SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2004
29, 2005
Commission file number 1-10299
New York | 13-3513936 | |||||
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |||||
incorporation or organization) | ||||||
112 West 34th Street, New York, New York | 10120 | |||||
(Address of principal executive offices) | (Zip Code) |
Registrant’s 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
See pages 6059 through 63 for Index of Exhibits.
Number of shares of Common Stock outstanding at March | ||||||
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 Registrant’s most recently completed second fiscal quarter, | $ | * |
* | For purposes of this calculation only (a) all directors plus one executive officer 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 at |
TABLE OF CONTENTS
PART I | ||||||||||
Item 1 | Business | 1 | ||||||||
Item 2 | Properties | 2 | ||||||||
Item 3 | Legal Proceedings | 2 | ||||||||
Item 4 | Submission of Matters to a Vote of Security Holders | 2 | ||||||||
PART II | ||||||||||
Item 5 | Market for the Company’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities | 3 | ||||||||
Item 6 | Selected Financial Data | 3 | ||||||||
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 | ||||||||
Item 7A | Quantitative and Qualitative Disclosures about Market Risk | |||||||||
Item 8 | Consolidated Financial Statements and Supplementary Data | |||||||||
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |||||||||
Item 9A | Controls and Procedures | |||||||||
PART III | ||||||||||
Item 10 | Directors and Executive Officers of the Company | |||||||||
Item 11 | Executive Compensation | 57 | ||||||||
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 57 | ||||||||
Item 13 | Certain Relationships and Related Transactions | |||||||||
Item 14 | Principal Accountant Fees and Services | |||||||||
PART IV | ||||||||||
Item 15 | Exhibits and Financial Statement Schedules |
PART I
Item 1. Business
Item 1. | Business |
General
Information Regarding Business Segments and Geographic Areas
Employees
Competition
Merchandise Purchases
1
Item 2. Properties
Item 2. | Properties |
Item 3. Legal Proceedings
Item 3. | Legal Proceedings |
Item 4. Submission of Matters to a Vote of Security Holders
Item 4. | Submission of Matters to a Vote of Security Holders |
Executive Officers of the Company
Chairman of the Board, President and Chief Executive Officer | Matthew D. Serra | |||||
Executive Vice President and Chief Financial Officer | Bruce L. Hartman | |||||
President and Chief Executive Officer, Foot Locker, Inc. — U.S.A. | Richard T. Mina | |||||
Senior Vice President, General Counsel and Secretary | Gary M. Bahler | |||||
Senior Vice President — Real Estate | Jeffrey L. Berk | |||||
Senior Vice President — Chief Information Officer | Marc D. Katz | |||||
Senior Vice President — Strategic Planning | Lauren B. Peters | |||||
Senior Vice President — Human Resources | Laurie J. Petrucci | |||||
Vice President — Investor Relations and Treasurer | Peter D. Brown | |||||
Vice President and Chief Accounting Officer | Robert W. McHugh |
2
2
PART II
Item 5. Market for the Company’s Common Equity and Related Stockholder Matters
Item 5. | Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Item 6. Selected Financial Data
Total Number of Shares Purchased(1) | Average Price Paid per Share(1) | Total Number of Shares Purchased as Part of Publicly Announced Program(2) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Program(2) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 31, 2004 through Nov. 27, 2004 | — | $ | — | — | $50,000,000 | |||||||||||||
Nov. 28, 2004 through Jan. 1, 2005 | 6,670 | 26.28 | — | 50,000,000 | ||||||||||||||
Jan. 2, 2005 through Jan. 29, 2005 | — | — | — | 50,000,000 | ||||||||||||||
Total | 6,670 | $ | 26.28 | — |
(1) | These columns reflect shares purchased through option exercises by stock swaps. |
(2) | On November 20, 2002, the Company announced that the Board of Directors authorized the purchase of up to $50 million of the Company’s Common Stock; no purchases have been made under this program. This authorization will terminate on February 3, 2006. |
Item 6. | Selected Financial Data |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Business Overview
3
3
Athletic Stores
Store Profile
At February 1, 2003 | Opened | Closed | At January 31, 2004 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Foot Locker | 2,060 | 94 | 66 | 2,088 | ||||||||||||||
Lady Foot Locker | 606 | 2 | 24 | 584 | ||||||||||||||
Kids Foot Locker | 377 | — | 20 | 357 | ||||||||||||||
Champs Sports | 582 | 17 | 18 | 581 | ||||||||||||||
Total Athletic Stores | 3,625 | 113 | 128 | 3,610 |
4
At January 31, 2004 | Acquired | Opened | Closed | At January 29, 2005 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Foot Locker | 2,088 | 11 | 84 | 48 | 2,135 | ||||||||||||||||||
Champs Sports | 581 | — | 5 | 16 | 570 | ||||||||||||||||||
Footaction | — | 349 | 4 | 4 | 349 | ||||||||||||||||||
Lady Foot Locker | 584 | — | 2 | 19 | 567 | ||||||||||||||||||
Kids Foot Locker | �� | 357 | — | 1 | 12 | 346 | |||||||||||||||||
Total Athletic Stores | 3,610 | 360 | 96 | 99 | 3,967 |
Direct-to-Customers
4
Sales by Segment
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Athletic Stores | $ | 4,413 | $ | 4,160 | $ | 3,999 | ||||||||||||
Direct-to-Customers | 366 | 349 | 326 | |||||||||||||||
4,779 | 4,509 | 4,325 | ||||||||||||||||
Disposed(1) | — | — | 54 | |||||||||||||||
$ | 4,779 | $ | 4,509 | $ | 4,379 |
Division ProfitExecutive Summary
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Athletic Stores | $ | 363 | $ | 279 | $ | 283 | ||||||||||||
Direct-to-Customers | 53 | 40 | 24 | |||||||||||||||
Division profit from ongoing operations | 416 | 319 | 307 | |||||||||||||||
Disposed(1) | — | — | (12 | ) | ||||||||||||||
Restructuring income (charges)(2) | (1 | ) | 2 | (33 | ) | |||||||||||||
Total division profit | 415 | 321 | 262 | |||||||||||||||
Corporate expense(3) | (73 | ) | (52 | ) | (65 | ) | ||||||||||||
Total operating profit | 342 | 269 | 197 | |||||||||||||||
Non-operating income | — | 3 | 2 | |||||||||||||||
Interest expense, net | (18 | ) | (26 | ) | (24 | ) | ||||||||||||
Income from continuing operations before | ||||||||||||||||||
income taxes | $ | 324 | $ | 246 | $ | 175 |
5
Sales
2004 | 2003 | 2002 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Athletic Stores | $ | 4,989 | $ | 4,413 | $ | 4,160 | ||||||||||||
Direct-to-Customers | 366 | 366 | 349 | |||||||||||||||
$ | 5,355 | $ | 4,779 | $ | 4,509 |
Gross Margin
5
Division Profit
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Athletic Stores | $ | 420 | $ | 363 | $279 | ||||||||||
Direct-to-Customers | 45 | 53 | 40 | ||||||||||||
Division profit | 465 | 416 | 319 | ||||||||||||
Restructuring (charges) income(1) | (2 | ) | (1 | ) | 2 | ||||||||||
Total division profit | 463 | 415 | 321 | ||||||||||||
Corporate expense | (74 | ) | (73 | ) | (52 | ) | |||||||||
Total operating profit | 389 | 342 | 269 | ||||||||||||
Non-operating income(2) | — | — | 3 | ||||||||||||
Interest expense, net | (15 | ) | (18 | ) | (26) | ||||||||||
Income from continuing operations before income taxes | $ | 374 | $ | 324 | $ 246 |
(1) | As more fully described in the notes to the consolidated financial statements, restructuring charges of $2 million and $1 million in 2004 and 2003, respectively, were recorded related to the dispositions of non-core businesses. Restructuring income of $2 million in 2002 reflects revisions to estimates used in the disposition of non-core businesses and the accelerated store-closing program. |
(2) | 2002 includes $2 million gain related to the condemnation of a part-owned and part-leased property for which the Company received proceeds of $6 million and real estate gains from the sale of corporate properties of $1 million during 2002. |
Segment Information
Athletic Stores
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | (in millions) | |||||||||||||||||||||||||||||||
Sales | $ | 4,413 | $ | 4,160 | $ | 3,999 | $ | 4,989 | $ | 4,413 | $4,160 | |||||||||||||||||||||
Division profit | ||||||||||||||||||||||||||||||||
Stores | $ | 363 | $ | 279 | $ | 283 | $ | 420 | $ | 363 | $279 | |||||||||||||||||||||
Restructuring income | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||||
Total division profit | $ | 363 | $ | 280 | $ | 283 | $ | 420 | $ | 363 | $ 280 | |||||||||||||||||||||
Sales as a percentage of consolidated total | 92 | % | 92 | % | 92 | % | 93 | % | 92 | % | 92% | |||||||||||||||||||||
Number of stores at year end | 3,610 | 3,625 | 3,590 | 3,967 | 3,610 | 3,625 | ||||||||||||||||||||||||||
Selling square footage (in millions) | 7.92 | 8.04 | 7.94 | 8.89 | 7.92 | 8.04 | ||||||||||||||||||||||||||
Gross square footage (in millions) | 13.14 | 13.22 | 13.14 | 14.78 | 13.14 | 13.22 |
6
2004 compared with 2003
2003 compared with 2002
6
7
Direct-to-Customers
2004 | 2003 | 2002 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Sales | $ | 366 | $ | 366 | $ | 349 | ||||||||||||
Division profit | $ | 45 | $ | 53 | $ | 40 | ||||||||||||
Sales as a percentage of consolidated total | 7 | % | 8 | % | 8 | % |
2004 compared with 2003
Direct-to-Customers2003 compared with 2002
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Sales | $ | 366 | $ | 349 | $ | 326 | ||||||||||||
Division profit | $ | 53 | $ | 40 | $ | 24 | ||||||||||||
Sales as a percentage of consolidated total | 8 | % | 8 | % | 7 | % |
8
All Other Businesses
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Sales | $ | — | $ | — | $ | 54 | ||||||||||||
Division profit (loss) | ||||||||||||||||||
Disposed | $ | — | $ | — | $ | (12 | ) | |||||||||||
Restructuring income (charges) | (1 | ) | 1 | (33 | ) | |||||||||||||
Total division profit (loss) | $ | (1 | ) | $ | 1 | $ | (45 | ) | ||||||||||
Sales as a percentage of consolidated total | — | % | — | % | 1 | % |
Corporate Expense
98
Results of OperationsCosts and Expenses
Selling, General and Administrative Expenses
