which benefited from key marquee player shoes. The segment is also benefiting from the continued expansion of the shop-in-shop partnerships with our various vendors.
Athletic Stores reported a division profit of $656 million in 2013 as compared with $653 million in 2012, an increase of $3 million. Included in the 2013 results are costs of $2 million associated with the closure of the CCS stores. While the results of the Runners Point stores were accretive during the period, it was not significant. Additionally, the 2013 results reflect the reallocation of corporate expense to this segment, discussed more fully below. Excluding these items, division profit margin for 2013 would have been essentially unchanged.
Athletic Stores sales of $5,568 million increased 9.0 percent in 2012. Excluding the effect of foreign currency fluctuations, primarily related to the euro, sales from the Athletic Stores segment increased by 10.6 percent in 2012. Comparable-store sales increased by 8.5 percent. Most divisions within this segment experienced strong increases as compared with the prior year, led by Champs Sports and domestic Foot Locker. Foot Locker Europe had a modest comparable-store sales decline for the year reflecting the macroeconomic conditions in that region. Lady Foot Lockers sales declined in 2012 reflecting losses from certain classic and lifestyle footwear, partially offset by an increase in performance footwear. Additionally, Lady Foot Locker operated 29 fewer stores as management has continued to focus on closing underperforming stores. Comparable-store sales for the division were down slightly for the year. During 2012, the Company introduced a new banner, SIX:02, an elevated retail concept featuring top brands in fitness apparel and athletic footwear for women. The Company opened 3 SIX:02 stores during the fourth quarter of 2012. In total, all categories, footwear, apparel and accessories, increased during 2012. Within the footwear category, the highest percentage increase came from our childrens category, which had strong gains across all banners, supported by the Go Big marketing campaign in Kids Foot Locker. Footwear sales increased in our largest category, basketball, which benefited from key marquee player shoes. Despite the overall decline in Lady Foot Locker sales, our overall womens business modestly increased, as some of those customers found appealing product in our other banners. Apparel sales reflected strength in domestic sales, partially offset by a slight decline in Europes apparel sales.
Athletic Stores reported a division profit of $653 million in 2012 as compared with $495 million in 2011, an increase of $158 million. During the fourth quarter of 2012 an impairment charge of $5 million was recorded to write down long-lived assets of the CCS stores as a result of the Companys decision to close these stores. Foreign currency fluctuations negatively affected division profit by approximately $9 million as compared with the corresponding prior-year period. Division profit increased primarily as a result of strong sales and an improved gross margin rate driven by improved leverage of the fixed expenses within gross margin, contributing to an overall profit flow-through of 34.5 percent.
|Division profit margin||11.7||%||10.6||%||8.8||%|
Direct-to-Customers sales increased 16.4 percent to $715 million in 2013, as compared with $614 million in 2012. Comparable sales increased 14.8 percent from the prior year. The Direct-to-Customers segment includes $18 million of sales related to the e-commerce division of Runners Point Group, which the Company acquired during the second quarter of 2013. Excluding these sales, the increase was primarily a result of continued strong sales performance related to the Companys store-banner websites, as well as increased Eastbay sales. Of the total increase, sales from our store-banner websites comprised approximately three quarters of the increase reflecting success of several initiatives, including improving the connectivity of the store banners to the e-commerce sites, investments in technology to improve the shopping experience, and investments in making the sites more engaging. These increases were offset, in part, by a further decline in the CCS business.
The Direct-to-Customers business generated division profit of $84 million in 2013, as compared with $65 million in 2012. Division profit, as a percentage of sales, was 11.7 percent in 2013 and 10.6 percent in 2012. The 2013 results reflect the reallocation of corporate expense, discussed more fully below. Excluding this change division profit margin would have been 12.3 percent. During 2012, an impairment charge of $7 million was recorded to write down CCS intangible assets. Excluding these items, division profit increased by $17 million. The effect of the acquisition was not significant to this segments division profit.
Direct-to-Customers sales increased 19.7 percent to $614 million in 2012, as compared with $513 million in 2011. On a comparable 52 week basis, sales increased 17.7 percent. The increase was primarily a result of continued strong sales performance for the Companys store-banner websites, as well as increased Eastbay sales. Of the total increase, sales from our store-banner websites comprised approximately 60 percent of the increase. This improvement reflected further investment in our websites in order to provide excellent service in our digital channels, including easy navigation, timely shipping, helpful call center assistance, and entertaining and engaging content.
