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 January 30, 2016
|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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
|Large accelerated filer 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
|The number of shares of the Registrants Common Stock, par value $0.01 per share, outstanding as of March 21, 2016:||136,094,471|
|The aggregate market value of voting stock held by non-affiliates of the Registrant computed by reference to the closing price as of the last business day of the Registrants most recently completed second fiscal quarter, August 1, 2015, was approximately:||$||7,523,772,438||*|
|*||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 18, 2016: 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
|INDEX OF EXHIBITS||78|
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 3,383 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand as of January 30, 2016. 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 U.S. Securities and Exchange Commission (the SEC), 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. Effective May 1, 2016 the address to use will be 330 West 34th Street, New York, N.Y. 10001. 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, trade names, and trademarks appearing in this report (except for Nike, Inc.) are owned by Foot Locker, Inc. or its subsidiaries.
The Company and its consolidated subsidiaries had 14,944 full-time and 32,081 part-time employees at January 30, 2016. 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 designs, 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, department stores, discount stores, traditional shoe stores, mass merchandisers, and Internet retailers, 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, quality, advertising, price, and customer service. Our success also depends on our ability to differentiate ourselves from our competitors with respect to a quality merchandise assortment 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 suppliers operate retail stores and distribute products directly through the Internet and others may follow. Should this continue to occur, and if our customers decide to purchase directly from our suppliers, 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 suppliers 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 suppliers. 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 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 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 most 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 suppliers. In addition, our suppliers 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 terms with our suppliers will continue in the future.
The Company purchased approximately 90 percent of its merchandise in 2015 from its top five suppliers and expects to continue to obtain a significant percentage of its athletic product from these suppliers in future periods. Approximately 72 percent of all merchandise purchased in 2015 was purchased from one supplier Nike, Inc. (Nike). Each of our operating divisions is highly dependent on Nike; they individually purchased 55 to 82 percent of their merchandise from Nike. Merchandise that is high profile and in high demand is allocated by our suppliers 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 suppliers 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, 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 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, Canada, and Australia, 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, supply chain disruptions, 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 2015 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 local customer product 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.
Fluctuations in the value of the euro may affect the value of our European earnings when translated into U.S. dollars. Similarly our earnings in Canada, Australia, and New Zealand may be affected by the value of currencies when translated into U.S. dollars. Our operating results may be adversely affected by significant changes in these foreign currencies relative to the U.S. dollar. For the most part, our international subsidiaries transact in their functional currency, other than in the U.K., whose inventory purchases are denominated in euro, which could result in foreign currency transaction gains or losses.
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.
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 values. 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, which could adversely affect our financial condition and operating results.
Any instability in the global financial markets could result in diminished credit availability. Although we currently have a revolving credit agreement in place until January 27, 2017, and other than amounts used for standby letters of credit, we 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.
We rely on a few key suppliers for a majority of our merchandise purchases (including a significant portion from one key supplier). 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 January 30, 2016, our cash and cash equivalents totaled $1,021 million. The majority of our investments were short-term deposits in highly-rated banking institutions. As of January 30, 2016, $608 million of our cash and cash equivalents were 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 January 30, 2016, 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 $544 million at January 30, 2016. 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 plan 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 January 30, 2016, we had $156 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 charges is 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 factors such 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 United States. As we plan to permanently reinvest our foreign earnings outside the United States, 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 suppliers 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, or have an adverse effect on, our suppliers operations, our operations, our customers, or 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 multiple 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 United States, Canada, Australia, and New Zealand. If complications arise with any facility or if any facility is severely damaged or destroyed, our other distribution centers may be unable to support the resulting additional distribution demands. We may be affected by disruptions in the global transportation network such as a port strike, weather conditions, work stoppages or other labor unrest. These factors 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, among 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, make operational decisions, 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, including consumer preferences and credit card information. In an effort to enhance the security of our customers credit card information, during 2015 we implemented an encryption and tokenization platform for certain credit card transactions, whereby no credit card data is stored in our internal systems, with plans to expand this platform to the entire Company. We invest in security technology to protect the data stored by the Company, including our 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. We also maintain an IT Security Incident Response Plan and routinely perform a table-top exercise with key IT and business stakeholders.
While we believe that our security technology and processes follow leading practices in the prevention of security breaches and the mitigation of cybersecurity risks, given the ever-increasing abilities of those intent on breaching cybersecurity measures and given the necessity of our reliance on the security procedures of third-party vendors, the total security effort at any point in time may not be completely effective. 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 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, increase operating costs associated with remediation, and harm our business. While we carry insurance that would mitigate the losses, 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, denial of service attacks, 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 cybersecurity risks, risks of system failure or inadequacy, governmental regulation, legal uncertainties with respect to Internet regulatory compliance, 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.
We continue to invest in initiatives geared towards delivering a high-quality, coordinated shopping experience online, in-stores, and on mobile, which requires substantial investment in technology, information systems, employees, and management time and resources. Our omni-channel retailing efforts include the integration and implementation of new technology, software and processes to be able to fulfill orders from any point within our system of stores and distribution centers, which is extremely complex and may not meet customer expectations for timely and accurate deliveries. These efforts involve substantial risk, including risk of implementation delays, cost overruns, technology interruptions, supply and distribution delays, and other issues that can affect the successful implementation and operation of our omni-channel initiatives. If our omni-channel initiatives are not successful, or we do not realize the return on our omni-channel investments that we anticipate, our financial performance and future growth could be materially adversely affected.
Future performance will depend upon our ability to attract, retain, and motivate our executive and senior management team. Our executive and senior management teams have substantial experience and expertise in our business and have made significant contributions to our recent growth and success. Our future performance
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 which, historically, have had 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.
Various foreign and domestic labor laws govern our relationship with our employees and affect our operating costs. These laws include minimum wage requirements, overtime pay, paid time off, work scheduling, healthcare reform and the implementation of the Patient Protection and Affordable Care Act, unemployment tax rates, workers compensation rates, works council requirements, and union membership. A number of factors could adversely affect our operating results, including additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, and changing regulations from the National Labor Relations Board or other agencies.
There has been an increasing focus and significant debate on global climate change, 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 United States, including in developing countries, could increase the risk of FCPA 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, market confidence in our reported financial information, and the price of our common stock.
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 2015 were approximately 12.92 and 7.58 million square feet, respectively. These properties, which are primarily leased, are located in the United States and its territories, Canada, various European countries, Australia, and New Zealand.
The Company currently operates five distribution centers, of which two are owned and three are leased, occupying an aggregate of 2.9 million square feet. Three distribution centers are located in the United States, one in Germany, and one in the Netherlands. The location in Germany relates to the central warehouse distribution centers for the Runners Point Group store locations, as well as a distribution center for its direct-to-customer business. During 2014, we opened a new distribution center in Germany which provides us with increased capacity that will enable us to support the planned growth of both the store and direct-to-customer businesses. This larger distribution center also allowed us to consolidate the previous two locations in Germany during 2015.
We also own a cross-dock and manufacturing facility and operate a leased warehouse in the United States, both of which support 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 24, 2016, is set forth below:
|President and Chief Executive Officer||Richard A. Johnson|
|Executive Vice President and Chief Executive Officer North America||Stephen D. Jacobs|
|Executive Vice President and Chief Executive Officer International||Lewis P. Kimble|
|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 Real Estate||Jeffrey L. Berk|
|Senior Vice President and Chief Accounting Officer||Giovanna Cipriano|
|Senior Vice President, General Counsel and Secretary||Sheilagh M. Clarke|
|Senior Vice President and Chief Information Officer||Pawan Verma|
|Vice President, Treasurer and Investor Relations||John A. Maurer|
Richard A. Johnson, age 58, has served as President and Chief Executive Officer since December 1, 2014. Mr. Johnson previously served as Executive Vice President and Chief Operating Officer from May 16, 2012 through November 30, 2014. 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.