Depreciation and Amortization
Interest Expense, Net
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||
Interest expense | $ | 26 | $ | 33 | $ | 35 | $ | 22 | $ | 26 | $ | 33 | ||||||||||||||||||||||||
Interest income | (8 | ) | (7 | ) | (11 | ) | (7 | ) | (8 | ) | (7 | ) | ||||||||||||||||||||||||
Interest expense, net | $ | 18 | $ | 26 | $ | 24 | $ | 15 | $ | 18 | $ | 26 | ||||||||||||||||||||||||
Weighted-average interest rate (excluding facility fees): | ||||||||||||||||||||||||||||||||||||
Short-term debt | — | % | — | % | 6.0 | % | — | % | — | % | — | % | ||||||||||||||||||||||||
Long-term debt | 6.1 | % | 7.2 | % | 7.4 | % | 5.2 | % | 6.1 | % | 7.2 | % | ||||||||||||||||||||||||
Total debt | 6.1 | % | 7.2 | % | 7.4 | % | 5.2 | % | 6.1 | % | 7.2 | % | ||||||||||||||||||||||||
Short-term debt outstanding during the year: | ||||||||||||||||||||||||||||||||||||
High | $ | — | $ | — | $ | 11 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Weighted-average | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
10
9
Income Taxes
1110
Liquidity and Capital Resources
Cash Flow and Liquidity
Cash Flow
1211
Capital Structure
13
Credit Rating
12
Debt Capitalization and Equity
2003 | 2002 | 2004 | 2003 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | (in millions) | |||||||||||||||||||||
Cash and cash equivalents, net of debt and capital lease obligations | $ | 112 | $ | — | ||||||||||||||||||
Cash, cash equivalents and short-term investments, net of debt | ||||||||||||||||||||||
and capital lease obligations | $ | 131 | $ | 112 | ||||||||||||||||||
Present value of operating leases | 1,683 | 1,571 | 1,989 | 1,683 | ||||||||||||||||||
Total net debt | 1,571 | 1,571 | 1,858 | 1,571 | ||||||||||||||||||
Shareholders’ equity | 1,375 | 1,110 | 1,830 | 1,375 | ||||||||||||||||||
Total capitalization | $ | 2,946 | $ | 2,681 | $ | 3,688 | $ | 2,946 | ||||||||||||||
Net debt capitalization percent | 53.3 | % | 58.6 | % | 50.4 | % | 53.3 | % | ||||||||||||||
Net debt capitalization percent without operating leases | — | % | — | % | — | % | — | % |
14
13
Contractual Obligations and Commitments
Payments Due by Period | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Cash Obligations | Total | Less than 1 Year | 2 – 3 Years | 4 – 5 Years | After 5 Years | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Long-term debt(1) | $ | 321 | $ | — | $ | — | $ | 150 | $ | 171 | |||||||||||||
Operating leases | 2,366 | 387 | 693 | 533 | 753 | ||||||||||||||||||
Capital lease obligations | 14 | — | — | 14 | — | ||||||||||||||||||
Other long-term liabilities(2) | — | — | — | — | — | ||||||||||||||||||
Total contractual cash obligations | $ | 2,701 | $ | 387 | $ | 693 | $ | 697 | $ | 924 |
Amount of Commitment Expiration by Period | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Other Commercial Commitments | Total Amounts Committed | Less than 1 Year | 2 – 3 Years | 4 – 5 Years | After 5 Years | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Line of credit | $ | 176 | $ | — | $ | 176 | $ | — | $ | — | |||||||||||||
Stand-by letters of credit | 24 | — | 24 | — | — | ||||||||||||||||||
Purchase commitments(3) | 1,377 | 1,377 | — | — | — | ||||||||||||||||||
Other(4) | 56 | 6 | 19 | 27 | 4 | ||||||||||||||||||
Total commercial commitments | $ | 1,633 | $ | 1,383 | $ | 219 | $ | 27 | $ | 4 |
Payments Due by Period | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Cash Obligations | Total | Less than 1 Year | 2 – 3 Years | 4 – 5 Years | After 5 Years | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Long-term debt | $ | 351 | $ | 18 | $ | 44 | $ | 113 | $ | 176 | |||||||||||||
Operating leases | 2,723 | 449 | 806 | 578 | 890 | ||||||||||||||||||
Capital lease obligations | 14 | — | 14 | — | — | ||||||||||||||||||
Other long-term liabilities(1) | — | — | — | — | — | ||||||||||||||||||
Total contractual cash obligations | $ | 3,088 | $ | 467 | $ | 864 | $ | 691 | $ | 1,066 |
(1) |
The Company’s other liabilities in the Consolidated Balance Sheet as of January |
Amount of Commitment Expiration by Period | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Other Commercial Commitments | Total Amounts Committed | Less than 1 Year | 2 – 3 Years | 4 – 5 Years | After 5 Years | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Line of credit | $ | 175 | $ | — | $ | — | $ | 175 | $ | — | |||||||||||||
Stand-by letters of credit | 25 | — | — | 25 | — | ||||||||||||||||||
Purchase commitments(2) | 1,696 | 1,686 | 6 | 4 | — | ||||||||||||||||||
Other(3) | 131 | 41 | 58 | 28 | 4 | ||||||||||||||||||
Total commercial commitments | $ | 2,027 | $ | 1,727 | $ | 64 | $ | 232 | $ | 4 |
Represents open purchase orders, as well as minimum required purchases under merchandise contractual agreements at January |
Represents |
15
Critical Accounting Policies
14
Business Combinations
Merchandise Inventories
Vendor AllowancesReimbursements
Impairment of Long-Lived Assets
16
15
Pension and Postretirement Liabilities
Income Taxes
16
Discontinued, Repositioning and Restructuring Reserves
17
Income Taxes
Business Concentration
18
Disclosure Regarding Forward-Looking Statements
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
1917
Item 8. Consolidated Financial Statements and Supplementary Data
Item 8. | Consolidated Financial Statements and Supplementary Data |
MANAGEMENT’S REPORT
MATTHEW D. SERRA, Chairman of the Board, President and Chief Executive Officer | BRUCE L. HARTMAN, Executive Vice President and Chief Financial Officer |
March 28, 2005
April 1, 2004
2018
INDEPENDENT AUDITORS’MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
MATTHEW D. SERRA, Chairman of the Board, President and Chief Executive Officer | BRUCE L. HARTMAN, Executive Vice President and Chief Financial Officer |
March 28, 2005
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We also have audited, in accordance with the United Statesstandards of America.the Public Company Accounting Oversight Board (United States), the effectiveness of Foot Locker, Inc.’s internal control over financial reporting as of January 29, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 28, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
New York, New York
March 2,28, 2005
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Foot Locker, Inc. maintained effective internal control over financial reporting as of January 29, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Foot Locker, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 29, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Foot Locker, Inc. and subsidiaries as of January 29, 2005 and January 31, 2004, 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 29, 2005, and our report dated March 28, 2005 expressed an unqualified opinion on those consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF OPERATIONS
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions, except per share amounts) | (in millions, except per share amounts) | |||||||||||||||||||||||||||||
Sales | $ | 4,779 | $ | 4,509 | $ | 4,379 | $ | 5,355 | $ | 4,779 | $ | 4,509 | ||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||||
Cost of sales | 3,302 | 3,165 | 3,071 | 3,722 | 3,297 | 3,161 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 987 | 928 | 923 | 1,088 | 987 | 928 | ||||||||||||||||||||||||
Depreciation and amortization | 147 | 149 | 154 | 154 | 152 | 153 | ||||||||||||||||||||||||
Restructuring charges (income) | 1 | (2 | ) | 34 | 2 | 1 | (2 | ) | ||||||||||||||||||||||
Interest expense, net | 18 | 26 | 24 | 15 | 18 | 26 | ||||||||||||||||||||||||
4,455 | 4,266 | 4,206 | 4,981 | 4,455 | 4,266 | |||||||||||||||||||||||||
Other income | — | (3 | ) | (2 | ) | |||||||||||||||||||||||||
Other income (expense) | — | — | (3 | ) | ||||||||||||||||||||||||||
4,455 | 4,263 | 4,204 | 4,981 | 4,455 | 4,263 | |||||||||||||||||||||||||
Income from continuing operations before income taxes | 324 | 246 | 175 | 374 | 324 | 246 | ||||||||||||||||||||||||
Income tax expense | 115 | 84 | 64 | 119 | 115 | 84 | ||||||||||||||||||||||||
Income from continuing operations | 209 | 162 | 111 | 255 | 209 | 162 | ||||||||||||||||||||||||
Loss on disposal of discontinued operations, net of income tax benefit of $4, $2, and $—, respectively | (1 | ) | (9 | ) | (19 | ) | ||||||||||||||||||||||||
Cumulative effect of accounting change, net of income tax benefit of $— | (1 | ) | — | — | ||||||||||||||||||||||||||
Income (loss) on disposal of discontinued operations, net of income tax benefit of $37, $4, and $2, respectively | 38 | (1 | ) | (9 | ) | |||||||||||||||||||||||||
Cumulative effect of accounting change, net of income tax benefit of $ — | — | (1 | ) | — | ||||||||||||||||||||||||||
Net income | $ | 207 | $ | 153 | $ | 92 | $ | 293 | $ | 207 | $ | 153 | ||||||||||||||||||
Basic earnings per share: | ||||||||||||||||||||||||||||||
Income from continuing operations | $ | 1.47 | $ | 1.15 | $ | 0.79 | $ | 1.69 | $ | 1.47 | $ | 1.15 | ||||||||||||||||||
Loss from discontinued operations | (0.01 | ) | (0.06 | ) | (0.13 | ) | ||||||||||||||||||||||||
Income (loss) from discontinued operations | 0.25 | (0.01 | ) | (0.06 | ) | |||||||||||||||||||||||||
Cumulative effect of accounting change | — | — | — | — | — | — | ||||||||||||||||||||||||
Net income | $ | 1.46 | $ | 1.09 | $ | 0.66 | $ | 1.94 | $ | 1.46 | $ | 1.09 | ||||||||||||||||||
Diluted earnings per share: | ||||||||||||||||||||||||||||||
Income from continuing operations | $ | 1.40 | $ | 1.10 | $ | 0.77 | $ | 1.64 | $ | 1.40 | $ | 1.10 | ||||||||||||||||||
Loss from discontinued operations | (0.01 | ) | (0.05 | ) | (0.13 | ) | ||||||||||||||||||||||||
Income (loss) from discontinued operations | 0.24 | (0.01 | ) | (0.05 | ) | |||||||||||||||||||||||||
Cumulative effect of accounting change | — | — | — | — | — | — | ||||||||||||||||||||||||
Net income | $ | 1.39 | $ | 1.05 | $ | 0.64 | $ | 1.88 | $ | 1.39 | $ | 1.05 |
See Accompanying Notes to Consolidated Financial Statements.