The Direct-to-Customers business generated division profit of $65 million in 2012, as compared with $45 million in 2011. Division profit, as a percentage of sales, was 10.6 percent in 2012 and 8.8 percent in 2011. During the fourth quarters of 2012 and 2011, impairment charges of $7 million and $5 million, respectively, were recorded to write down CCS intangible assets, specifically the non-amortizing tradename. The 2012 impairment was primarily the result of continued reductions in revenue projections, coupled with a decrease in the assumed royalty rate as a result of lower profitability. Excluding the impairment charges in each of the periods, division profit increased by $22 million reflecting the strong sales performance and a lower expense rate.
Corporate expense consists of unallocated general and administrative expenses as well as depreciation and amortization related to the Companys corporate headquarters, centrally managed departments, unallocated
insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items. Depreciation and amortization included in corporate expense was $12 million, $13 million, and $11 million in 2013, 2012, and 2011, respectively.
Corporate expense decreased by $32 million to $76 million in 2013, as compared with 2012. Based upon an internal study of corporate expense, the allocation of such expenses to the operating divisions was increased thereby reducing corporate expense by $27 million for 2013. In addition, incentive compensation decreased $11 million and legal expenses decreased by $4 million as 2012 reflected a litigation charge. Additionally, as noted above depreciation and amortization expense decreased by $1 million. These decreases were partially offset by $6 million of costs related to the Companys acquisition and integration of Runners Point Group as well as an increase of $5 million for share-based compensation expense.
Corporate expense increased by $6 million to $108 million in 2012, as compared with 2011. The increase represents increased depreciation and amortization of $2 million, $2 million of increased share-based compensation expense, and a charge of $4 million related to litigation, offset, in part, by expense savings in other corporate areas. The effect of the 53rd week on corporate expense was not significant.
The Companys primary source of liquidity has been cash flow from operations, while the principal uses of cash have been to: fund inventory and other working capital requirements; finance capital expenditures related to store openings, store remodelings, Internet and mobile sites, information systems, and other support facilities; make retirement plan contributions, quarterly dividend payments, and interest payments; and fund other cash requirements to support the development of its short-term and long-term operating strategies. The Company generally finances real estate with operating leases. Management believes its cash, cash equivalents, and future cash flow from operations will be adequate to fund these requirements.
As of February 1, 2014, the Company had $426 million of cash and cash equivalents held in foreign jurisdictions. Because we plan to permanently reinvest our foreign earnings, in accordance with U.S. GAAP, we have not provided for U.S. federal and state income taxes or foreign withholding taxes that may result from potential future remittances of undistributed earnings of foreign subsidiaries. Depending on the source, amount, and timing of a repatriation, some tax may be payable. The Company believes that its cash invested domestically and future domestic cash flows are sufficient to satisfy domestic requirements.
The Company may also 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 20, 2013, the Board of Directors approved a new 3-year, $600 million share repurchase program extending through January 2016, replacing the Companys previous $400 million program which terminated on that date. As of February 1, 2014, approximately $371 million is remaining on this program.
Any material adverse change in customer demand, fashion trends, competitive market forces, or customer acceptance of the Companys merchandise mix and retail locations, uncertainties related to the effect of competitive products and pricing, the Companys reliance on a few key vendors for a significant portion of its merchandise purchases and risks associated with global product 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.
Maintaining access to merchandise that the Company considers appropriate for its business may be subject to the policies and practices of its key vendors. Therefore, the Company believes that it is critical to continue to maintain satisfactory relationships with its key vendors. In 2013 and 2012, the Company purchased approximately 88 percent and 86 percent, respectively, of its merchandise from its top five vendors and expects to continue to obtain a significant percentage of its athletic product from these vendors in future periods. Approximately 68 percent in 2013 and 65 percent in 2012 was purchased from one vendor Nike, Inc.
The Companys 2014 planned capital expenditures and lease acquisition costs are approximately $220 million. Planned capital expenditures are $219 million and planned lease acquisition costs related to the Companys operations in Europe are $1 million. The Companys planned capital expenditures include $181 million related to modernizations of existing stores and the planned opening of 62 new stores, as well as $38 million for the development of information systems and infrastructure. The Company has the ability to revise and reschedule much of the anticipated capital expenditure program, should the Companys financial position require it.
In addition to net cash provided by operating activities, the Company uses free cash flow as a useful measure of performance and as an indication of the strength of the Company and its ability to generate cash. The Company defines free cash flow as net cash provided by operating activities less capital expenditures (which is classified as an investing activity). The Company believes the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate the cash generated from the Companys underlying operations in a manner similar to the method used by management.