Stephen D. Jacobs, age 53, has served as Executive Vice President and Chief Executive Officer North America since February 29, 2016. Mr. Jacobs has been with the Company for 18 years in positions of increasing responsibility. Mr. Jacobs previously served as Executive Vice President and Chief Executive Officer Foot Locker North America from December 1, 2014 through February 28, 2016. He served as President and Chief Executive Officer of Foot Locker U.S., Lady Foot Locker, Kids Foot Locker, and Footaction from July 2011 to November 2014 and President and Chief Executive Officer of Champs Sports from January 2009 to June 2011.
Lewis P. Kimble, age 57, has served as Executive Vice President and Chief Executive Officer International since February 29, 2016. Mr. Kimble previously served as President and Chief Executive Officer of Foot Locker Europe from February 1, 2010 to February 28, 2016. Prior to that role Mr. Kimble led our business in Australia and New Zealand as Managing Director of Foot Locker Asia Pacific. Over his almost 40 years with the Company, Mr. Kimble has also held Vice President positions across multiple functions within the United States and Europe.
Robert W. McHugh, age 57, 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.
Lauren B. Peters, age 54, 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 45, has served as Senior Vice President and Chief Human Resources Officer since June 2013. From March 2010 to May 2013, Ms. Alviti served in various roles at PepsiCo, Inc.: SVP and Chief Human Resources Officer Asia, Middle East, Africa (February to May 2013); SVP Global Talent Acquisition and Deployment (July 2012 to February 2013); and SVP Human Resources (March 2010 to July 2012). From March 2008 to March 2010, she served as VP Human Resources of The Pepsi Bottling Group, Inc.
Jeffrey L. Berk, age 60, has served as Senior Vice President Real Estate since February 2000.
Giovanna Cipriano, age 46, has served as Senior Vice President and Chief Accounting Officer since May 2009.
Sheilagh M. Clarke, age 56, has served as Senior Vice President, General Counsel and Secretary since June 1, 2014. She previously served as Vice President, Associate General Counsel and Assistant Secretary from May 2007 to May 2014.
Pawan Verma, age 39, has served as Senior Vice President and Chief Information Officer since August 10, 2015. From February 2013 to July 2015, Mr. Verma served in various technology leadership roles at Target Corporation ranging from enterprise architecture, eCommerce, Mobile and digital, with his most recent role as Vice President-Digital Technology and API Platforms. From March 2011 to January 2013, he served as Sr. Director, eCommerce, Digital and Mobile of Convergys Corporation. He also served in various technology leadership roles at Verizon Wireless between October 2003 and February 2011.
John A. Maurer, age 56, 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.
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 January 30, 2016, the Company had 14,237 shareholders of record owning 136,976,809 common shares.
The following table provides the intra-day high and low sales prices for the Companys common stock for the periods indicated below:
During each of the quarters of 2015, the Company declared a dividend of $0.25 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. On February 17, 2016, the Board of Directors declared a quarterly dividend of $0.275 per share to be paid on April 29, 2016. This dividend represents a 10 percent increase over the Companys previous quarterly per share amount.
The following table is a summary of our fourth quarter share repurchases:
Part of Publicly
Dollar Value of
Shares that may
yet be Purchased
|Nov. 1, 2015 Nov. 28, 2015||1,305,157||$||62.63||1,300,000||$||658,881,376|
|Nov. 29, 2015 Jan. 2, 2016||219,484||64.76||219,484||644,668,097|
|Jan. 3, 2016 Jan. 30, 2016||124,418||63.20||123,616||636,854,327|
|(1)||These columns also reflect shares acquired in satisfaction of the tax withholding obligation of holders of restricted stock awards which vested during the quarter, stock swaps, and shares repurchased pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934. 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 17, 2015, the Board of Directors approved a 3-year, $1 billion share repurchase program extending through January 2018. Through January 30, 2016, 5.6 million shares of common stock were purchased under this program, for an aggregate cost of $363 million.|
The graph below compares the cumulative five-year total return to shareholders (common stock price appreciation plus dividends, on a reinvested basis) on Foot Locker, Inc.s common stock relative to the total returns of the S&P 400 Retailing Index and the Russell Midcap Index.
The following Performance Graph and related information shall not be deemed soliciting material or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
|Foot Locker, Inc.||$||100.00||$||153.23||$||204.76||$||233.92||$||328.29||$||423.20|
|S&P 400 Retailing Index||$||100.00||$||121.84||$||150.82||$||170.21||$||206.94||$||181.10|
|Russell Midcap Index||$||100.00||$||103.82||$||123.03||$||150.86||$||171.46||$||158.80|
The selected financial data below should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and other information contained elsewhere in this report.
|(in millions, except per share amounts)|
|Summary of Operations
|Selling, general and administrative expenses||1,415||1,426||1,334||1,294||1,244|
|Litigation, impairment and other charges||105||4||2||12||5|
|Depreciation and amortization||148||139||133||118||110|
|Interest expense, net||4||5||5||5||6|
|Per Common Share Data
|Common stock dividends declared per share||1.00||0.88||0.80||0.72||0.66|
|Weighted-average Common Shares Outstanding
|Cash, cash equivalents, and short-term investments||$||1,021||967||867||928||851|
|Property and equipment, net||661||620||590||490||427|
|Long-term debt and obligations under capital leases||130||134||139||133||135|
|Total shareholders equity||2,553||2,496||2,496||2,377||2,110|
|Sales per average gross square foot(2)||$||504||490||460||443||406|
|SG&A as a percentage of sales||19.1||%||19.9||20.5||20.9||22.1|
|Earnings before interest and taxes (EBIT)||$||841||814||668||612||441|
|EBIT margin (non-GAAP)(3)||12.8||%||11.4||10.4||9.9||7.9|
|Net income margin||7.3||%||7.3||6.6||6.4||4.9|
|Net income margin (non-GAAP)(3)||8.2||%||7.3||6.6||6.2||5.0|
|Return on assets (ROA)||14.7||%||14.7||12.5||12.4||9.4|
|Return on invested capital (ROIC)(3)||15.8||%||15.0||14.1||14.2||11.8|
|Net debt capitalization percent(3),(4)||47.4||%||43.4||42.5||37.2||36.0|
|Number of stores at year end||3,383||3,423||3,473||3,335||3,369|
|Total selling square footage at year end (in millions)||7.58||7.48||7.47||7.26||7.38|
|Total gross square footage at year end (in millions)||12.92||12.73||12.71||12.32||12.45|
|(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 effect for such year. The 2012 amount has been calculated excluding the sales of the 53rd week.|
|(3)||See Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations for additional information and calculation.|
|(4)||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, SIX:02, Kids Foot Locker, Champs Sports, Footaction, Runners Point and Sidestep. The Direct-to-Customers segment includes Footlocker.com, Inc. and other affiliates, including Eastbay, Inc., and our international ecommerce businesses, which sell to customers through their Internet and mobile sites and catalogs.