22
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | (in millions) | |||||||||||||||||||||||||||||
Net income | $ | 207 | $ | 153 | $ | 92 | $ | 293 | $ | 207 | $ | 153 | ||||||||||||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment: | ||||||||||||||||||||||||||||||
Translation adjustment arising during the period | 31 | 38 | (12 | ) | 19 | 31 | 38 | |||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||||||||
Cumulative effect of accounting change, net of income tax expense of $1 | — | — | 1 | |||||||||||||||||||||||||||
Change in fair value of derivatives, net of income tax | — | — | — | (1 | ) | — | — | |||||||||||||||||||||||
Reclassification adjustments, net of income tax benefit of $1 | (1 | ) | — | (1 | ) | |||||||||||||||||||||||||
Reclassification adjustments, net of income tax expense (benefit) of $1, ($1), and $—, respectively | 1 | (1 | ) | — | ||||||||||||||||||||||||||
Net change in cash flow hedges | (1 | ) | — | — | — | (1 | ) | — | ||||||||||||||||||||||
Minimum pension liability adjustment: | ||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of deferred tax expense (benefit) of $10, $(56) and $(71), respectively | 16 | (83 | ) | (115 | ) | |||||||||||||||||||||||||
Comprehensive income (loss) | $ | 253 | $ | 108 | $ | (35 | ) | |||||||||||||||||||||||
Minimum pension liability adjustment, net of deferred tax expense (benefit) of $(9), $10 and $(56), respectively | (14 | ) | 16 | (83 | ) | |||||||||||||||||||||||||
Comprehensive income | $ | 298 | $ | 253 | $ | 108 |
See Accompanying Notes to Consolidated Financial Statements.
23
CONSOLIDATED BALANCE SHEETS
2003 | 2002 | 2004 | 2003 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | (in millions) | |||||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Current assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | 448 | $ | 357 | $ | 225 | $ | 190 | ||||||||||||||
Short-term investments | 267 | 258 | ||||||||||||||||||||
Total cash, cash equivalents and short-term investments | 492 | 448 | ||||||||||||||||||||
Merchandise inventories | 920 | 835 | 1,151 | 920 | ||||||||||||||||||
Assets of discontinued operations | 2 | 2 | 1 | 2 | ||||||||||||||||||
Other current assets | 149 | 90 | 188 | 149 | ||||||||||||||||||
1,519 | 1,284 | 1,832 | 1,519 | |||||||||||||||||||
Property and equipment, net | 644 | 636 | 715 | 668 | ||||||||||||||||||
Deferred taxes | 194 | 240 | 180 | 194 | ||||||||||||||||||
Goodwill | 136 | 136 | 271 | 136 | ||||||||||||||||||
Intangible assets, net | 96 | 80 | 135 | 96 | ||||||||||||||||||
Other assets | 100 | 110 | 104 | 100 | ||||||||||||||||||
$ | 2,689 | $ | 2,486 | $ | 3,237 | $ | 2,713 | |||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||
Accounts payable | $ | 234 | $ | 251 | $ | 381 | $ | 234 | ||||||||||||||
Accrued liabilities | 300 | 296 | 275 | 300 | ||||||||||||||||||
Liabilities of discontinued operations | 2 | 3 | 2 | 2 | ||||||||||||||||||
Current portion of repositioning and restructuring reserves | 1 | 3 | 1 | 1 | ||||||||||||||||||
Current portion of reserve for discontinued operations | 8 | 18 | 7 | 8 | ||||||||||||||||||
Current portion of long-term debt and obligations under capital leases | — | 1 | 18 | — | ||||||||||||||||||
545 | 572 | 684 | 545 | |||||||||||||||||||
Long-term debt and obligations under capital leases | 335 | 356 | 347 | 335 | ||||||||||||||||||
Other liabilities | 434 | 448 | 376 | 458 | ||||||||||||||||||
Total liabilities | 1,314 | 1,376 | 1,407 | 1,338 | ||||||||||||||||||
Shareholders’ equity | 1,375 | 1,110 | 1,830 | 1,375 | ||||||||||||||||||
$ | 2,689 | $ | 2,486 | $ | 3,237 | $ | 2,713 |
See Accompanying Notes to Consolidated Financial Statements.
24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
(shares in thousands, amounts in millions) | (shares in thousands, amounts in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock and Paid-In Capital | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Par value $0.01 per share, 500 million shares authorized | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issued at beginning of year | 141,180 | $ | 378 | 139,981 | $ | 363 | 138,691 | $ | 351 | 144,009 | $ | 411 | 141,180 | $ | 378 | 139,981 | $ | 363 | ||||||||||||||||||||||||||||||||||||
Restricted stock issued under stock option and award plans | 845 | — | 60 | — | 210 | (2 | ) | 400 | — | 845 | — | 60 | — | |||||||||||||||||||||||||||||||||||||||||
Forfeitures of restricted stock | — | 1 | — | 1 | — | 1 | — | 2 | — | 1 | — | 1 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of stock issued under restricted stock option plans | — | 4 | — | 2 | — | 2 | — | 8 | — | 4 | — | 2 | ||||||||||||||||||||||||||||||||||||||||||
Conversion of convertible debt | 9,490 | 150 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of convertible debt issuance costs | — | (3 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issued under director and employee stock plans, net of tax | 1,984 | 28 | 1,139 | 12 | 1,080 | 11 | 2,256 | 40 | 1,984 | 28 | 1,139 | 12 | ||||||||||||||||||||||||||||||||||||||||||
Issued at end of year | 144,009 | 411 | 141,180 | 378 | 139,981 | 363 | 156,155 | 608 | 144,009 | 411 | 141,180 | 378 | ||||||||||||||||||||||||||||||||||||||||||
Common stock in treasury at beginning of year | (105 | ) | (1 | ) | (70 | ) | — | (200 | ) | (2 | ) | (57 | ) | (1 | ) | (105 | ) | (1 | ) | (70 | ) | — | ||||||||||||||||||||||||||||||||
Reissued under employee stock plans | 152 | 1 | — | — | 192 | 1 | 260 | 5 | 152 | 1 | — | — | ||||||||||||||||||||||||||||||||||||||||||
Restricted stock issued under stock option and award plans | — | — | 30 | — | 210 | 2 | — | — | — | — | 30 | — | ||||||||||||||||||||||||||||||||||||||||||
Forfeitures of restricted stock | (80 | ) | (1 | ) | (60 | ) | (1 | ) | (270 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||
Forfeitures/cancellations of restricted stock | (100 | ) | (2 | ) | (80 | ) | (1 | ) | (60 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||
Shares of common stock used to satisfy tax withholding obligations | (137 | ) | (3 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Exchange of options | (24 | ) | — | (5 | ) | — | (2 | ) | — | (30 | ) | (1 | ) | (24 | ) | — | (5 | ) | — | |||||||||||||||||||||||||||||||||||
Common stock in treasury at end of year | (57 | ) | (1 | ) | (105 | ) | (1 | ) | (70 | ) | — | (64 | ) | (2 | ) | (57 | ) | (1 | ) | (105 | ) | (1 | ) | |||||||||||||||||||||||||||||||
143,952 | 410 | 141,075 | 377 | 139,911 | 363 | 156,091 | 606 | 143,952 | 410 | 141,075 | 377 | |||||||||||||||||||||||||||||||||||||||||||
Retained Earnings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of year | 946 | 797 | 705 | 1,132 | 946 | 797 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 207 | 153 | 92 | 293 | 207 | 153 | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared on common stock $0.15, $0.03 and $— per share, respectively | (21 | ) | (4 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared on common stock $0.26, $0.15 and $0.03 per share, respectively | (39 | ) | (21 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at end of year | 1,132 | 946 | 797 | 1,386 | 1,132 | 946 | ||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Currency Translation Adjustment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of year | (15 | ) | (53 | ) | (41 | ) | 16 | (15 | ) | (53 | ) | |||||||||||||||||||||||||||||||||||||||||||
Translation adjustment arising during the period | 31 | 38 | (12 | ) | 19 | 31 | 38 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at end of year | 16 | (15 | ) | (53 | ) | 35 | 16 | (15 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Cash Flow Hedges | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of year | — | — | — | (1 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Change during year, net of tax | (1 | ) | — | — | — | (1 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at end of year | (1 | ) | — | — | (1 | ) | (1 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||
Minimum Pension Liability Adjustment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of year | (198 | ) | (115 | ) | — | (182 | ) | (198 | ) | (115 | ) | |||||||||||||||||||||||||||||||||||||||||||
Change during year, net of tax | 16 | (83 | ) | (115 | ) | (14 | ) | 16 | (83 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Balance at end of year | (182 | ) | (198 | ) | (115 | ) | (196 | ) | (182 | ) | (198 | ) | ||||||||||||||||||||||||||||||||||||||||||
Total Accumulated Other Comprehensive Loss | (167 | ) | (213 | ) | (168 | ) | (162 | ) | (167 | ) | (213 | ) | ||||||||||||||||||||||||||||||||||||||||||
Total Shareholders’ Equity | $ | 1,375 | $ | 1,110 | $ | 992 | $ | 1,830 | $ | 1,375 | $ | 1,110 |
See Accompanying Notes to Consolidated Financial Statements.