Free cash flow is not defined under U.S. GAAP. Therefore, it should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP, and may not be comparable to similarly titled measures used by other companies. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.
The following table presents a reconciliation of the Companys net cash flow provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow.
|Net cash provided by operating activities||$||530||$||416||$||497|
|Free cash flow (non-GAAP)||$||324||$||253||$||345|
Operating activities provided cash of $530 million in 2013, compared with $416 million in 2012. These amounts reflect income adjusted for non-cash items and working capital changes. The improvement represents the Companys earnings strength. During 2013, the Company contributed $2 million to its Canadian qualified pension plans as compared with $25 million and $1 million contributed to the U.S. and Canadian plans, respectively, in 2012. Cash paid for income taxes was $175 million for 2013 as compared with $230 million for 2012.
Operating activities provided cash of $416 million in 2012, compared with $497 million in 2011. Non-cash impairment and other charges were $12 million and $5 million for 2012 and 2011, respectively. These impairment charges were related to the CCS business. During 2012, the Company contributed $26 million to its U.S. and Canadian qualified pension plans as compared with $28 million contributed in 2011. The increase in merchandise inventories for 2012 of $91 million was due to the shift caused by the 53rd week, which was planned in order to support sales for February, which is typically a strong period.
Net cash used in investing activities was $248 million in 2013 as compared with $212 million in 2012. During the second quarter of 2013, the Company completed its purchase of Runners Point Group for $81 million, net of cash acquired. Capital expenditures in 2013 were $206 million, primarily related to the remodeling of 320 stores, the build-out of 84 new stores, and various corporate technology upgrades, representing an increase of $43 million as compared with the prior year. These increases were partially offset by net sales and maturities of $37 million of short-term investments during 2013.
Net cash used in investing activities was $212 million in 2012 as compared with $149 million in 2011. The increase was primarily due to the Companys net purchases of $49 million of short-term investments as well as higher capital expenditures. Capital expenditures were $163 million, primarily related to the remodeling of 198 stores,
the build-out of 85 new stores, and various corporate technology upgrades and e-commerce website enhancements, representing an increase of $11 million as compared with the prior year.
Net cash used in financing activities was $309 million in 2013 as compared with $181 million in 2012. During 2013, the Company repurchased 6,424,286 shares of its common stock under its share repurchase program for $229 million. Additionally, the Company declared and paid dividends totaling $118 million and $109 million in 2013 and 2012, respectively, representing a quarterly rate of $0.20 and $0.18 per share in 2013 and 2012, respectively. During 2013 and 2012, the Company received proceeds from the issuance of common stock and treasury stock in connection with the employee stock programs of $30 million and $48 million, respectively. In connection with stock option exercises, the Company recorded excess tax benefits related to share-based compensation of $9 million and $11 million for 2013 and 2012, respectively.
Net cash used in financing activities was $181 million in 2012 as compared with $178 million in 2011. During 2012, the Company repurchased 4,000,161 shares of its common stock under its share repurchase program for $129 million. Additionally, the Company declared and paid dividends totaling $109 million and $101 million in 2012 and 2011, respectively, representing a quarterly rate of $0.18 and $0.165 per share in 2012 and 2011, respectively. During 2012 and 2011, the Company received proceeds from the issuance of common stock and treasury stock in connection with the employee stock programs of $48 million and $22 million, respectively. In connection with stock option exercises, the Company recorded excess tax benefits related to share-based compensation of $11 million and $5 million for 2012 and 2011, respectively.
On January 27, 2012, the Company entered into an amended and restated credit agreement (the 2011 Restated Credit Agreement) with its banks. The 2011 Restated Credit Agreement provides for a $200 million asset based revolving credit facility maturing on January 27, 2017. In addition, during the term of the 2011 Restated Credit Agreement, the Company may make up to four requests for additional credit commitments in an aggregate amount not to exceed $200 million. Interest is based on the LIBOR rate in effect at the time of the borrowing plus a 1.25 to 1.50 percent margin depending on certain provisions as defined in the 2011 Restated Credit Agreement. The 2011 Restated Credit Agreement provides for a security interest in certain of the Companys domestic assets, including certain inventory assets, but excluding intellectual property. The Company is not required to comply with any financial covenants as long as there are no outstanding borrowings. With regard to the payment of dividends and share repurchases, there are no restrictions if the Company is not borrowing and the payments are funded through cash on hand. If the Company is borrowing, Availability as of the end of each fiscal month during the subsequent projected six fiscal months following the payment must be at least 20 percent of the lesser of the Aggregate Commitments and the Borrowing Base (all terms as defined in the 2011 Restated Credit Agreement). The Companys management does not currently expect to borrow under the facility in 2014, other than amounts used to support standby letters of credit.