The Foot Locker brand is one of the most widely recognized names in the markets in which the Company operates, epitomizing premium 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-customer business. Through various marketing channels, including broadcast, digital, social, 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.
|January 31, 2015||Opened||Closed||January 30,
|Foot Locker US||1,015||8||52||971||54||2,451||4,234|
|Foot Locker Europe||603||16||13||606||34||863||1,884|
|Foot Locker Canada||126||1||2||125||8||279||435|
|Foot Locker Asia Pacific||91||4||1||94||6||128||210|
|Lady Foot Locker||198||||42||156||||208||352|
|Kids Foot Locker||357||27||10||374||44||602||1,029|
The Company operates 3,383 stores in the Athletic Stores segment. The following is a brief description of the Athletic Stores segments operating businesses and their respective taglines:
Foot Locker Approved Foot Locker is a leading global athletic footwear and apparel retailer, which caters to the sneaker enthusiast If its at Foot Locker, its Approved. Its stores offer the latest in athletically-inspired footwear and apparel, manufactured primarily by the leading athletic brands. Foot Locker provides the best selection of premium products for a wide variety of activities, including basketball, running, and training. Additionally, we operate 199 House of Hoops, primarily a shop-in-shop concept, which sells premier basketball-inspired footwear and apparel. Foot Lockers 1,796 stores are located in 23 countries including 971 in the United States, Puerto Rico, U.S. Virgin Islands, and Guam, 125 in Canada, 606 in Europe, and a combined 94 in Australia and New Zealand. The domestic stores have an average of 2,500 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 U.S. retailer of athletic footwear, apparel, and accessories dedicated to active women. Its stores carry major athletic footwear, apparel, and accessories brands designed for a variety of activities, including running, walking, training, and fitness. Lady Foot Locker operates 156 stores that are located in the United States and Puerto Rico. These stores have an average of 1,300 selling square feet.
SIX:02 Its Your Time SIX:02 is an elevated retail concept designed for the modern woman, featuring top brands in athletic-inspired style. The apparel, footwear, and accessories assortments are carefully curated to inspire her best self-expression in the gym and out of it. This banner has unique local fitness and fashion partners in each market and also leverages top celebrity and social influencers to connect meaningfully to all aspects of a womans life. SIX:02 operates 30 stores in the United States and have an average of 2,100 selling square feet.
Kids Foot Locker Go Big Kids Foot Locker is a youth athletic retailer that offers the largest selection of brand-name athletic footwear, apparel and accessories for young athletes. Its stores feature an environment geared to appeal to both parents and children. Of its 374 stores, 349 are located in the United States, Puerto Rico, and the U.S. Virgin Islands, 18 in Europe, and 7 in Canada. These stores have an average of 1,600 selling square feet.
Footaction Own It Footaction is a national athletic footwear and apparel retailer that offers the freshest, best edited selection of athletic lifestyle brands and looks. This banner is uniquely positioned at the intersection of sport and style. The primary customer is a style-obsessed, confident, influential young male who is always dressed to impress. Its 268 stores are located throughout the United States and Puerto Rico and focus on authentic, premium product. The Footaction stores have an average of 3,000 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. Of its 550 stores, 519 are located throughout the United States, Puerto Rico, and the U.S. Virgin Islands and 31 in Canada. The Champs Sports stores have an average of 3,500 selling square feet.
Runners Point Your Way, Our Passion Runners Point specializes in running footwear, apparel, and equipment for performance and lifestyle purposes. Its 121 stores are located in Germany, Austria and Switzerland. This banner caters to local running communities providing technical products, training tips and access to local running and group events. The Runners Point stores have an average of 1,300 selling square feet.
Sidestep Sneaker Lifestyle Sidestep is a predominantly sports fashion footwear banner. Its 88 stores are located in Germany, Austria, the Netherlands, and Switzerland. Sidestep caters to a more discerning, fashion consumer. Sidestep stores have an average of 900 selling square feet.
The Companys Direct-to-Customers segment is multi-branded and sells directly to customers through its Internet and mobile sites and catalogs. The Direct-to-Customers segment operates the websites for eastbay.com, final-score.com, eastbayteamsales.com, and sp24.com. Additionally, this segment includes the websites aligned with the brand names of its store banners (footlocker.com, ladyfootlocker.com, six02.com kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu, runnerspoint.com, and sidestep-shoes.com). These sites offer some of the largest online selections of athletically inspired shoes and apparel, while providing a seamless link between ecommerce and store banners.
Eastbay First Choice For Athletes Eastbay is among the largest direct marketers in the United States, providing serious high school and other athletes with a complete sports solution including athletic footwear, apparel, equipment, team licensed, and private-label merchandise for a broad range of sports.
The Company has two separate ten-year agreements with third parties for the operation of Foot Locker stores located within the Middle East and the Republic of Korea. The franchised stores located in Germany operate under the Runners Point banner. A total of 64 franchised stores were operating at January 30, 2016, of which 40 were operating in the Middle East, 16 in Germany, and 8 in the Republic of Korea. During 2015, the Company completed an acquisition from Futura Sport AG of 10 Runners Point and Sidestep stores, which were previously franchise stores. 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 useful to investors because it allows for a more direct comparison of the Companys performance for 2015 as compared with prior years and is useful in assessing the Companys progress in achieving its long-term financial objectives. The following represents a reconciliation of the non-GAAP measures discussed throughout the Overview of Consolidated Results:
|(in millions, except per share amounts)|
|Income before income taxes||$||837||$||809||$||663|
|Pre-tax amounts excluded from GAAP:
|Pension litigation charge||100|||||
|Impairment and other charges||5||4||2|
|Runners Point Group integration and acquisition costs||||2||6|
|Gain on sale of real estate||||(4||)|||
|Total pre-tax amounts excluded||105||2||8|
|Income before income taxes (non-GAAP)||$||942||$||811||$||671|
|Calculation of Earnings Before Interest and Taxes (EBIT):
|Income before income taxes||$||837||$||809||$||663|
|Interest expense, net||4||5||5|
|Income before income taxes (non-GAAP)||$||942||$||811||$||671|
|Interest expense, net||4||5||5|
|EBIT margin %||11.3||%||11.4||%||10.3||%|
|EBIT margin % (non-GAAP)||12.8||%||11.4||%||10.4||%|
|After-tax amounts excluded from GAAP:
|Pension litigation charge||61|||||
|Impairment and other charges||4||3||1|
|Runners Point Group acquisition and integration costs||||2||5|
|Gain on sale of property||||(3||)|||
|Settlement of foreign tax audits||||||(3||)|
|Net income (non-GAAP)||$||606||$||522||$||432|
|Net income margin %||7.3||%||7.3||%||6.6||%|
|Net income margin % (non-GAAP)||8.2||%||7.3||%||6.6||%|
|Diluted earnings per share:
|Pension litigation charge||0.43|||||
|Impairment and other charges||0.02||0.02||0.01|
|Runners Point Group acquisition and integration costs||||0.01||0.03|
|Gain on sale of property||||(0.01||)|||
|Settlement of foreign tax audits||||||(0.02||)|
|Net income (non-GAAP)||$||4.29||$||3.58||$||2.87|
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, the Company recorded a benefit of $3 million, or $0.02 per diluted share, to reflect the settlement of foreign tax audits, which resulted in a reduction in tax reserves established in prior periods.