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | (in millions) | |||||||||||||||||||||||||||||
From Operating Activities | ||||||||||||||||||||||||||||||
Net income | $ | 207 | $ | 153 | $ | 92 | $ | 293 | $ | 207 | $ | 153 | ||||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: | ||||||||||||||||||||||||||||||
Loss on disposal of discontinued operations, net of tax | 1 | 9 | 19 | |||||||||||||||||||||||||||
(Income) loss on disposal of discontinued operations, net of tax | (38 | ) | 1 | 9 | ||||||||||||||||||||||||||
Restructuring charges (income) | 1 | (2 | ) | 34 | 2 | 1 | (2 | ) | ||||||||||||||||||||||
Cumulative effect of accounting change, net of tax | 1 | — | — | — | 1 | — | ||||||||||||||||||||||||
Depreciation and amortization | 147 | 149 | 154 | 154 | 152 | 153 | ||||||||||||||||||||||||
Impairment of long-lived assets | — | 7 | 2 | — | — | 7 | ||||||||||||||||||||||||
Restricted stock compensation expense | 4 | 2 | 2 | 8 | 4 | 2 | ||||||||||||||||||||||||
Tax benefit on stock compensation | 2 | 2 | 2 | 10 | 2 | 2 | ||||||||||||||||||||||||
Gains on sales of real estate and assets | — | (3 | ) | (2 | ) | — | — | (3 | ) | |||||||||||||||||||||
Deferred income taxes | (5 | ) | 38 | 38 | 50 | (5 | ) | 38 | ||||||||||||||||||||||
Change in assets and liabilities, net of dispositions: | ||||||||||||||||||||||||||||||
Merchandise inventories | (63 | ) | (22 | ) | (69 | ) | (183 | ) | (63 | ) | (22 | ) | ||||||||||||||||||
Accounts payable and other accruals | (17 | ) | (22 | ) | 9 | 157 | (17 | ) | (22 | ) | ||||||||||||||||||||
Repositioning and restructuring reserves | (1 | ) | (3 | ) | (62 | ) | (1 | ) | (1 | ) | (3 | ) | ||||||||||||||||||
Pension contribution | (50 | ) | — | — | (106 | ) | (50 | ) | — | |||||||||||||||||||||
Income taxes | 9 | 42 | (45 | ) | — | 9 | 42 | |||||||||||||||||||||||
Other, net | 28 | (3 | ) | 30 | (57 | ) | 23 | (7 | ) | |||||||||||||||||||||
Net cash provided by operating activities of continuing operations | 264 | 347 | 204 | 289 | 264 | 347 | ||||||||||||||||||||||||
From Investing Activities | ||||||||||||||||||||||||||||||
Proceeds from sales of real estate and assets | — | 6 | 20 | |||||||||||||||||||||||||||
Acquisitions | (242 | ) | — | — | ||||||||||||||||||||||||||
Purchases of short-term investments | (2,884 | ) | (1,546 | ) | (536 | ) | ||||||||||||||||||||||||
Sales of short-term investments | 2,875 | 1,440 | 384 | |||||||||||||||||||||||||||
Lease acquisition costs | (15 | ) | (18 | ) | (20 | ) | (17 | ) | (15 | ) | (18 | ) | ||||||||||||||||||
Capital expenditures | (144 | ) | (150 | ) | (116 | ) | (156 | ) | (144 | ) | (150 | ) | ||||||||||||||||||
Proceeds from sales of real estate and assets | — | — | 6 | |||||||||||||||||||||||||||
Net cash used in investing activities of continuing operations | (159 | ) | (162 | ) | (116 | ) | (424 | ) | (265 | ) | (314 | ) | ||||||||||||||||||
From Financing Activities | ||||||||||||||||||||||||||||||
Issuance of convertible long-term debt | — | — | 150 | |||||||||||||||||||||||||||
Debt issuance costs | — | — | (8 | ) | (2 | ) | — | — | ||||||||||||||||||||||
Reduction in long-term debt | (19 | ) | (41 | ) | (58 | ) | ||||||||||||||||||||||||
Increase (reduction) in long-term debt | 175 | (19 | ) | (41 | ) | |||||||||||||||||||||||||
Reduction in capital lease obligations | — | (1 | ) | (4 | ) | — | — | (1 | ) | |||||||||||||||||||||
Dividends paid on common stock | (21 | ) | (4 | ) | — | (39 | ) | (21 | ) | (4 | ) | |||||||||||||||||||
Issuance of common stock | 27 | 10 | 9 | 33 | 27 | 10 | ||||||||||||||||||||||||
Net cash (used in) provided by financing activities of continuing operations | (13 | ) | (36 | ) | 89 | |||||||||||||||||||||||||
Net cash provided by (used in) financing activities of continuing operations | 167 | (13 | ) | (36 | ) | |||||||||||||||||||||||||
Net Cash Provided by (Used in) Discontinued Operations | 7 | (10 | ) | (75 | ) | 1 | 7 | (10 | ) | |||||||||||||||||||||
Effect of Exchange Rate Fluctuations on Cash and Cash Equivalents | (8 | ) | 3 | 4 | 2 | (8 | ) | 3 | ||||||||||||||||||||||
Net Change in Cash and Cash Equivalents | 91 | 142 | 106 | 35 | (15 | ) | (10 | ) | ||||||||||||||||||||||
Cash and Cash Equivalents at Beginning of Year | 357 | 215 | 109 | 190 | 205 | 215 | ||||||||||||||||||||||||
Cash and Cash Equivalents at End of Year | $ | 448 | $ | 357 | $ | 215 | $ | 225 | $ | 190 | $ | 205 | ||||||||||||||||||
Cash Paid During the Year: | ||||||||||||||||||||||||||||||
Interest | $ | 25 | $ | 27 | $ | 36 | $ | 23 | $ | 25 | $ | 27 | ||||||||||||||||||
Income taxes | $ | 77 | $ | 39 | $ | 35 | $ | 121 | $ | 77 | $ | 39 | ||||||||||||||||||
Non-cash Financing Activities: | ||||||||||||||||||||||||||||||
Common stock issued upon conversion of convertible debt | $ | 150 | $ | — | $ | — | ||||||||||||||||||||||||
Debt issuance costs reclassified to equity upon conversion of convertible debt | $ | 3 | $ | — | $ | — |
See Accompanying Notes to Consolidated Financial Statements.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies
1 | Summary of Significant Accounting Policies |
Basis of Presentation
Reporting Year
Revenue Recognition
Store Pre-Opening and Closing Costs
Advertising Costs
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Advertising expenses | $ | 102.5 | $ | 97.5 | $ | 89.2 | |||||||||
Cooperative advertising reimbursements | (24.8 | ) | (23.4 | ) | (15.4 | ) | |||||||||
Net advertising expense | $ | 77.7 | $ | 74.1 | $ | 73.8 |
27
Catalog Costs
27
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Catalog costs | $ | 50.3 | $ | 42.4 | $ | 41.9 | |||||||||
Cooperative reimbursements | (2.9 | ) | (3.5 | ) | (2.9 | ) | |||||||||
Net catalog expense | $ | 47.4 | $ | 38.9 | $ | 39.0 |
Earnings Per Share
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | (in millions) | |||||||||||||||||||||||||||||
Income from continuing operations | $ | 209 | $ | 162 | $ | 111 | $ | 255 | $ | 209 | $ | 162 | ||||||||||||||||||
Effect of Dilution: | ||||||||||||||||||||||||||||||
Convertible debt | 5 | 5 | 3 | 2 | 5 | 5 | ||||||||||||||||||||||||
Income from continuing operations assuming dilution | $ | 214 | $ | 167 | $ | 114 | $ | 257 | $ | 214 | $ | 167 | ||||||||||||||||||
Weighted-average common shares outstanding | 141.6 | 140.7 | 139.4 | 150.9 | 141.6 | 140.7 | ||||||||||||||||||||||||
Effect of Dilution: | ||||||||||||||||||||||||||||||
Stock options and awards | 1.8 | 0.6 | 1.3 | 3.0 | 1.8 | 0.6 | ||||||||||||||||||||||||
Convertible debt | 9.5 | 9.5 | 6.2 | 3.2 | 9.5 | 9.5 | ||||||||||||||||||||||||
Weighted-average common shares outstanding assuming dilution | 152.9 | 150.8 | 146.9 | 157.1 | 152.9 | 150.8 |
Stock-Based Compensation
28
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions, except per share amounts) | (in millions, except per share amounts) | |||||||||||||||||||||||||||||
Net income: | ||||||||||||||||||||||||||||||
As reported | $ | 207 | $ | 153 | $ | 92 | $ | 293 | $ | 207 | $ | 153 | ||||||||||||||||||
Compensation expense included in reported net income, net of income tax benefit | 2 | 1 | 1 | 5 | 2 | 1 | ||||||||||||||||||||||||
Total compensation expense under fair value method for all awards, net of income tax benefit | (7 | ) | (6 | ) | (7 | ) | (13 | ) | (7 | ) | (6 | ) | ||||||||||||||||||
Pro forma | $ | 202 | $ | 148 | $ | 86 | $ | 285 | $ | 202 | $ | 148 | ||||||||||||||||||
Basic earnings per share: | ||||||||||||||||||||||||||||||
As reported | $ | 1.46 | $ | 1.09 | $ | 0.66 | $ | 1.94 | $ | 1.46 | $ | 1.09 | ||||||||||||||||||
Pro forma | $ | 1.43 | $ | 1.05 | $ | 0.62 | $ | 1.89 | $ | 1.43 | $ | 1.05 | ||||||||||||||||||
Diluted earnings per share: | ||||||||||||||||||||||||||||||
As reported | $ | 1.39 | $ | 1.05 | $ | 0.64 | $ | 1.88 | $ | 1.39 | $ | 1.05 | ||||||||||||||||||
Pro forma | $ | 1.36 | $ | 1.02 | $ | 0.61 | $ | 1.83 | $ | 1.36 | $ | 1.02 |
28
Cash and Cash Equivalents
Short-Term Investments
Merchandise Inventories and Cost of Sales
Property and Equipment
29
29
Recoverability of Long-Lived Assets
Goodwill and Intangible Assets
Derivative Financial Instruments
Fair Value of Financial Instruments
30
30
Income Taxes
Insurance Liabilities
Accounting for Leases
Foreign Currency Translation
Reclassifications
31
Recent Accounting Pronouncements Not Previously Discussed Herein
2 | Acquisitions |
Footaction
(in millions) | ||||||
---|---|---|---|---|---|---|
Inventory | $ | 39 | ||||
Property and equipment | 45 | |||||
Intangible assets — amortizing | 29 | |||||
Goodwill | 122 | |||||
Total assets | 235 | |||||
Accounts payable and accrued liabilities(1) | 5 | |||||
Other liabilities(2) | 4 | |||||
Total liabilities | 9 | |||||
Total purchase price | $ | 226 |