As of March 31, 2014, the Companys corporate credit ratings from Standard & Poors and Moodys Investors Service are BB+ and Ba2, respectively. In addition, Moodys Investors Service has rated the Companys senior unsecured notes Ba3.
For purposes of calculating debt to total capitalization, the Company includes the present value of operating lease commitments in total net debt. Total net debt including the present value of operating leases is considered a non-GAAP financial measure. The present value of operating leases is discounted using various interest rates ranging from 2.8 percent to 14.5 percent, which represent the Companys incremental borrowing rate at inception of the lease.
Operating leases are the primary financing vehicle used to fund store expansion and, therefore, we believe that the inclusion of the present value of operating leases in total debt is useful to our investors, credit constituencies, and rating agencies.
The following table sets forth the components of the Companys capitalization, both with and without the present value of operating leases:
|Long-term debt and obligations under capital leases||$||139||$||133|
|Present value of operating leases||2,571||2,202|
|Total debt including the present value of operating leases||2,710||2,335|
|Cash and cash equivalents||858||880|
|Total net debt including the present value of operating leases||1,843||1,407|
|Total net debt capitalization percent||%||||%|
|Total net debt capitalization percent including the present value of operating leases (non-GAAP)||42.5||%||37.2||%|
The Companys cash, cash equivalents, and short-term investments decreased by $61 million during 2013, representing the acquisition of the Runners Point Group offset in large part by the result of strong cash flow generation from operating activities.
Including the present value of operating leases, the Companys net debt capitalization percent increased 530 basis points in 2013. The change in total debt including the present value of the operating leases, as compared with the prior-year period, primarily reflects the acquisition of Runners Point Group and their associated lease liabilities, the effect of lease renewals, and the effect of foreign currency fluctuations, offset in part by store closures.
The following tables represent the scheduled maturities of the Companys contractual cash obligations and other commercial commitments at February 1, 2014:
|Payments Due by Fiscal Period|
|Contractual Cash Obligations||Total||2014||2015 2016||2017 2018||2019 and Beyond|
|Other long-term liabilities(3)||2||2|||||||
|Total contractual cash obligations||$||3,524||$||574||$||994||$||715||$||1,241|
|Payments Due by Fiscal Period|
|Other Commercial Commitments||Total Amounts Committed||2014||2015 2016||2017 2018||2019 and Beyond|
|Unused line of credit(4)||$||199||$||||$||199||$||||$|||
|Standby letters of credit||1||||1|||||
|Total commercial commitments||$||2,422||$||2,207||$||215||$||||$|||
|(1)||The amounts presented above represent the contractual maturities of the Companys long-term debt, including interest; however, it excludes the unamortized gain of the interest rate swap of $13 million. Additional information is included in the Long-Term Debt and Obligations Under Capital Leases note under Item 8. Consolidated Financial Statements and Supplementary Data.|
|(2)||The amounts presented represent the future minimum lease payments under non-cancelable operating leases. In addition to minimum rent, certain of the Companys leases require the payment of additional costs for insurance, maintenance, and other costs. These costs have historically represented approximately 25 to 30 percent of the minimum rent amount. These additional amounts are not included in the table of contractual commitments as the timing and/or amounts of such payments are unknown.|
|(3)||The Companys other liabilities in the Consolidated Balance Sheet at February 1, 2014 primarily comprise pension and postretirement benefits, deferred rent liability, income taxes, workers compensation and general liability reserves, and various other accruals. The amount presented in the table represents the Companys 2014 Canadian qualified pension contributions of $2 million. Other than this liability, other amounts (including the Companys unrecognized tax benefits of $46 million, as well as penalties and interest of $2 million) have been excluded from the above table as the timing and/or amount of any cash payment is uncertain. The timing of the remaining amounts that are known has not been included as they are minimal and not useful to the presentation. Additional information is included in the Other Liabilities, Financial Instruments and Risk Management, and Retirement Plans and Other Benefits notes under Item 8. Consolidated Financial Statements and Supplementary Data.|
|(4)||Represents the unused domestic lines of credit pursuant to the Companys $200 million revolving credit agreement. The Companys management currently does not expect to borrow under the facility in 2014, other than amounts used to support standby letters of credit.|
|(5)||Represents open purchase orders, as well as other commitments for merchandise purchases, at February 1, 2014. The Company is obligated under the terms of purchase orders; however, the Company is generally able to renegotiate the timing and quantity of these orders with certain vendors in response to shifts in consumer preferences.|
|(6)||Represents payments required by non-merchandise purchase agreements.|
The Company does not have any off-balance sheet financing (other than operating leases entered into in the normal course of business as disclosed above) or unconsolidated special purpose entities. The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, including variable interest entities. The Companys policy prohibits the use of derivatives for which there is no underlying exposure.