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 U.S. GAAP measure is Return on Assets (ROA) and is also represented below. ROA remained unchanged compared with the prior year. Our ROIC improvement is due to an increase in our non-GAAP earnings before interest and income taxes, partially offset by an increase in our average invested capital, primarily related to an increase in capitalized operating leases. This reflected the inclusion of the new headquarters lease and the effect of opening larger stores supporting the various shop-in-shop initiatives.
|ROIC % (non-GAAP)(2)||15.8||%||15.0||%||14.1||%|
|(1)||Represents net income of $541 million, $520 million, and $429 million divided by average total assets of $3,676 million, $3,532 million, and $3,427 million for 2015, 2014, and 2013, respectively.|
|(2)||See below for the calculation of ROIC.|
|($ in millions)|
|+ Rent expense||640||635||600|
|- Estimated depreciation on capitalized operating leases(3)||(498||)||(482||)||(443||)|
|Net operating profit||1,088||969||833|
|- Adjusted income tax expense(4)||(391||)||(347||)||(298||)|
|= Adjusted return after taxes||$||697||$||622||$||535|
|Average total assets||$||3,676||$||3,532||$||3,427|
|- Average cash, cash equivalents and short-term investments||(994||)||(917||)||(898||)|
|- Average non-interest bearing current liabilities||(697||)||(659||)||(630||)|
|- Average merchandise inventories||(1,268||)||(1,235||)||(1,194||)|
|+ Average estimated asset base of capitalized operating leases(3)||2,346||2,093||1,829|
|+ 13-month average merchandise inventories||1,337||1,325||1,269|
|= Average invested capital||$||4,400||$||4,139||$||3,803|
|(3)||The determination of the capitalized operating leases and the adjustments to income have been calculated on a lease-by-lease basis and have been consistently calculated in each of the years presented above. Capitalized operating leases represent the best estimate of the asset base that would be recorded for operating leases as if they had been classified as capital or as if the property were purchased. The present value of operating leases is discounted using various interest rates ranging from 2.5 percent to 14.5 percent, which represent the Companys incremental borrowing rate at inception of the lease. The capitalized operating leases and related income statements amounts disclosed above do not reflect the requirements of the recently issued Accounting Standards Update 2016-02, Leases.|
|(4)||The adjusted income tax expense represents the marginal tax rate applied to net operating profit for each of the periods presented.|
In March 2015, the Company updated its long-range plan and long-term financial objectives as presented below. The following represents our results and our progress towards meeting the updated objectives. Non-GAAP results are presented for all the periods.
|Sales ($ in millions)||$||10,000||$||7,412||$||7,151||$||6,505|
|Sales per gross square foot||$||600||$||504||$||490||$||460|
|Net income margin||8.5||%||8.2||%||7.3||%||6.6||%|
Highlights of our 2015 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.|
|Comparable-store sales increase||8.5||%||8.0||%||4.2||%|
|||The following represents the percentage of sales from each of the major product categories:|
|Apparel and accessories sales||18||%||21||%||23||%|
|||Sales from the Direct-to-Customers segment increased 9.1 percent to $944 million, compared with $865 million in 2014 and increased 60 basis points as a percentage of total sales to 12.7 percent. The direct business has been steadily increasing over the last several years, led by the growth in the store banners ecommerce sales.|
|||Gross margin, as a percentage of sales, increased by 60 basis points to 33.8 percent in 2015. The improvement was driven by a decrease in the occupancy and buyers expense rate coupled with an increase in the merchandise margin rate. These reflect effective leverage on higher sales and a lower markdown rate.|
|||SG&A expenses on a constant currency basis were 19.2 percent of sales, a decrease of 70 basis points as compared with the prior year, as we continued to diligently manage expenses.|
|||EBIT margin was 12.8 percent, surpassing the long-term financial objective and reflecting the strong earnings generated during 2015.|
|||Net income on a non-GAAP basis was $606 million, or $4.29 diluted earnings per share, an increase of 19.8 percent from the prior-year period.|
|||The Company ended the year in a strong financial position. At year end, the Company had $891 million of cash and cash equivalents, net of debt and obligations under capital leases. Cash and cash equivalents at January 30, 2016 were $1,021 million, representing an increase of $54 million as compared with last year. This improvement reflects earnings strength and the successful execution of various key initiatives noted in the items below.|
|||Net cash provided by operating activities was $745 million, representing a $33 million increase over last year.|
|||Cash capital expenditures during 2015 totaled $228 million and were primarily directed to the remodeling or relocation of 209 stores, the build-out of approximately 100 new stores, as well as other technology and infrastructure projects.|
|||During 2015 we returned significant value to our shareholders. Dividends totaling $139 million were declared and paid during 2015, and a total of 6.7 million shares were repurchased under our share repurchase program at a cost of $419 million.|
|||ROIC increased to 15.8 percent as compared to the prior year result of 15.0 percent, reflecting profitability improvements and a disciplined approach to capital spending.|
|(in millions, except per share data)|
|Selling, general and administrative expenses||1,415||1,426||1,334|
|Depreciation and amortization||148||139||133|
|Interest expense, net||4||5||5|
|Diluted earnings per share||$||3.84||$||3.56||$||2.85|
All references to comparable-store sales for a given period relate to sales of stores that were open at the period-end and had 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 effect of foreign currency fluctuations.
Sales of $7,412 million in 2015 increased by 3.6 percent from sales of $7,151 million in 2014, this represented a comparable-store sales increase of 8.5 percent. Excluding the effect of foreign currency fluctuations, sales increased 8.9 percent as compared with 2014. Sales of $7,151 million in 2014 increased by 9.9 percent from sales of $6,505 million in 2013, this represented a comparable-store sales increase of 8.0 percent. Excluding the effect of foreign currency fluctuations and sales of Runners Point Group, sales increased 8.5 percent as compared with 2013.
|Gross margin rate||33.8||%||33.2||%||32.8||%|
|Basis point increase in the gross margin rate||60||40|
|Components of the increase-
|Merchandise margin rate improvement/(decline)||30||(30||)|
|Lower occupancy and buyers compensation expense rate||30||70|
The gross margin rate improved by 60 basis points during 2015 as compared with the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, the gross margin rate improved by 70 basis points in 2015. The improvement was driven by both an improved merchandise margin rate and a decrease in the occupancy and buyers compensation rate reflecting improved sales leverage. The improvement in the merchandise margin rate primarily reflected an enhanced ability to achieve full-priced selling, as fewer markdowns were needed due to the freshness of inventory.
Gross margin in 2014 improved 40 basis points to 33.2 percent as compared with 2013. This improvement reflected a decrease in the occupancy and buyers compensation rate, which reflected improved leverage of primarily fixed costs. Merchandise margin declined by 30 basis points in 2014 as the cost of merchandise increased as compared with 2013. This primarily reflected the effect of lower initial markups driven by supplier and category mix, and lower shipping and handling margin, partially offset by lower markdowns.
Selling, General and Administrative Expenses (SG&A)
|($ in millions)|
|SG&A as a percentage of sales||19.1||%||19.9||%||20.5||%|
Excluding the effect of foreign currency fluctuations, SG&A increased by $72 million for 2015 as compared with 2014. The increase was driven by higher variable expenses to support sales, such as store wages and banking expenses. As a percentage of sales, SG&A improved 80 basis points representing improved leverage on our sales increase. Consistent with the prior year, this improvement reflects effective expense management, specifically store wage improvements due to productivity gains reflecting the continued utilization of hiring and scheduling tools.