(1) | “Accounts payable and accrued liabilities” include approximately $3 million for anticipated payments to landlords to cancel two of the acquired leases. Also included is approximately $1 million of liabilities related to gift cards assumed. The remaining $1 million relates to transfer taxes and real estate charges assumed from Footstar, Inc. as part of the acquisition. |
(2) | “Other liabilities” includes $4 million of liabilities assumed for leased locations with rents above their fair value. |
32
The Republic of Ireland
(in millions) | ||||||
---|---|---|---|---|---|---|
Intangible assets — amortizing | $ | 2 | ||||
Intangible assets — non-amortizing | 3 | |||||
Goodwill | 12 | |||||
Total assets | 17 | |||||
Other amounts due and payable(1) | (1 | ) | ||||
Cash paid as of January 29, 2005 | $ | 16 |
(1) | “Other amounts due and payable” includes professional fees related to the transaction. |
3 | Goodwill |
Jan. 31, 2004 | Acquisitions(1) | Additions | Other(2) | Jan. 29, 2005 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||||||||||
Goodwill | $ | 136 | 134 | — | 1 | $ | 271 |
(1) | Attributable to the acquisition of 349 Footaction stores and 11 stores in the Republic of Ireland. |
(2) | Includes effect of foreign currency translation. |
4 Intangible Assets, net
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Intangible assets not subject to amortization | $ | 4 | $ | 2 | |||||||
Intangible assets subject to amortization (net of accumulated amortization of $70 and $51, respectively) | 131 | 94 | |||||||||
$ | 135 | $ | 96 |
33
2003 | Acquisitions(1) | Additions | Amortization / Other(2) | 2004 | Wtd. Avg. Useful Life in Years | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||||||||||||||
Finite life intangible assets | |||||||||||||||||||||||||||
Lease acquisition costs | $ | 94 | $ | — | $ | 17 | $ | (9 | ) | $ | 102 | 12.2 | |||||||||||||||
Trademark | — | 21 | — | (1 | ) | 20 | 20.0 | ||||||||||||||||||||
Loyalty program | — | �� | 1 | — | — | 1 | 2.0 | ||||||||||||||||||||
Favorable leases | — | 9 | — | (1 | ) | 8 | 4.1 | ||||||||||||||||||||
Total | $ | 94 | $ | 31 | $ | 17 | $ | (11 | ) | $ | 131 | 12.6 |
(1) | Attributable to the acquisition of 349 Footaction stores and 11 stores in the Republic of Ireland. |
(2) | Includes effect of foreign currency translation. |
5 | Segment Information |
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Athletic Stores | $ | 4,989 | $ | 4,413 | $ | 4,160 | |||||||||
Direct-to-Customers | 366 | 366 | 349 | ||||||||||||
Total sales | $ | 5,355 | $ | 4,779 | $ | 4,509 |
34
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Athletic Stores(1) | $ | 420 | $ | 363 | $ | 280 | |||||||||
Direct-to-Customers | 45 | 53 | 40 | ||||||||||||
465 | 416 | 320 | |||||||||||||
All Other(2) | (2 | ) | (1 | ) | 1 | ||||||||||
Division profit | 463 | 415 | 321 | ||||||||||||
Corporate expense(3) | (74 | ) | (73 | ) | (52 | ) | |||||||||
Operating profit | 389 | 342 | 269 | ||||||||||||
Non-operating income(4) | — | — | 3 | ||||||||||||
Interest expense, net | (15 | ) | (18 | ) | (26 | ) | |||||||||
Income from continuing operations before income taxes | $ | 374 | $ | 324 | $ | 246 |
(1) | 2002 includes reductions in restructuring charges of $1 million. Additionally, the Company recorded non-cash pre-tax charges in selling, general and administrative expenses of approximately $7 million in 2002, which represented impairment of long-lived assets such as store fixtures and leasehold improvements related to Athletic Stores. |
(2) | 2004 includes restructuring charges of $2 million. 2003 includes restructuring charges of $1 million. 2002 includes a $1 million reduction in restructuring charges. |
(3) | 2004 includes integration costs of $5 million related to the acquisitions of Footaction and the 11 stores in the Republic of Ireland. |
(4) | 2002 includes $2 million gain related to the condemnation of a part-owned and part-leased property for which the Company received proceeds of $6 million and real estate gains from the sale of corporate properties of $1 million during 2002. |
Depreciation and Amortization | Capital Expenditures | Total Assets | |||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||
Athletic Stores | $ | 126 | $ | 123 | $ | 123 | $ | 139 | $ | 126 | $ | 124 | $ | 2,335 | $ | 1,739 | $ | 1,591 | |||||||||||||||||||||
Direct-to-Customers | 5 | 4 | 4 | 8 | 6 | 8 | 190 | 183 | 177 | ||||||||||||||||||||||||||||||
131 | 127 | 127 | 147 | 132 | 132 | 2,525 | 1,922 | 1,768 | |||||||||||||||||||||||||||||||
Corporate | 23 | 25 | 26 | 9 | 12 | 18 | 711 | 789 | 744 | ||||||||||||||||||||||||||||||
Discontinued operations | 1 | 2 | 2 | ||||||||||||||||||||||||||||||||||||
Total Company | $ | 154 | $ | 152 | $ | 153 | $ | 156 | $ | 144 | $ | 150 | $ | 3,237 | $ | 2,713 | $ | 2,514 |
Sales
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
United States | $ | 3,982 | $ | 3,597 | $ | 3,639 | |||||||||
International | 1,373 | 1,182 | 870 | ||||||||||||
Total sales | $ | 5,355 | $ | 4,779 | $ | 4,509 |
Long-Lived Assets
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
United States | $ | 547 | $ | 525 | $ | 544 | |||||||||
International | 168 | 143 | 120 | ||||||||||||
Total long-lived assets | $ | 715 | $ | 668 | $ | 664 |
35
6 | Short-Term Investments |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Tax exempt municipal bonds | $ | 50 | $ | 44 | |||||||
Taxable bonds | 40 | — | |||||||||
Equity securities | 177 | 214 | |||||||||
$ | 267 | $ | 258 |
7 | Merchandise Inventories |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
LIFO inventories | $ | 856 | $ | 651 | |||||||
FIFO inventories | 295 | 269 | |||||||||
Total merchandise inventories | $ | 1,151 | $ | 920 |
The value of the Company’s LIFO inventories, as calculated on a LIFO basis, approximates their value as calculated on a FIFO basis. |
8 | Other Current Assets |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Net receivables | $ | 47 | $ | 41 | |||||||
Prepaid expenses and other current assets | 47 | 45 | |||||||||
Prepaid income taxes | 40 | — | |||||||||
Deferred taxes | 53 | 60 | |||||||||
Current portion of Northern Group note receivable | 1 | 2 | |||||||||
Fair value of derivative contracts | — | 1 | |||||||||
$ | 188 | $ | 149 |
9 | Property and Equipment, net |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Land | $ | 3 | $ | 3 | |||||||
Buildings: | |||||||||||
Owned | 31 | 32 | |||||||||
Furniture, fixtures and equipment: | |||||||||||
Owned | 1,072 | 1,015 | |||||||||
Leased | 14 | 14 | |||||||||
1,120 | 1,064 | ||||||||||
Less: accumulated depreciation | (755 | ) | (706 | ) | |||||||
365 | 358 | ||||||||||
Alterations to leased and owned buildings, net of accumulated amortization | 350 | 310 | |||||||||
$ | 715 | $ | 668 |
36
10 | Other Assets |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Deferred tax costs | $ | 25 | $ | 35 | |||||||
Investments and notes receivable | 22 | 23 | |||||||||
Northern Group note receivable, net of current portion | 8 | 6 | |||||||||
Income taxes receivable | — | 1 | |||||||||
Fair value of derivative contracts | 2 | — | |||||||||
Other | 47 | 35 | |||||||||
$ | 104 | $ | 100 |
11 | Accrued Liabilities |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Pension and postretirement benefits | $ | 30 | $ | 57 | |||||||
Incentive bonuses | 34 | 38 | |||||||||
Other payroll and payroll related costs, excluding taxes | 51 | 44 | |||||||||
Taxes other than income taxes | 45 | 44 | |||||||||
Property and equipment | 22 | 32 | |||||||||
Gift cards and certificates | 22 | 16 | |||||||||
Income taxes payable | 9 | 9 | |||||||||
Fair value of derivative contracts | 3 | 3 | |||||||||
Current deferred tax liabilities | 1 | — | |||||||||
Other operating costs | 58 | 57 | |||||||||
$ | 275 | $ | 300 |
12 | Revolving Credit Facility |
37
13 | Long-Term Debt and Obligations under Capital Leases |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
8.50% debentures payable 2022 | $ | 176 | $ | 171 | |||||||
$175 million term loan | 175 | — | |||||||||
5.50% convertible notes | — | 150 | |||||||||
Total long-term debt | 351 | 321 | |||||||||
Obligations under capital leases | 14 | 14 | |||||||||
365 | 335 | ||||||||||
Less: Current portion | 18 | — | |||||||||
$ | 347 | $ | 335 |
3138
Long-Term Debt | Capital Leases | Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
2005 | $ | 18 | $ | — | $ | 18 | |||||||||
2006 | 18 | — | 18 | ||||||||||||
2007 | 26 | 14 | 40 | ||||||||||||
2008 | 26 | — | 26 | ||||||||||||
2009 | 87 | — | 87 | ||||||||||||
Thereafter | 176 | — | 176 | ||||||||||||
351 | 14 | 365 | |||||||||||||
Less: Current portion | 18 | — | 18 | ||||||||||||
$ | 333 | $ | 14 | $ | 347 |
2 Discontinued Operations14 Leases
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Rent | $ | 605 | $ | 532 | $ | 491 | |||||||||
Contingent rent based on sales | 11 | 11 | 11 | ||||||||||||
Sublease income | (1 | ) | (1 | ) | (1 | ) | |||||||||
Total rent expense | $ | 615 | $ | 542 | $ | 501 |