In connection with the sale of various businesses and assets, the Company may be obligated for certain lease commitments transferred to third parties and pursuant to certain normal representations, warranties, or indemnifications entered into with the purchasers of such businesses or assets. Although the maximum potential amounts for such obligations cannot be readily determined, management believes that the resolution of such contingencies will not significantly affect the Companys consolidated financial position, liquidity, or results of operations. The Company is also operating certain stores for which lease agreements are in the process of being negotiated with landlords. Although there is no contractual commitment to make these payments, it is likely that leases will be executed.
Managements responsibility for integrity and objectivity in the preparation and presentation of the Companys financial statements requires diligent application of appropriate accounting policies. Generally, the Companys accounting policies and methods are those specifically required by U.S. generally accepted accounting principles. Included in the Summary of Significant Accounting Policies note in Item 8. Consolidated Financial Statements and Supplementary Data is a summary of the Companys most significant accounting policies. In some cases, management is required to calculate amounts based on estimates for matters that are inherently uncertain. The Company believes the following to be the most critical of those accounting policies that necessitate subjective judgments.
The Company accounts for acquisitions by recording the net assets of acquired businesses at fair value, and making estimates and assumptions to determine the fair value of these acquired assets and liabilities. The Company allocates the purchase price of acquired businesses based, in part, upon internal estimates of cash flows and considering the report of a third-party valuation expert retained to assist the Company. Changes to the assumptions used to estimate the fair value could affect the recorded amounts of the assets acquired and the resultant goodwill.
Merchandise inventories for the Companys Athletic Stores are valued at the lower of cost or market using the retail inventory method (RIM). The RIM is commonly used by retail companies to value inventories at cost and calculate gross margins due to its practicality. Under the retail method, cost is determined by applying a cost-to-retail percentage across groupings of similar items, known as departments. The cost-to-retail percentage is applied to ending inventory at its current owned retail valuation to determine the cost of ending inventory on a department basis. The RIM is a system of averages that requires managements estimates and assumptions regarding markups, markdowns and shrink, among others, and as such, could result in distortions of inventory amounts.
Significant judgment is required for these estimates and assumptions, as well as to differentiate between promotional and other markdowns that may be required to correctly reflect merchandise inventories at the lower of cost or market. The Company provides reserves based on current selling prices when the inventory has not been marked down to market. The failure to take permanent markdowns on a timely basis may result in an overstatement of cost under the retail inventory method. The decision to take permanent markdowns includes many factors, including the current environment, inventory levels, and the age of the item. Management believes this method and its related assumptions, which have been consistently applied, to be reasonable.
In the normal course of business, the Company receives allowances from its vendors for markdowns taken. Vendor allowances are recognized as a reduction in cost of sales in the period in which the markdowns are taken. Vendor allowances contributed 20 basis points to the 2013 gross margin rate. The Company also has volume-related agreements with certain vendors, under which it receives rebates based on fixed percentages of cost purchases. These volume-related rebates are recorded in cost of sales when the product is sold and were not significant to the 2013 gross margin rate.
The Company receives support from some of its vendors in the form of reimbursements for cooperative advertising and catalog costs for the launch and promotion of certain products. The reimbursements are agreed upon with vendors for specific advertising campaigns and catalogs. Cooperative income, to the extent that it reimburses specific, incremental and identifiable costs incurred to date, is recorded in SG&A in the same period as the associated expenses are incurred. Cooperative reimbursements amounted to approximately 18 percent and 14 percent of total advertising and catalog costs, respectively, in 2013. Reimbursements received that are in excess of specific, incremental and identifiable costs incurred to date are recognized as a reduction to the cost of merchandise and are reflected in cost of sales as the merchandise is sold. Such amounts were not significant in 2013.
The Company performs an impairment review when circumstances indicate that the carrying value of long-lived tangible and intangible assets with finite lives may not be recoverable. Managements policy in determining whether an impairment indicator exists, a triggering event, comprises measurable operating performance criteria at the division level as well as qualitative measures. If an analysis is necessitated by the occurrence of a triggering event, the Company uses assumptions, which are predominately identified from the Companys strategic long-range plans, in determining in performing an impairment review. In the calculation of the fair value of long-lived assets, the Company compares the carrying amount of the asset with the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset with its estimated fair value. The estimation of fair value is measured by discounting expected future cash flows at the Companys weighted-average cost of capital. Management believes its policy is reasonable and is consistently applied. Future expected cash flows are based upon estimates that, if not achieved, may result in significantly different results.