Excluding the effect of foreign currency fluctuations, SG&A increased by $101 million for 2014 as compared with 2013. Runners Point Group, which was acquired in early July 2013, represented an incremental $39 million in expenses in 2014. Additionally, the Company incurred $2 million in integration costs during 2014. Excluding these items, the increase was driven by higher variable expenses to support sales, such as store wages and banking expenses. As a percentage of sales, SG&A improved 60 basis points representing improved leverage on our sales increase. This improvement reflected continued effective expense management, including store wages, which benefitted from the utilization of hiring and scheduling tools, as well as enhanced associate training.
Depreciation and Amortization
|($ in millions)|
|Depreciation and Amortization||$||148||$||139||$||133|
Excluding the effect of foreign currency fluctuations, depreciation and amortization increased $17 million in 2015. On a constant currency basis, the increases in each year presented reflect increased capital spending on store improvements, our digital sites and other various technologies. In addition, the 2014 amount included $2 million of capital accrual adjustments made during the third quarter of 2014, which reduced depreciation and amortization.
Pension Litigation Charge
During the third quarter of 2015, the Company recorded a $100 million pension litigation charge ($61 million after-tax or $0.43 per diluted share). This charge relates to a class action in which the plaintiffs alleged that the Company failed to properly disclose the effects of the 1996 conversion of the retirement plan to a defined benefit plan with a cash balance formula. In September 2015, the court ruled in favor of the plaintiffs and issued a decision ordering that the pension plan be reformed. The Company is appealing the courts decision, and the judgment has been stayed pending the outcome of the appeal. The Companys reasonable estimate of this liability is a range between $100 million and $200 million, with no amount within that range more probable than any other amount. Therefore, in accordance with U.S. GAAP, the Company recorded a pre-tax charge of $100 million. Please see Item 8. Consolidated Financial Statements and Supplementary Data, Note 23, Legal Proceedings for further information.
Interest Expense, Net
|($ in millions)|
|Interest expense, net||$||4||$||5||$||5|
|Weighted-average interest rate (excluding fees)||7.2||%||7.2||%||7.1||%|
Net interest expense decreased by $1 million in 2015 as compared with 2014, reflecting increased income due to higher interest rates. Net interest expense in 2014 was essentially unchanged from 2013. 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 2015 was 35.4 percent, as compared with 35.7 percent in 2014. 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 due to 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 limitations. The effective tax rate for 2015 and 2014 includes reserve releases totaling $4 million and $5 million, respectively, due to audit settlements and lapses of statutes of limitations.
In 2015, the Company recorded a pension-related litigation charge of $100 million with a related tax benefit of $39 million. This litigation charge reduced the overall effective rate because it reduced the proportion of the Companys worldwide income taxed in the United States, where the tax rates are the highest.
Excluding the reserve releases in 2015 and in 2014 and the effect of the pension litigation charge, the effective tax rate for 2015 was essentially unchanged as compared with 2014.
The effective tax rate for 2014 was 35.7 percent, as compared with 35.3 percent in 2013. Excluding the reserve releases, the effective tax rate for 2014 increased as compared with 2013 primarily due to the higher proportion of income earned in the United States, which is a higher tax jurisdiction.
The Companys two reportable segments, Athletic Stores and Direct-to-Customers, are based on its method of internal reporting. The Company evaluates performance based on several factors, the primary financial measure of which is division results. Division profit reflects income before income taxes, pension litigation charge, corporate expense, non-operating income, and net interest expense.
|($ in millions)|
|Less: Pension litigation charge||100|||||
|Less: Corporate expense||77||81||76|
|Earnings before interest expense and income taxes||841||814||668|
|Interest expense, net||4||5||5|
|Income before income taxes||$||837||$||809||$||663|
|($ in millions)|
|Division profit margin||13.5||%||12.4||%||11.3||%|
Excluding the effect of foreign currency fluctuations, sales from the Athletic Stores segment increased 8.6 percent. Comparable-store sales increased by 7.6 percent. Foot Locker Europe and Foot Locker Asia Pacific led the comparable-stores sales increase. Foot Locker Europe generated double digit comparable-store gains in footwear, apparel, and accessories. The increase in footwear was primarily related to sales of classic court styles, lifestyle running, and mens basketball. Apparel sales experienced gains in both the branded and private label categories.
The strong performance internationally was partially offset by the underperformance of the Runners Point and Sidestep stores. The sales decline at our Runners Point and Sidestep stores reflected the continued segmentation process and the overreliance on a few key running styles. Our segmentation process includes better defining product offerings and executing upon our multi-banner strategy in the European market. We are broadening the assortment in the Runners Point stores beyond performance running to include more lifestyle running products, while the Sidestep stores are being shifted to lifestyle and casual footwear. We continue to refine this segmentation strategy, which we believe will position these banners to contribute to our further success in Europe.
Domestically, sales increases were led by Foot Locker and Kids Foot Locker with all formats generating a comparable-store sales increase. Running and basketball were the strongest drivers of footwear sales. The Jordan brand, as well as the rise of new marquee styles contributed to the growth in the basketball category. Childrens footwear sales also performed well across all of the divisions. Sales continue to benefit from the expansion of shop-in-shop partnerships with our key vendors. The Company opened more than 40 shop-in-shops during the year, including 21 House of Hoops shops in partnership with Nike.
While Lady Foot Locker/SIX:02s overall sales declined slightly in 2015, the combined banners produced a mid-single digit comparable-store sales gain, the seventh consecutive quarter with a comparable-store sales gain. The comparable-store gain was led by both footwear and apparel, partially offset by a decline in accessories. The overall sales decline reflects 42 Lady Foot Locker store closures, partially offset by the opening of 15 SIX:02 stores during the year. The SIX:02 banner provides the female customer with elevated, athletic-inspired product assortments featuring top brands. During 2015, we continued to work with our vendors to refine this assortment to include more fashion styles. This initiative, as well other actions to promote brand development, will continue into 2016.
Champs Sports generated a low single digit comparable-store sales increase driven by gains in footwear sales partially offset by declines in apparel and accessories. The decline in apparel primarily reflects the continuation of the customers shift away from licensed apparel.
Division profit increased by $95 million to $872 million in 2015 as compared with last year reflecting higher sales and an improved gross margin rate. Variable expenses, such as store wages, were also diligently managed, resulting in an improved SG&A rate. Due to the underperformance of the Runners Point and Sidestep stores during 2015, an impairment review was performed. The review resulted in an impairment charge totaling $4 million, which was recorded to write down long-lived assets such as store fixtures and leasehold improvements for 61 stores.
Excluding the effect of foreign currency fluctuations, primarily related to the euro and Canadian dollar, sales from the Athletic Stores segment increased by 9.4 percent in 2014. Comparable-store sales increased by 6.7 percent. This segment included $133 million of incremental sales related to the Runners Point stores, which were acquired in early July 2013. Excluding the sales of the Runners Point stores, the comparable-store gain was primarily driven by Kids Foot Locker, Foot Locker U.S., Footaction, and Foot Locker Europe. While Lady Foot Lockers overall sales declined in 2014, the banner generated a comparable-store gain for the year. The shift into more performance oriented assortments has resonated with our customers, as both footwear and apparel grew on a comparable-store basis. The overall Lady Foot Locker sales decrease in 2014 primarily reflected a net decline of 44 stores.