(in millions) | ||||||
---|---|---|---|---|---|---|
2005 | $ | 449 | ||||
2006 | 423 | |||||
2007 | 383 | |||||
2008 | 322 | |||||
2009 | 256 | |||||
Thereafter | 890 | |||||
Total operating lease commitments | $ | 2,723 | ||||
Present value of operating lease commitments | $ | 1,989 |
39
15 | Other Liabilities |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Pension benefits | $ | 130 | $ | 175 | |||||||
Postretirement benefits | 95 | 113 | |||||||||
Straight-line rent liability | 77 | 67 | |||||||||
Income taxes | 29 | 62 | |||||||||
Workers’ compensation / general liability reserves | 11 | 12 | |||||||||
Reserve for discontinued operations | 11 | 11 | |||||||||
Repositioning and restructuring reserves | 3 | 2 | |||||||||
Fair value of derivatives | — | 1 | |||||||||
Unfavorable leases | 3 | — | |||||||||
Other | 17 | 15 | |||||||||
$ | 376 | $ | 458 |
16 | Discontinued Operations |
32
40
33
Northern Group
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Realized loss — currency movement | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
Asset write-offs & impairments | — | 23 | (23 | ) | — | 18 | (18 | ) | — | — | — | — | |||||||||||||||||||||||||||||||
Recognition of note receivable | — | — | — | — | (10 | ) | 10 | — | — | — | — | ||||||||||||||||||||||||||||||||
Real estate & lease liabilities | 68 | (16 | ) | (46 | ) | 6 | 1 | (1 | ) | 6 | 1 | (7 | ) | — | |||||||||||||||||||||||||||||
Severance & personnel | 23 | (13 | ) | (8 | ) | 2 | — | (2 | ) | — | — | — | — | ||||||||||||||||||||||||||||||
Operating losses & other costs | 24 | 18 | (39 | ) | 3 | — | (2 | ) | 1 | — | 1 | 2 | |||||||||||||||||||||||||||||||
Total | $ | 115 | $ | 12 | $ | (116 | ) | $ | 11 | $ | 9 | $ | (13 | ) | $ | 7 | $ | 1 | $ | (6 | ) | $ | 2 |
International General Merchandise
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Woolco | $ | — | $ | 4 | $ | (4 | ) | $ | — | $ | 1 | $ | — | $ | 1 | $ | — | $ | (1 | ) | $ | — | |||||||||||||||||||||
The Bargain! Shop | 7 | — | (1 | ) | 6 | — | — | 6 | — | (1 | ) | 5 | |||||||||||||||||||||||||||||||
Total | $ | 7 | $ | 4 | $ | (5 | ) | $ | 6 | $ | 1 | $ | — | $ | 7 | $ | — | $ | (2 | ) | $ | 5 |
Specialty Footwear
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Lease liabilities | $ | 9 | $ | — | $ | (2 | ) | $ | 7 | $ | (4 | ) | $ | (1 | ) | $ | 2 | $ | — | $ | — | $ | 2 | ||||||||||||||||||||
Operating losses & other costs | 3 | — | (1 | ) | 2 | — | (1 | ) | 1 | — | (1 | ) | — | ||||||||||||||||||||||||||||||
Total | $ | 12 | $ | — | $ | (3 | ) | $ | 9 | $ | (4 | ) | $ | (2 | ) | $ | 3 | $ | — | $ | (1 | ) | $ | 2 |
Domestic General Merchandise
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Lease liabilities | $ | 16 | $ | — | $ | (6 | ) | $ | 10 | $ | — | $ | (3 | ) | $ | 7 | $ | — | $ | (1 | ) | $ | 6 | ||||||||||||||||||||
Legal and other costs | 2 | 3 | (3 | ) | 2 | 5 | (4 | ) | 3 | 4 | (3 | ) | 4 | ||||||||||||||||||||||||||||||
Total | $ | 18 | $ | 3 | $ | (9 | ) | $ | 12 | $ | 5 | $ | (7 | ) | $ | 10 | $ | 4 | $ | (4 | ) | $ | 10 |
34
41
Northern Group
2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Asset write-offs & impairments | $ | — | $ | 18 | $ | (18) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
Recognition of note receivable | — | (10) | 10 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Real estate & lease liabilities | 6 | 1 | (1 | ) | 6 | 1 | (7 | ) | — | — | — | — | |||||||||||||||||||||||||||||||
Severance & personnel | 2 | — | (2 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Operating losses & other costs | 3 | — | (2 | ) | 1 | — | 1 | 2 | — | 1 | 3 | ||||||||||||||||||||||||||||||||
Total | $ | 11 | $ | 9 | $ | (13 | ) | $ | 7 | $ | 1 | $ | (6 | ) | $ | 2 | $ | — | $ | 1 | $ | 3 |
International General Merchandise
Northern Group | Specialty Footwear | Domestic General Merchandise | Total | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||||||
2003 | |||||||||||||||||||
Assets | $ | — | $ | — | $ | 2 | $ | 2 | |||||||||||
Liabilities | 1 | — | 1 | 2 | |||||||||||||||
$ | (1 | ) | $ | — | $ | 1 | $ | — | |||||||||||
2002 | |||||||||||||||||||
Assets | $ | — | $ | — | $ | 2 | $ | 2 | |||||||||||
Liabilities | 1 | — | 2 | 3 | |||||||||||||||
$ | (1 | ) | $ | — | $ | — | $ | (1 | ) |
2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Woolco | $ | — | $ | 1 | $ | — | $ | 1 | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
The Bargain! Shop | 6 | — | — | 6 | — | (1 | ) | 5 | — | — | 5 | ||||||||||||||||||||||||||||||||
Total | $ | 6 | $ | 1 | $ | — | $ | 7 | $ | — | $ | (2 | ) | $ | 5 | $ | — | $ | — | $ | 5 |
35Specialty Footwear
2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Lease liabilities | $ | 7 | $ | (4) | $ | (1) | $ | 2 | $ | — | $ | — | $ | 2 | $ | — | $ | — | $ | 2 | |||||||||||||||||||||||
Operating losses & other costs | 2 | — | (1 | ) | 1 | — | (1 | ) | — | (1 | ) | 1 | — | ||||||||||||||||||||||||||||||
Total | $ | 9 | $ | (4 | ) | $ | (2 | ) | $ | 3 | $ | — | $ | (1 | ) | $ | 2 | $ | (1 | ) | $ | 1 | $ | 2 |
Domestic General Merchandise
2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Lease liabilities | $ | 10 | $ | — | $ | (3 | ) | $ | 7 | $ | — | $ | (1 | ) | $ | 6 | $ | — | $ | — | $ | 6 | |||||||||||||||||||||
Legal and other costs | 2 | 5 | (4 | ) | 3 | 4 | (3 | ) | 4 | — | (2 | ) | 2 | ||||||||||||||||||||||||||||||
Total | $ | 12 | $ | 5 | $ | (7 | ) | $ | 10 | $ | 4 | $ | (4 | ) | $ | 10 | $ | — | $ | (2 | ) | $ | 8 |
* | Net usage includes effect of foreign exchange translation adjustments |
42
317 Repositioning and Restructuring Reserves
1999 Restructuring
1993 Repositioning and 1991 Restructuring
Total Repositioning and the remaining $1 million thereafter.
36
Non-Core Businesses
2000 | 2001 | 2002 | 2003 | 2001 | 2002 | 2003 | 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 4 | $ | — | $ | (3 | ) | $ | 1 | $ | — | $ | — | $ | 1 | $ | 1 | $ | (1 | ) | $ | 1 | $ | 3 | $ | — | $ | (1 | ) | $ | 2 | $ | 1 | $ | (1 | ) | $ | 2 | $ | 2 | $ | (1 | ) | $ | 3 | |||||||||||||||||||||||||||||||||||||||||
Asset impairment | — | 30 | (30 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Severance & personnel | 2 | — | (2 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other disposition costs | 3 | 3 | (3 | ) | 3 | (2 | ) | (1 | ) | — | — | — | — | 5 | (2 | ) | (2 | ) | 1 | — | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 9 | $ | 33 | $ | (38 | ) | $ | 4 | $ | (2 | ) | $ | (1 | ) | $ | 1 | $ | 1 | $ | (1 | ) | $ | 1 | $ | 8 | $ | (2 | ) | $ | (3 | ) | $ | 3 | $ | 1 | $ | (1 | ) | $ | 3 | $ | 2 | $ | (1 | ) | $ | 4 |
Corporate Overhead and Logistics
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | — | $ | 1 | $ | — | $ | 1 | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
Severance & personnel | 2 | — | (2 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Other disposition costs | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Total | $ | 2 | $ | 1 | $ | (2 | ) | $ | 1 | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — |
Total 1999 Restructuring
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 4 | $ | 1 | $ | (3 | ) | $ | 2 | $ | — | $ | (1 | ) | $ | 1 | $ | 1 | $ | (1 | ) | $ | 1 | ||||||||||||||||||||
Asset impairment | — | 30 | (30 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Severance & personnel | 4 | — | (4 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Other disposition costs | 3 | 3 | (3 | ) | 3 | (2 | ) | (1 | ) | — | — | — | — | ||||||||||||||||||||||||||||||
Total | $ | 11 | $ | 34 | $ | (40 | ) | $ | 5 | $ | (2 | ) | $ | (2 | ) | $ | 1 | $ | 1 | $ | (1 | ) | $ | 1 |
1993 Repositioning and 1991 Restructuring
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 3 | $ | — | $ | (2 | ) | $ | 1 | $ | — | $ | — | $ | 1 | $ | — | $ | — | $ | 1 | ||||||||||||||||||||||
Other disposition costs | 3 | — | (1 | ) | 2 | — | (1 | ) | 1 | — | — | 1 | |||||||||||||||||||||||||||||||
Total | $ | 6 | $ | — | $ | (3 | ) | $ | 3 | $ | — | $ | (1 | ) | $ | 2 | $ | — | $ | — | $ | 2 |
Total Restructuring Reserves
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 7 | $ | 1 | $ | (5 | ) | $ | 3 | $ | — | $ | (1 | ) | $ | 2 | $ | 1 | $ | (1 | ) | $ | 2 | ||||||||||||||||||||
Asset impairment | — | 30 | (30 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Severance & personnel | 4 | — | (4 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Other disposition costs | 6 | 3 | (4 | ) | 5 | (2 | ) | (2 | ) | 1 | — | — | 1 | ||||||||||||||||||||||||||||||
Total | $ | 17 | $ | 34 | $ | (43 | ) | $ | 8 | $ | (2 | ) | $ | (3 | ) | $ | 3 | $ | 1 | $ | (1 | ) | $ | 3 |
37
4 Other Income
5 Impairment of Long-Lived Assets
6 Segment Information
Sales
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Athletic Stores | $ | 4,413 | $ | 4,160 | $ | 3,999 | |||||||||
Direct-to-Customers | 366 | 349 | 326 | ||||||||||||
4,779 | 4,509 | 4,325 | |||||||||||||