The Company reviews goodwill for impairment annually during the first quarter of its fiscal year or more frequently if impairment indicators arise. The review of impairment consists of either using a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a two-step impairment test, if necessary. In performing the qualitative assessment, we consider many factors in evaluating whether the carrying value of goodwill may not be recoverable, including
declines in stock price and market capitalization in relation to the book value of the Company and macroeconomic conditions affecting retail. If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed using a two-step test. The initial step requires that the carrying value of each reporting unit be compared with its estimated fair value. The second step to evaluate goodwill of a reporting unit for impairment is only required if the carrying value of that reporting unit exceeds its estimated fair value. The Company used a combination of a discounted cash flow approach and market-based approach to determine the fair value of a reporting unit. The determination of discounted cash flows of the reporting units and assets and liabilities within the reporting units requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the discount rate, terminal growth rates, earnings before depreciation and amortization, and capital expenditures forecasts. The market approach requires judgment and uses one or more methods to compare the reporting unit with similar businesses, business ownership interests, or securities that have been sold. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. We performed our annual goodwill impairment assessments during 2013, using a qualitative approach. Based on the results of the impairment assessments performed, we concluded that it is more likely than not that the fair values of our reporting units exceeded their respective carrying values and there are no reporting units at risk of impairment.
Owned trademarks and tradenames that have been determined to have indefinite lives are not subject to amortization but are reviewed at least annually for potential impairment. The fair values of purchased intangible assets are estimated and compared to their carrying values. We estimate the fair value of these intangible assets based on an income approach using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates in the category of intellectual property, discount rates, and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We recognize an impairment loss when the estimated fair value of the intangible asset is less than the carrying value. The Companys review did not result in any impairment charges for the year ended February 1, 2014.
The Company estimates the fair value of options granted using the Black-Scholes option pricing model. The expected term of options granted is estimated using historical exercise and post-vesting employment termination patterns, which the Company believes are representative of future behavior. Changing the expected term by one year changes the fair value by 6 to 8 percent depending if the change was an increase or decrease to the expected term. The Company estimates the expected volatility of its common stock at the grant date using a weighted-average of the Companys historical volatility and implied volatility from traded options on the Companys common stock. A 50 basis point change in volatility would have a 1 percent change to the fair value. The risk-free interest rate assumption is determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The expected dividend yield is derived from the Companys historical experience. A 50 basis point change to the dividend yield would change the fair value by approximately 5 percent. Share-based compensation expense is recorded for those awards expected to vest using an estimated forfeiture rate based on its historical pre-vesting forfeiture data, which it believes are representative of future behavior, and periodically will revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Black-Scholes option pricing valuation model requires the use of subjective assumptions. Changes in these assumptions can materially affect the fair value of the options.
The Company determines its obligations for pension and postretirement liabilities based upon assumptions related to discount rates, expected long-term rates of return on invested plan assets, salary increases, age, and mortality, among others. Management reviews all assumptions annually with its independent actuaries, taking into consideration existing and future economic conditions and the Companys intentions with regard to the plans.
Long-Term Rate of Return Assumption The expected rate of return on plan assets is the long-term rate of return expected to be earned on the plans assets and is recognized as a component of pension expense. The rate is based on the plans weighted-average target asset allocation, as well as historical and future expected
performance of those assets. The target asset allocation is selected to obtain an investment return that is sufficient to cover the expected benefit payments and to reduce future contributions by the Company. The expected rate of return on plan assets is reviewed annually and revised, as necessary, to reflect changes in the financial markets and our investment strategy. The weighted-average long-term rate of return used to determine 2013 pension expense was 6.24 percent.
A decrease of 50 basis points in the weighted-average expected long-term rate of return would have increased 2013 pension expense by approximately $3 million. The actual return on plan assets in a given year typically differs from the expected long-term rate of return, and the resulting gain or loss is deferred and amortized into expense over the average life expectancy of its inactive participants.