Basketball, running, and childrens footwear were strong drivers of sales increases. Sales of basketball footwear were driven by Jordan and key marquee player styles, while running shoes from Nike and Adidas had strong results. Additionally, childrens footwear continued to perform well across multiple divisions. Apparel sales were challenging primarily in Foot Locker Europe and Champs Sports, as customers have shifted away from certain lifestyle and licensed apparel programs, which had previously driven strong results. This segment benefitted from strong banner differentiation, which has created unique store designs and product assortments which have resonated with customers and enhanced the shopping experience.
Included in 2014 division profit was a $1 million impairment charge related to the write-down of a trade name for our stores operating in the Republic of Ireland, reflecting historical and projected underperformance. Additionally, a $1 million charge was recorded to fully write down the value of a private-label brand acquired as part of the Runners Point Group acquisition, as a result of exiting the product line. The overall division profit improvement in 2014 primarily reflected higher sales, an improved gross margin rate, and effective control over variable expenses, such as store wages.
|($ in millions)|
|Division profit margin||15.0||%||12.6||%||11.7||%|
Excluding the effect of foreign currency fluctuations, sales of the Direct-to-Customers segment increased 10.6 percent as compared with the prior year, while comparable sales increased by 14.4 percent. The increase was primarily a result of continued strong sales performance of the Companys domestic store-banner websites, as well as growth in our international ecommerce business, particularly in Europe. Of the total increase, sales from our U.S. store-banner websites comprised the majority of the increase. The growth in ecommerce reflects the continued elevation of the connection between the in-store experience and the banner websites, as well as the development of features and functionality to deliver an enhanced digital experience. These increases were partially offset by the 2014 closure of the CCS direct business. The strongest category for this segment was footwear, led by basketball and casual styles. Apparel increased slightly as compared with the prior year, which primarily reflected gains in the branded apparel category.
This segment generated a division profit increase of $33 million as compared with 2014, which represented a division profit margin improvement of 240 basis points. The increase was the result of strong flow-through of sales to profit, resulting from improved gross margins due to more full-price selling and effective expense management. The improvement in gross margin was due, in part, to the fact that 2014 was negatively affected by the liquidation of the CCS merchandise. Division profit in 2015 included a $1 million impairment charge to write down the value of the SP24.com ecommerce trade name, which was acquired with the Runners Point Group. SP24.com is a clearance website that has been deemphasized as we focus on full-priced selling on the websites aligned with the stores banners.
Comparable sales increased 17.8 percent as compared to 2013, led by basketball and running footwear. The Direct-to-Customers segment included $18 million of incremental sales related to the ecommerce division of Runners Point Group, which the Company acquired during the second quarter of 2013. Excluding those sales, the increase was primarily a result of continued strong sales performance related to the Companys store-banner websites both in the U.S. and in Europe, as well as increased Eastbay sales. Of the total increase, sales from our U.S. store-banner websites comprised the majority of the increase, which reflected the continued success of several initiatives, including the improvement of connectivity of the store banners to the ecommerce sites, enhancements to the mobile ecommerce 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 decline in the CCS business, which transitioned to the Eastbay banner during the third quarter of 2014.
Division profit increased by $25 million as compared to 2013, representing a division profit margin improvement of 90 basis points. The 2014 results included a $2 million impairment charge related to the CCS business, which was triggered by the Companys decision to transition the skate business to the Eastbay banner. Gross margin was negatively affected by the liquidation of the CCS merchandise and the effects of providing additional free shipping offers. Notwithstanding this, the increase in division profit was the result of strong flow-through of sales to profit and good expense management.
|($ in millions)|
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 $11 million, $13 million, and $12 million in 2015, 2014, and 2013, respectively.
Corporate expense decreased by $4 million in 2015 as compared with the prior year. Depreciation and amortization included in corporate expense decreased by $2 million. The annual adjustment of the allocation of corporate expense to the operating divisions reduced corporate expense by $5 million. These decreases were offset by $3 million of costs incurred in late 2015 relating to the spring 2016 relocation of our corporate headquarters within New York City.
Corporate expense increased by $5 million in 2014 as compared with 2013. This increase was primarily related to incentive compensation and legal costs, which increased $8 million and $2 million, respectively. Additionally, depreciation and amortization included in corporate expense increased by $1 million. These increases were partially offset by the annual adjustment to the allocation of corporate expense to the operating divisions, which reduced corporate expense by $4 million. In addition, acquisition and integration costs related to Runners Point Group were $4 million less in 2014 than in 2013.
The Companys primary source of liquidity has been cash flow from earnings, while the principal uses of cash have been: to fund inventory and other working capital requirements; to finance capital expenditures related to store openings, store remodelings, Internet and mobile sites, information systems, and other support facilities; to make retirement plan contributions, quarterly dividend payments, and interest payments; and to 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 January 30, 2016, the Company had $1,021 million of cash and cash equivalents, of which $608 million was 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 and retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. As of January 30, 2016, approximately $637 million remained available under the Companys current $1 billion share repurchase program.
On February 17, 2016, the Board of Directors declared a quarterly dividend of $0.275 per share to be paid on April 29, 2016, representing a 10 percent increase over the Companys previous quarterly per share amount.
As discussed further in the Legal Proceedings note under Item 8. Financial Statements and Supplementary Data, the Company recorded a pre-tax charge of $100 million ($61 million after-tax) in 2015. In light of the uncertainties involved in this matter, there is no assurance that the ultimate resolution will not differ from the amount currently accrued by the Company. The $100 million charge has been classified as a long-term liability due to the uncertainty involved with the resolution of this litigation, as the appeals process can be lengthy. The pension plan is sufficiently funded to absorb a $100 million liability and, accordingly, we do not anticipate the need to make any additional pension contributions in the near term in connection with this matter. The timing and the amount of any future contributions to the pension plan are dependent on the funded status of the plan and various other factors, such as interest rates and the performance of the plans assets.
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 suppliers 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 suppliers. Therefore, the Company believes that it is critical to continue to maintain satisfactory relationships with its key suppliers. In 2015 and 2014, the Company purchased approximately 90 percent and 89 percent, respectively, of its merchandise from its top five suppliers and expects to continue to obtain a significant percentage of its athletic product from these suppliers in future periods. Approximately 72 percent in 2015 and 73 percent in 2014 was purchased from one supplier Nike, Inc.
The Companys 2016 planned capital expenditures and lease acquisition costs are approximately $297 million. Planned capital expenditures are $292 million and planned lease acquisition costs related to the Companys operations in Europe are $5 million. The Companys planned capital expenditures reflect $210 million focused on elevating the customers in-store experience. It also includes the remodeling and expansion of over 250 existing stores, the planned opening of approximately 90 stores primarily related to Kids Foot Locker in the U.S. and Europe, as well as the continued expansion of the Foot Locker banner in Europe. Planned spending for 2016 also includes $82 million for the development of information systems, including a new ecommerce order management system, websites, infrastructure, and costs related to the relocation of our corporate headquarters within New York City. The Company has the ability to revise and reschedule much of the anticipated capital expenditure program, should the Companys financial position require it.
Free Cash Flow (non-GAAP measure)
In addition to net cash provided by operating activities, the Company uses free cash flow as a useful measure of performance and as an indication of the strength of the Company and its ability to generate cash. The Company defines free cash flow as net cash provided by operating activities less capital expenditures (which is classified as an investing activity). The Company believes the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate the cash generated from the Companys underlying operations in a manner similar to the method used by management.