All Other | — | — | 54 | ||||||||||||
Total sales | $ | 4,779 | $ | 4,509 | $ | 4,379 |
38
Operating Results
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Athletic Stores(1) | $ | 363 | $ | 280 | $ | 283 | |||||||||
Direct-to-Customers | 53 | 40 | 24 | ||||||||||||
416 | 320 | 307 | |||||||||||||
All Other(2) | (1 | ) | 1 | (45 | ) | ||||||||||
Division profit | 415 | 321 | 262 | ||||||||||||
Corporate expense(3) | (73 | ) | (52 | ) | (65 | ) | |||||||||
Operating profit | 342 | 269 | 197 | ||||||||||||
Non-operating income | — | 3 | 2 | ||||||||||||
Interest expense, net | (18 | ) | (26 | ) | (24 | ) | |||||||||
Income from continuing operations before income taxes | $ | 324 | $ | 246 | $ | 175 |
Depreciation and Amortization | Capital Expenditures | Total Assets | |||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||
Athletic Stores | $ | 118 | $ | 119 | $ | 115 | $ | 126 | $ | 124 | $ | 106 | $ | 1,715 | $ | 1,564 | $ | 1,474 | |||||||||||||||||||||
Direct-to-Customers(1) | 4 | 4 | 11 | 6 | 8 | 4 | 183 | 177 | 179 | ||||||||||||||||||||||||||||||
122 | 123 | 126 | 132 | 132 | 110 | 1,898 | 1,741 | 1,653 | |||||||||||||||||||||||||||||||
Corporate | 25 | 26 | 28 | 12 | 18 | 6 | 789 | 743 | 612 | ||||||||||||||||||||||||||||||
Assets of business transferred under contractual arrangement | — | — | 30 | ||||||||||||||||||||||||||||||||||||
Discontinued operations, net | �� | 2 | 2 | 5 | |||||||||||||||||||||||||||||||||||
Total Company | $ | 147 | $ | 149 | $ | 154 | $ | 144 | $ | 150 | $ | 116 | $ | 2,689 | $ | 2,486 | $ | 2,300 |
Sales
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
United States | $ | 3,597 | $ | 3,639 | $ | 3,686 | |||||||||
International | 1,182 | 870 | 693 | ||||||||||||
Total sales | $ | 4,779 | $ | 4,509 | $ | 4,379 |
Long-Lived Assets
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
United States | $ | 504 | $ | 518 | $ | 549 | |||||||||
International | 140 | 118 | 88 | ||||||||||||
Total long-lived assets | $ | 644 | $ | 636 | $ | 637 |
39
7 Merchandise Inventories
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
LIFO inventories | $ | 651 | $ | 622 | |||||||
FIFO inventories | 269 | 213 | |||||||||
Total merchandise inventories | $ | 920 | $ | 835 |
8 Other Current Assets
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Net receivables | $ | 41 | $ | 33 | |||||||
Prepaid expenses and other current assets | 45 | 37 | |||||||||
Deferred taxes | 60 | 15 | |||||||||
Current portion of Northern Group note receivable | 2 | 4 | |||||||||
Fair value of derivative contracts | 1 | 1 | |||||||||
$ | 149 | $ | 90 |
9 Property and Equipment, net
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Land | $ | 3 | $ | 3 | |||||||
Buildings: | |||||||||||
Owned | 32 | 32 | |||||||||
Leased | — | 1 | |||||||||
Furniture, fixtures and equipment: | |||||||||||
Owned | 1,015 | 994 | |||||||||
Leased | 14 | 18 | |||||||||
1,064 | 1,048 | ||||||||||
Less: accumulated depreciation | (706 | ) | (675 | ) | |||||||
358 | 373 | ||||||||||
Alterations to leased and owned buildings, net of accumulated amortization | 286 | 263 | |||||||||
$ | 644 | $ | 636 |
10 Goodwill
11 Intangible Assets, net
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Intangible assets not subject to amortization | $ | 2 | $ | 2 | |||||||
Intangible assets subject to amortization | 94 | 78 | |||||||||
$ | 96 | $ | 80 |
40
Lease Acquisition Costs (in millions) | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | $ | 145 | $ | (51 | ) | $ | 94 | |||||||
2002 | $ | 114 | $ | (36 | ) | $ | 78 |
12 Other Assets
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Deferred tax costs | $ | 35 | $ | 39 | |||||||
Investments and notes receivable | 23 | 23 | |||||||||
Northern Group note receivable, net of current portion | 6 | 6 | |||||||||
Income taxes receivable | 1 | 8 | |||||||||
Fair value of derivative contracts | — | 1 | |||||||||
Other | 35 | 33 | |||||||||
$ | 100 | $ | 110 |
13 Accrued Liabilities
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Pension and postretirement benefits | $ | 57 | $ | 59 | |||||||
Incentive bonuses | 38 | 29 | |||||||||
Other payroll and payroll related costs, excluding taxes | 44 | 38 | |||||||||
Taxes other than income taxes | 44 | 36 | |||||||||
Property and equipment | 32 | 25 | |||||||||
Gift cards and certificates | 16 | 21 | |||||||||
Income taxes payable | 9 | 23 | |||||||||
Fair value of derivative contracts | 3 | 8 | |||||||||
Other operating costs | 57 | 57 | |||||||||
$ | 300 | $ | 296 |
41
14 Revolving Credit Facility
15 Long-Term Debt and Obligations under Capital Leases
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
8.50% debentures payable 2022 | $ | 171 | $ | 192 | |||||||
5.50% convertible notes payable 2008 | 150 | 150 | |||||||||
Total long-term debt | 321 | 342 | |||||||||
Obligations under capital leases | 14 | 15 | |||||||||
335 | 357 | ||||||||||
Less: Current portion | — | 1 | |||||||||
$ | 335 | $ | 356 |
18 | Income Taxes |
42
Long-Term Debt | Capital Leases | Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
2004 | $ | — | $ | — | $ | — | |||||||||
2005 | — | — | — | ||||||||||||
2006 | — | — | — | ||||||||||||
2007 | — | 14 | 14 | ||||||||||||
2008 | 150 | — | 150 | ||||||||||||
Thereafter | 171 | — | 171 | ||||||||||||
321 | 14 | 335 | |||||||||||||
Less: Current portion | — | — | — | ||||||||||||
$ | 321 | $ | 14 | $ | 335 |
16 Leases
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Rent | $ | 537 | $ | 495 | $ | 475 | |||||||||
Contingent rent based on sales | 11 | 11 | 11 | ||||||||||||
Sublease income | (1 | ) | (1 | ) | (1 | ) | |||||||||
Total rent expense | $ | 547 | $ | 505 | $ | 485 |
(in millions) | ||||||
---|---|---|---|---|---|---|
2004 | $ | 387 | ||||
2005 | 361 | |||||
2006 | 332 | |||||
2007 | 296 | |||||
2008 | 237 | |||||
Thereafter | 753 | |||||
Total operating lease commitments | $ | 2,366 | ||||
Present value of operating lease commitments | $ | 1,683 |
43
17 Other Liabilities
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Pension benefits | $ | 175 | $ | 237 | |||||||
Postretirement benefits | 113 | 132 | |||||||||
Income taxes | 62 | 16 | |||||||||
Straight-line rent liability | 43 | 30 | |||||||||
Other | 12 | 10 | |||||||||
Workers’ compensation / general liability reserves | 12 | 14 | |||||||||
Reserve for discontinued operations | 11 | 9 | |||||||||
Asset retirement obligations | 3 | — | |||||||||
Repositioning and restructuring reserves | 2 | — | |||||||||
Fair value of derivatives | 1 | — | |||||||||
$ | 434 | $ | 448 |
18 Income Taxes
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Domestic | $ | 186 | $ | 160 | $ | 113 | |||||||||
International | 138 | 86 | 62 | ||||||||||||
Total pre-tax income | $ | 324 | $ | 246 | $ | 175 |
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Domestic | $ | 222 | $ | 186 | $ | 160 | |||||||||
International | 152 | 138 | 86 | ||||||||||||
Total pre-tax income | $ | 374 | $ | 324 | $ | 246 |
43
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | (in millions) | |||||||||||||||||||||||||||||
Current: | ||||||||||||||||||||||||||||||
Federal | $ | 48 | $ | 16 | $ | 7 | $ | 11 | $ | 48 | $ | 16 | ||||||||||||||||||
State and local | 14 | 5 | (5 | ) | 6 | 14 | 5 | |||||||||||||||||||||||
International | 58 | 25 | 24 | 52 | 58 | 25 | ||||||||||||||||||||||||
Total current tax provision | 120 | 46 | 26 | 69 | 120 | 46 | ||||||||||||||||||||||||
Deferred: | ||||||||||||||||||||||||||||||
Federal | 11 | 31 | 32 | 43 | 11 | 31 | ||||||||||||||||||||||||
State and local | (6 | ) | — | 7 | 8 | (6 | ) | — | ||||||||||||||||||||||
International | (10 | ) | 7 | (1 | ) | (1 | ) | (10 | ) | 7 | ||||||||||||||||||||
Total deferred tax provision | (5 | ) | 38 | 38 | 50 | (5 | ) | 38 | ||||||||||||||||||||||
Total income tax provision | $ | 115 | $ | 84 | $ | 64 | $ | 119 | $ | 115 | $ | 84 |
44
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||||||||||
State and local income taxes, net of federal tax benefit | 2.4 | 2.0 | 3.5 | 2.3 | 2.4 | 2.0 | ||||||||||||||||||||||
International income taxed at varying rates | 0.5 | 1.0 | (1.0 | ) | (0.6 | ) | 0.5 | 1.0 | ||||||||||||||||||||
Foreign tax credit utilization | (1.0 | ) | (1.2 | ) | (0.8 | ) | (2.5 | ) | (1.0 | ) | (1.2 | ) | ||||||||||||||||
Increase (decrease) in valuation allowance | (1.5 | ) | (2.0 | ) | — | 0.1 | (1.5 | ) | (2.0 | ) | ||||||||||||||||||
Change in Canadian tax rates | — | — | 1.1 | |||||||||||||||||||||||||
Federal/foreign tax settlements | (3.3 | ) | — | — | ||||||||||||||||||||||||
State and local tax settlements | (0.2 | ) | (0.3 | ) | (4.1 | ) | — | (0.2 | ) | (0.3 | ) | |||||||||||||||||
Goodwill amortization | — | — | 1.5 | |||||||||||||||||||||||||
Tax exempt obligations | (0.2 | ) | (0.1 | ) | — | (0.2 | ) | (0.2 | ) | (0.1 | ) | |||||||||||||||||