Discount Rate An assumed discount rate is used to measure the present value of future cash flow obligations of the plans and the interest cost component of pension expense and postretirement income. The cash flows are then discounted to their present value and an overall discount rate is determined. In 2011, the Company changed how the discount rate was selected to measure the present value of U.S. benefit obligations from the Citibank Pension Discount curve to Towers Watsons Bond:Link model. The current discount rate is determined by reference to the Bond:Link interest rate model based upon a portfolio of highly rated U.S. corporate bonds with individual bonds that are theoretically purchased to settle the plans anticipated cash outflows. The discount rate selected to measure the present value of the Companys Canadian benefit obligations was developed by using the plans bond portfolio indices, which match the benefit obligations. The weighted-average discount rates used to determine the 2013 benefit obligations related to the Companys pension and postretirement plans were 4.32 percent and 4.20 percent, respectively.
Changing the weighted-average discount rate by 50 basis points would have changed the accumulated benefit obligation of the pension plans at February 1, 2014 by approximately $30 million and $33 million, depending on if the change was an increase or decrease, respectively. A decrease of 50 basis points in the weighted-average discount rate would have increased the accumulated benefit obligation on the postretirement plan by approximately $1 million. Such a decrease would not have significantly changed 2013 pension expense or postretirement income.
Trend Rate The Company maintains two postretirement medical plans, one covering certain executive officers and key employees of the Company (SERP Medical Plan), and the other covering all other associates. With respect to the SERP Medical Plan, a one percent change in the assumed health care cost trend rate would change this plans accumulated benefit obligation by approximately $2 million. With respect to the postretirement medical plan covering all other associates, there is limited risk to the Company for increases in health care costs since, beginning in 2001, new retirees have assumed the full expected costs and then-existing retirees have assumed all increases in such costs.
The Company expects to record postretirement income of approximately $2 million and pension expense of approximately $20 million in 2014.
In accordance with GAAP, deferred tax assets are recognized for tax credit and net operating loss carryforwards, reduced by a valuation allowance, which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management is required to estimate taxable income for future years by taxing jurisdiction and to use its judgment to determine whether or not to record a valuation allowance for part or all of a deferred tax asset. Estimates of taxable income are based upon the Companys strategic long-range plans. A one percent change in the Companys overall statutory tax rate for 2013 would have resulted in a $5 million change in the carrying value of the net deferred tax asset and a corresponding charge or credit to income tax expense depending on whether the tax rate change was a decrease or an increase.
The Company has operations in multiple taxing jurisdictions and is subject to audit in these jurisdictions. Tax audits by their nature are often complex and can require several years to resolve. Accruals of tax contingencies require management to make estimates and judgments with respect to the ultimate outcome of tax audits. Actual results could vary from these estimates.
The Company expects its 2014 effective tax rate to approximate 36.5 percent, excluding the effect of any nonrecurring items that may occur. The actual rate will vary depending primarily on the percentage of the Companys income earned in the United States as compared with its international operations.
During 2013, the Company adopted Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 amended existing guidance by requiring additional disclosure either on the face of the income statement or in the notes to the financial statements of significant amounts reclassified out of accumulated other comprehensive income. The provisions of this new guidance were effective prospectively as of the beginning of 2013. Accordingly, enhanced footnote disclosure is included in Note 17, Accumulated Other Comprehensive Loss. The adoption of ASU 2013-02 had no effect on our results of operations or financial position.
Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Companys present or future consolidated financial statements.
This report contains forward-looking statements within the meaning of the federal securities laws. Other than statements of historical facts, all statements which address activities, events, or developments that the Company anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, financial objectives, dividend payments, stock repurchases, growth of the Companys 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 which are detailed in the Companys 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 Companys merchandise mix and retail locations, the Companys 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, deterioration of global financial markets, economic conditions worldwide, 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 global product sourcing, including political instability, changes in import regulations, and disruptions to transportation services and distribution.
For additional discussion on risks and uncertainties that may affect forward-looking statements, see Risk Factors in Part I, Item 1A. 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.
Information regarding foreign exchange risk management is included in the Financial Instruments and Risk Management note under Item 8. Consolidated Financial Statements and Supplementary Data.
The Board of Directors and Shareholders of
Foot Locker, Inc.:
We have audited the accompanying consolidated balance sheets of Foot Locker, Inc. and subsidiaries as of February 1, 2014 and February 2, 2013, and the related consolidated statements of operations, comprehensive income, shareholders equity, and cash flows for each of the years in the three-year period ended February 1, 2014. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Foot Locker, Inc. and subsidiaries as of February 1, 2014 and February 2, 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended February 1, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Foot Locker, Inc.s internal control over financial reporting as of February 1, 2014, based on criteria established in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 31, 2014 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
/s/ KPMG LLP
New York, New York
March 31, 2014
|(in millions, except per share amounts)|
|Cost of sales||4,372||4,148||3,827|
|Selling, general and administrative expenses||1,334||1,294||1,244|
|Depreciation and amortization||133||118||110|
|Impairment and other charges||2||12||5|
|Interest expense, net||5||5||6|
|Income before income taxes||663||607||435|
|Income tax expense||234||210||157|
|Basic earnings per share||$||2.89||$||2.62||$||1.81|
|Weighted-average shares outstanding||148.4||151.2||153.0|
|Diluted earnings per share||$||2.85||$||2.58||$||1.80|
|Weighted-average shares outstanding, assuming dilution||150.5||154.0||154.4|
See Accompanying Notes to Consolidated Financial Statements.