Free cash flow is not defined under U.S. GAAP. Therefore, it should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP, and may not be comparable to similarly titled measures used by other companies. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.
The following table presents a reconciliation of the Companys net cash flow provided by operating activities, the most directly comparable U.S. GAAP financial measure, to free cash flow.
|($ in millions)|
|Net cash provided by operating activities||$||745||$||712||$||530|
|Free cash flow (non-GAAP)||$||517||$||522||$||324|
|($ in millions)|
|Net cash provided by operating activities||$||745||$||712||$||530|
The amount provided by operating activities reflects income adjusted for non-cash items and working capital changes. Adjustments to net income for non-cash items include non-cash impairment charges, depreciation and amortization, deferred income taxes, share-based compensation expense and related tax benefits.
The improvements in both 2015 and 2014 represented the Companys earnings strength and working capital improvements. During 2015, the Company contributed $4 million to its U.S. qualified pension plans as compared with $6 million contributed to its Canadian qualified pension plan in 2014. Pension contributions were $2 million in 2013. The amounts and timing of pension contributions are dependent on several factors, including asset performance. Cash paid for income taxes was $283 million, $251 million, and $175 million for 2015, 2014, and 2013, respectively.
|($ in millions)|
|Net cash used in investing activities||$||230||$||176||$||248|
Capital expenditures in 2015 were $228 million, an increase of $38 million compared with the prior year. Current year capital expenditures primarily related to the remodeling of 209 stores, the build-out of 111 new stores, preparing for our corporate headquarters relocation within New York City, and other corporate technology projects. Capital expenditures in 2014 were $190 million, primarily related to the remodeling of 319 stores, the build-out of 86 new stores, and various corporate technology upgrades. This was a decrease of $16 million as compared with 2013, as the timing of certain projects shifted to 2015. As of the end of fiscal 2015, approximately 30 percent of our domestic Foot Locker and Champs Sports stores and approximately 20 percent of the Footaction stores have been remodeled to the current store format.
During the third quarter of 2015, the Company completed an asset acquisition for $2 million involving 10 previously franchised Runners Point and Sidestep stores in Switzerland.
During 2014, the Company sold real estate for proceeds of $5 million and recorded a gain on sale of $4 million. In addition, maturities of short-term investments totaled $9 million in 2014. This compares with net sales and maturities of short-term investments of $37 million during 2013. The activity during 2013 included the purchase of Runners Point Group for $81 million, net of cash acquired.
|($ in millions)|
|Net cash used in financing activities||$||456||$||401||$||309|
Cash used in financing activities consists primarily of the Companys return to shareholders initiatives, including its share repurchase program and cash dividend payments, as follows:
|($ in millions)|
|Dividends paid on common stock||139||127||118|
|Total returned to shareholders||$||558||$||432||$||347|
During 2015, 2014, and 2013, the Company repurchased 6,693,100 shares, 5,888,698 shares, and 6,424,286 shares of its common stock under its share repurchase programs, respectively. Additionally, the Company declared and paid dividends representing a quarterly rate of $0.25, $0.22, and $0.20 per share in 2015, 2014, and 2013, respectively.
Offsetting the amounts above were proceeds received from the issuance of common stock and treasury stock in connection with the employee stock programs of $69 million, $22 million, and $30 million for 2015, 2014, and 2013, respectively. In connection with stock option exercises, the Company recorded excess tax benefits related to share-based compensation of $35 million, $12 million, and $9 million for 2015, 2014, and 2013, respectively.
The financing activity also includes payments on capital lease obligations of $2 million, $3 million, and $1 million for 2015, 2014, and 2013, respectively. These obligations were recorded in connection with the acquisition of the Runners Point Group.
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 currently does not expect to borrow under the facility in 2016, other than amounts used to support standby letters of credit.
As of March 24, 2016, the Companys corporate credit ratings from Standard & Poors and Moodys Investors Service are BB+ and Ba1, respectively. In addition, Moodys Investors Service has rated the Companys senior unsecured notes Ba2.
Debt Capitalization and Equity (non-GAAP Measure)
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 2.5 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:
|($ in millions)|
|Long-term debt and obligations under capital leases||$||130||$||134|
|Present value of operating leases||3,192||2,745|
|Total debt including the present value of operating leases||3,322||2,879|
|Cash and cash equivalents||1,021||967|
|Total net debt including the present value of operating leases||2,301||1,912|
|Total net debt capitalization percent||%||||%|
|Total net debt capitalization percent including the present value of operating
The Companys cash and cash equivalents increased by $54 million during 2015, which was the result of strong cash flow generation from operating activities. Including the present value of operating leases, the Companys net debt capitalization percent increased 400 basis points in 2015, reflecting the effect of lease renewals and the obligation associated with the New York City office headquarters, partially offset by foreign exchange fluctuations.
The following tables represent the scheduled maturities of the Companys contractual cash obligations and other commercial commitments at January 30, 2016:
|Payments Due by Fiscal Period|
|Contractual Cash Obligations||Total||2016||2017 2018||2019 2020||2021 and Beyond|
|($ in millions)|
|Other long-term liabilities(3)||25||25|||||||
|Total contractual cash obligations||$||4,315||$||611||$||1,054||$||873||$||1,777|
|Other Commercial Commitments
|Total commercial commitments||$||2,558||$||2,546||$||10||$||2||$|||
|(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 $11 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-cancellable 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 20 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 January 30, 2016 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 2016 U.S. qualified pension contribution of $25 million. Other than this liability, other amounts (including the Companys unrecognized tax benefits of $36 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 open purchase orders, as well as other commitments for merchandise purchases, at January 30, 2016. 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 suppliers in response to shifts in consumer preferences.|
|(5)||Represents payments required by non-merchandise purchase agreements.|
The majority of the Companys contractual obligations relate to operating leases for our stores. Future scheduled lease payments under non-cancellable operating leases as of January 30, 2016 are described in the table under Contractual Obligations and Commitments above and with additional information in the Leases note in Item 8. Consolidated Financial Statements and Supplementary Data.
The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, including variable interest entities. Our 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 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.
Merchandise Inventories and Cost of Sales
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.
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 retail 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.
Impairment of Long-Lived Tangible Assets, Goodwill and Other Intangibles
The Company performs an impairment review when circumstances indicate that the carrying value of long-lived tangible assets 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 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. During 2015, the Company conducted an impairment review of the Runners Point and Sidestep store-level assets, which resulted in an impairment charge of $4 million.
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, management considers 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 uses a combination of a discounted cash flow approach and a 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 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. The Company evaluates the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the reporting units, as well as the fair values of the corresponding assets and liabilities within the reporting units.
In 2015, the Company elected to perform its review of goodwill using a qualitative approach, and no reporting units were evaluated using the two-step impairment method. Based on the qualitative assessment performed, we concluded that it is more likely than not that the fair values of our reporting units exceeded their respective carrying values and that there are no reporting units at risk of impairment. In 2014, the Company elected to perform the first step of the two-step impairment analysis in connection with its annual review. This analysis concluded that the fair value of all the reporting units substantially exceeded their carrying values.
Owned trademarks and trade names that have been determined to have indefinite lives are not subject to amortization but are reviewed at least annually for potential impairment. Our impairment evaluation for indefinite-lived intangible assets consists of either a qualitative or quantitative assessment, similar to the process for goodwill.
If the results of the qualitative assessment indicate that it is more likely than not that the fair value of the indefinite lived intangible is less than its carrying amount, or if we elect to proceed directly to a quantitative assessment, we calculate the fair value using a discounted cash flow method, based on the relief-from-royalty concept, and compare the fair value to the carrying value to determine if the asset is impaired. 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. Our 2015 annual assessment using the quantitative method did not result in an impairment charge. However, during the fourth quarter of 2015, as a result of a triggering event, we recorded an impairment charge for indefinite-lived intangibles of $1 million.
The Company estimates the fair value of options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing valuation model requires the use of subjective assumptions. Changes in these assumptions, listed below, can materially affect the fair value of the options.
Risk-free Interest Rate The risk-free interest rate 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.
Expected Volatility 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 cause a 2 percent change to the fair value.
Expected Term 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 8 to 9 percent depending on if the change was an increase or decrease, respectively.
Dividend Yield 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 6 percent.
Share-based compensation expense is recorded for those awards expected to vest using an estimated forfeiture rate based on the Companys 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 Company is exposed to various legal proceedings and claims arising in the ordinary course of business. The Company records a liability when a loss is probable and the amount of loss can be reasonably estimated. The accrual is recorded based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and disclose the estimated range. In 2015, the Company recorded a pre-tax charge of $100 million related to its pension plan litigation.
There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. Management believes the accruals recorded in the Companys consolidated financial statements properly reflect loss exposures that are both probable and reasonably estimable. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates.
Pension and Postretirement Liabilities
Management reviews all assumptions used to determine its obligations for pension and postretirement liabilities annually with its independent actuaries, taking into consideration existing and future economic conditions and the Companys intentions with regard to the plans. The assumptions used are:
Long-Term Rate of Return 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 2015 pension expense was 6.25 percent.
A decrease of 50 basis points in the weighted-average expected long-term rate of return would have increased 2015 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 the 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. The 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 2015 benefit obligations related to the Companys pension and postretirement plans was 4.1 percent for both.
Changing the weighted-average discount rate by 50 basis points would have changed the accumulated benefit obligation of the pension plans at January 30, 2016 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 2015 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.
Mortality Assumptions The mortality table used to determine the pension obligation in 2015 and 2014 was the RP 2000 mortality table with generational projection using scale AA for both males and females. This mortality table was chosen after considering alternative tables including the RP 2014 table. We chose the RP 2000 table because it resulted in the closest match to the Companys actual experience. For the SERP Medical Plan, the mortality assumption was updated to the RPH 2015 table with generational projection using MP 2015, which represents the most recent study from the Society of Actuaries. The RPH 2015 table with generational projection using MP 2014 was used in the prior year.
The Company expects to record postretirement income of approximately $1 million and pension expense of approximately $20 million in 2016.
In accordance with U.S. 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 2015 would have resulted in a change of $5 million to 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 2016 effective tax rate to approximate 36.5 percent, excluding the effect of any nonrecurring items that may occur. The actual tax rate will vary depending primarily on the level and mix of income earned in the United States as compared with its international operations.
Descriptions of the recently issued accounting principles, and the accounting principles adopted by the Company during the year ended January 30, 2016, if any, are included in the Summary of Significant Accounting Policies note in Item 8. Consolidated Financial Statements and Supplementary Data.
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 suppliers for a majority of its merchandise purchases (including a significant portion from one key supplier), cybersecurity breaches, 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 following Consolidated Financial Statements of the Company for the years ended January 30, 2016, January 31, 2015, and February 1, 2014 are included as part of this Report:
|||Consolidated Statements of Operations for the Fiscal Years January 30, 2016, January 31, 2015, and February 1, 2014.|
|||Consolidated Statements of Comprehensive Income for the Fiscal Years January 30, 2016, January 31, 2015, and February 1, 2014.|
|||Consolidated Balance Sheets as of January 30, 2016 and January 31, 2015.|
|||Consolidated Statements of Shareholders Equity for the Fiscal Years January 30, 2016, January 31, 2015, and February 1, 2014.|
|||Consolidated Statements of Cash Flows for the Fiscal Years January 30, 2016, January 31, 2015, and February 1, 2014.|
|||Notes to the Consolidated Financial Statements.|
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 January 30, 2016 and January 31, 2015, 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 January 30, 2016. 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 January 30, 2016 and January 31, 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended January 30, 2016, 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 January 30, 2016, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 24, 2016 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
New York, New York
March 24, 2016
|(in millions, except per share amounts)|
|Cost of sales||4,907||4,777||4,372|
|Selling, general and administrative expenses||1,415||1,426||1,334|
|Depreciation and amortization||148||139||133|
|Litigation, impairment and other charges||105||4||2|
|Interest expense, net||4||5||5|
|Income before income taxes||837||809||663|
|Income tax expense||296||289||234|
|Basic earnings per share||$||3.89||$||3.61||$||2.89|
|Weighted-average shares outstanding||139.1||143.9||148.4|
|Diluted earnings per share||$||3.84||$||3.56||$||2.85|
|Weighted-average shares outstanding, assuming dilution||140.8||146.0||150.5|
See Accompanying Notes to Consolidated Financial Statements.
|($ in millions)|
|Other comprehensive income, net of income tax
|Foreign currency translation adjustment:
|Translation adjustment arising during the period, net of income tax||(44||)||(132||)||(25||)|
|Cash flow hedges:
|Change in fair value of derivatives, net of income tax||5||(1||)||(5||)|
|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 $(10), $(7) and $2 million, respectively||(16||)||(8||)||6|
|Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $5, $4, and $5 million, respectively||8||8||9|
See Accompanying Notes to Consolidated Financial Statements.
|($ in millions)|
|Cash and cash equivalents||$||1,021||$||967|
|Other current assets||300||239|
|Property and equipment, net||661||620|
|Other intangible assets, net||45||49|
|LIABILITIES AND SHAREHOLDERS EQUITY
|Accrued and other liabilities||420||393|
|Current portion of capital lease obligations||1||2|
|Long-term debt and obligations under capital leases||129||132|
See Accompanying Notes to Consolidated Financial Statements.
|(shares in thousands, amounts in millions)|
|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|
|Excess tax benefits from equity awards||||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 (ESPP)||||||133||3||3|
|Cash dividends declared on common stock ($0.80 per share)||(118||)||(118||)|
|Translation adjustment, net of tax||(25||)||(25||)|
|Change in cash flow hedges, net of tax||(5||)||(5||)|
|Pension and postretirement adjustments, net of tax||15||15|
|Balance at February 1, 2014||169,039||$||921||(23,612||)||$||(626||)||$||2,387||$||(186||)||$||2,496|
|Restricted stock issued||578|||||||||
|Issued under director and stock plans||912||22||||||22|
|Share-based compensation expense||||24||||||24|
|Excess tax benefits from equity awards||||12||12|
|Shares of common stock used to satisfy tax withholding obligations||||||(324||)||(16||)||(16||)|
|Cash dividends declared on common stock ($0.88 per share)||(127||)||(127||)|
|Translation adjustment, net of tax||(132||)||(132||)|
|Change in cash flow hedges, net of tax||(1||)||(1||)|
|Balance at January 31, 2015||170,529||$||979||(29,665||)||$||(944||)||$||2,780||$||(319||)||$||2,496|
|Restricted stock issued||299|||||||||
|Issued under director and stock plans||2,570||70||||||70|
|Share-based compensation expense||||22||||||22|
|Excess tax benefits from equity awards||||35||35|
|Forfeitures of restricted stock||||2||(45||)|