|Other comprehensive income, net of income tax
|Foreign currency translation adjustment:
|Translation adjustment arising during the period, net of income tax||(25||)||19||(23||)|
|Cash flow hedges:
|Change in fair value of derivatives, net of income tax||(5||)||4||(2||)|
|Pension and postretirement adjustments:
|Net actuarial gain (loss) and prior service cost and foreign currency fluctuations arising during the year, net of income tax expense (benefit) of $2, $1, and ($11) million, respectively||6||1||(16||)|
|Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $5, $5, and $3 million, respectively||9||8||6|
|Available for sale securities:
|Unrealized gain on available-for-sale securities||||1|||
See Accompanying Notes to Consolidated Financial Statements.
|Cash and cash equivalents||$||858||$||880|
|Other current assets||263||268|
|Property and equipment, net||590||490|
|Other intangible assets, net||67||40|
|LIABILITIES AND SHAREHOLDERS EQUITY
|Accrued and other liabilities||360||338|
|Current portion of capital lease obligations||3|||
|Long-term debt and obligations under capital leases||136||133|
See Accompanying Notes to Consolidated Financial Statements.
|Treasury Stock||Retained Earnings||Accumulated Other Comprehensive
|(shares in thousands, amounts in millions)|
|Balance at January 29, 2011||162,659||$||735||(8,039||)||$||(152||)||$||1,611||$||(169||)||$||2,025|
|Restricted stock issued||242|||||||||
|Issued under director and stock plans||1,559||19||||||19|
|Share-based compensation expense||||18||||||18|
|Total tax benefit from exercise of options||||6||6|
|Forfeitures of restricted stock||||1||(60||)||||1|
|Shares of common stock used to satisfy tax withholding obligations||||||(140||)||(3||)||(3||)|
|Acquired in exchange of stock options||||||(34||)||(1||)||(1||)|
|Reissued employee stock purchase plan||||||336||7||7|
|Cash dividends declared on common stock ($0.66 per share)||(101||)||(101||)|
|Translation adjustment, net of tax||(23||)||(23||)|
|Change in cash flow hedges, net of tax||(2||)||(2||)|
|Pension and postretirement adjustments, net of tax||(10||)||(10||)|
|Balance at January 28, 2012||164,460||$||779||(12,841||)||$||(253||)||$||1,788||$||(204||)||$||2,110|
|Restricted stock issued||99|||||||||
|Issued under director and stock plans||2,350||46||||||46|
|Share-based compensation expense||||20||||||20|
|Total tax benefit from exercise of options||||11||||11|
|Shares of common stock used to satisfy tax withholding obligations||||||(214||)||(7||)||(7||)|
|Acquired in exchange of stock options||||||(2||)|||||
|Reissued employee stock purchase plan||||||218||5||5|
|Cash dividends declared on common stock ($0.72 per share)||(109||)||(109||)|
|Translation adjustment, net of tax||19||19|
|Change in cash flow hedges, net of tax||4||4|
|Pension and postretirement adjustments, net of tax||9||9|
|Unrealized gain on available-for-securities, with no tax||1||1|
|Balance at February 2, 2013||166,909||$||856||(16,839||)||$||(384||)||$||2,076||$||(171||)||$||2,377|
|Restricted stock issued||665|||||||||
|Issued under director and stock plans||1,465||31||||||31|
|Share-based compensation expense||||25||||||25|
|Total tax benefit from exercise of options||||9||9|
|Forfeitures of restricted stock||||||(2||)|
|Shares of common stock used to satisfy tax withholding obligations||||||(479||)||(16||)||(16||)|
|Acquired in exchange of stock options||||||(1||)|||||
|Reissued employee stock purchase plan||||||133||3||3|
|Cash dividends declared on common stock ($0.80 per share)||(118||)||(118||)|
|Translation adjustment, net of tax||(25||)||(25||)|
|Change in cash flow hedges, net of tax||(5||)||(5||)|
|Pension and postretirement adjustments, net of tax|