Work opportunity tax credit | (0.1 | ) | (0.3 | ) | (0.5 | ) | (0.2 | ) | (0.1 | ) | (0.3 | ) | ||||||||||||||||
Other, net | 0.6 | 0.1 | 1.9 | 1.1 | 0.6 | 0.1 | ||||||||||||||||||||||
Effective income tax rate | 35.5 | % | 34.2 | % | 36.6 | % | 31.7 | % | 35.5 | % | 34.2 | % |
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Deferred tax assets: | |||||||||||
Tax loss/credit carryforwards | $ | 89 | $ | 99 | |||||||
Employee benefits | 116 | 135 | |||||||||
Reserve for discontinued operations | 5 | 8 | |||||||||
Repositioning and restructuring reserves | 3 | 2 | |||||||||
Property and equipment | 89 | 81 | |||||||||
Allowance for returns and doubtful accounts | 7 | 10 | |||||||||
Straight-line rent | 19 | 17 | |||||||||
Goodwill | — | 1 | |||||||||
Other | 17 | 22 | |||||||||
Total deferred tax assets | 345 | 375 | |||||||||
Valuation allowance | (124 | ) | (122 | ) | |||||||
Total deferred tax assets, net | $ | 221 | $ | 253 |
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Deferred tax assets: | |||||||||||
Tax loss/credit carryforwards | $ | 99 | $ | 95 | |||||||
Employee benefits | 135 | 162 | |||||||||
Reserve for discontinued operations | 8 | 10 | |||||||||
Repositioning and restructuring reserves | 2 | 3 | |||||||||
Property and equipment | 82 | 76 | |||||||||
Allowance for returns and doubtful accounts | 10 | 6 | |||||||||
Straight-line rent | 17 | 11 | |||||||||
Other | 22 | 25 | |||||||||
Total deferred tax assets | 375 | 388 | |||||||||
Valuation allowance | (122 | ) | (121 | ) | |||||||
Total deferred tax assets, net | $ | 253 | $ | 267 | |||||||
Deferred tax liabilities: | |||||||||||
Inventories | $ | 13 | $ | 25 | |||||||
Other | 1 | 3 | |||||||||
Total deferred tax liabilities | 14 | 28 | |||||||||
Net deferred tax asset | $ | 239 | $ | 239 | |||||||
Balance Sheet caption reported in: | |||||||||||
Deferred taxes | $ | 194 | $ | 240 | |||||||
Other current assets | 60 | 15 | |||||||||
Other liabilities | (15 | ) | (16 | ) | |||||||
$ | 239 | $ | 239 |
4544
2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Deferred tax liabilities: | |||||||||||
Inventories | $ | 8 | $ | 13 | |||||||
Goodwill | 2 | — | |||||||||
Other | 1 | 1 | |||||||||
Total deferred tax liabilities | 11 | 14 | |||||||||
Net deferred tax asset | $ | 210 | $ | 239 | |||||||
Balance Sheet caption reported in: | |||||||||||
Deferred taxes | $ | 180 | $ | 194 | |||||||
Other current assets | 53 | 60 | |||||||||
Other current liabilities | (1 | ) | — | ||||||||
Other liabilities | (22 | ) | (15 | ) | |||||||
$ | 210 | $ | 239 |
19 | Financial Instruments and Risk Management |
19 Financial Instruments and Risk Management
Foreign Exchange Risk Management
46
46
Foreign Currency Exchange Rates
Fair Value (US in millions) | Contract Value (US in millions) | Weighted-Average Exchange Rate | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Inventory | ||||||||||||||
Buy euro/ Sell British pound | $ | (1 | ) | $ | 41 | 0.7028 | ||||||||
Buy $US/Sell euro | — | 2 | 1.2631 | |||||||||||
$ | (1 | ) | $ | 43 | �� | |||||||||
Intercompany | ||||||||||||||
Buy $US/Sell euro | $ | — | $ | 78 | 1.2331 | |||||||||
Buy $US/Sell CAD$ | — | 6 | 0.7588 | |||||||||||
Buy euro/Sell British pound | (1 | ) | 27 | 0.7086 | ||||||||||
$ | (1 | ) | $ | 111 |
47
Fair Value (US in millions) | Contract Value (US in millions) | Weighted-Average Exchange Rate | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Inventory | ||||||||||||||
Buy €/Sell British £ | $ | — | $ | 59 | 0.6996 | |||||||||
Intercompany | ||||||||||||||
Buy €/Sell $US | $ | — | $ | 6 | 1.2290 | |||||||||
Buy $US/Sell € | (3 | ) | 69 | 1.2432 | ||||||||||
Buy €/Sell British £ | — | 17 | 0.7187 | |||||||||||
$ | (3 | ) | $ | 151 |
Interest Rate Risk Management
2004 | 2003 | 2002 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in millions) | |||||||||||||||
Interest Rate Swaps: | |||||||||||||||
Fixed to Variable ($US) | $ | 100 | $ | 100 | $ | 50 | |||||||||
Average pay rate | 6.46 | % | 5.07 | % | 4.53 | % | |||||||||
Average receive rate | 8.50 | % | 8.50 | % | 8.50 | % | |||||||||
Variable to variable ($US) | $ | 100 | $ | — | $ | — | |||||||||
Average pay rate | 2.73 | % | — | % | — | % | |||||||||
Average receive rate | 3.25 | % | — | % | — | % |
Interest Rates
2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Jan. 31, 2004 Total | Feb. 1, 2003 Total | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||||||||||||||||||||
Long-term debt | $ | — | — | — | — | 239 | 196 | $ | 435 | $ | 341 | ||||||||||||||||||||||
Fixed rate | |||||||||||||||||||||||||||||||||
weighted-average interest rate | 5.9 | % | 5.9 | % | 5.9 | % | 5.9 | % | 6.1 | % | 6.3 | % |
2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Jan. 29, 2005 Total | Jan. 31, 2004 Total | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ in millions) | |||||||||||||||||||||||||||||||||||
Long-term debt | $ | 18 | 18 | 26 | 26 | 87 | 193 | $ | 368 | $ | 435 | ||||||||||||||||||||||||
Weighted-average interest rate | 5.2 | % | 5.3 | % | 5.4 | % | 5.6 | % | 6.6 | % | 6.9 | % |
47
Fair Value of Financial Instruments
Business Risk
48
20 | Retirement Plans and Other Benefits |
20 Retirement Plans and Other Benefits
Pension and Other Postretirement Plans
Pension Benefits | Postretirement Benefits | Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2003 | 2002 | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||
Change in benefit obligation | ||||||||||||||||||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 685 | $ | 655 | $ | 30 | $ | 37 | $ | 697 | $ | 685 | $ | 27 | $ | 30 | ||||||||||||||||||||||
Service cost | 8 | 8 | — | — | 9 | 8 | — | — | ||||||||||||||||||||||||||||||
Interest cost | 43 | 44 | 1 | 2 | 39 | 43 | 1 | 1 | ||||||||||||||||||||||||||||||
Plan participants’ contributions | — | — | 5 | 5 | — | — | 5 | 5 | ||||||||||||||||||||||||||||||
Actuarial (gain) loss | 18 | 43 | 1 | (3 | ) | |||||||||||||||||||||||||||||||||
Actuarial loss | 16 | 18 | — | 1 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 11 | 3 | — | — | 5 | 11 | — | — | ||||||||||||||||||||||||||||||
Benefits paid | (68 | ) | (68 | ) | (10 | ) | (11 | ) | (63 | ) | (68 | ) | (9 | ) | (10 | ) | ||||||||||||||||||||||
Benefit obligation at end of year | $ | 697 | 685 | $ | 27 | 30 | $ | 703 | $ | 697 | $ | 24 | $ | 27 | ||||||||||||||||||||||||
Change in plan assets | ||||||||||||||||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 380 | $ | 500 | $ | 474 | $ | 380 | ||||||||||||||||||||||||||||||
Actual return on plan assets | 101 | (57 | ) | 28 | 101 | |||||||||||||||||||||||||||||||||
Employer contribution | 54 | 2 | 108 | 54 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 7 | 3 | 4 | 7 | ||||||||||||||||||||||||||||||||||
Benefits paid | (68 | ) | (68 | ) | (63 | ) | (68 | ) | ||||||||||||||||||||||||||||||
Fair value of plan assets at end of year | $ | 474 | $ | 380 | $ | 551 | $ | 474 | ||||||||||||||||||||||||||||||
Funded status | ||||||||||||||||||||||||||||||||||||||
Funded status | $ | (223 | ) | $ | (305 | ) | $ | (27 | ) | $ | (30 | ) | ||||||||||||||||||||||||||
Unrecognized prior service cost (benefit) | 5 | 5 | (11 | ) | (12 | ) | ||||||||||||||||||||||||||||||||
Unrecognized net (gain) loss | 296 | 337 | (80 | ) | (96 | ) | ||||||||||||||||||||||||||||||||
Prepaid asset (accrued liability) | $ | 78 | $ | 37 | $ | (118 | ) | $ | (138 | ) | ||||||||||||||||||||||||||||
Balance Sheet caption reported in: | ||||||||||||||||||||||||||||||||||||||
Intangible assets | $ | 2 | $ | 2 | $ | — | $ | — | ||||||||||||||||||||||||||||||
Accrued liabilities | (52 | ) | (53 | ) | (5 | ) | (6 | ) | ||||||||||||||||||||||||||||||
Other liabilities | (175 | ) | (237 | ) | (113 | ) | (132 | ) | ||||||||||||||||||||||||||||||
Accumulated other comprehensive income, pre-tax | 303 | 325 | — | — | ||||||||||||||||||||||||||||||||||
$ | 78 | $ | 37 | $ | (118 | ) | $ | (138 | ) |
48
Pension Benefits | Postretirement Benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2004 | 2003 | ||||||||||||||||
(in millions) | |||||||||||||||||||
Funded status | |||||||||||||||||||
Funded status | $ | (152 | ) | $ | (223 | ) | $ | (24 | ) | $ | (27 | ) | |||||||
Unrecognized prior service cost (benefit) | 4 | 5 | (10 | ) | (11 | ) | |||||||||||||
Unrecognized net (gain) loss | 324 | 296 | (67 | ) | (80 | ) | |||||||||||||
Prepaid asset (accrued liability) | $ | 176 | $ | 78 | $ | (101 | ) | $ | (118 | ) | |||||||||
Balance Sheet caption reported in: | |||||||||||||||||||
Intangible assets | $ | 1 | $ | 2 | $ | — | $ | — | |||||||||||
Accrued liabilities | (24 | ) | (52 | ) | (6 | ) | (5 | ) | |||||||||||
Other liabilities | (130 | ) | (175 | ) | (95 | ) | (113 | ) | |||||||||||
Accumulated other comprehensive loss, pre-tax | 329 | 303 | — | — | |||||||||||||||
$ | 176 | $ | 78 | $ | (101 | ) | $ | (118 | ) |
49
Pension Benefits | Postretirement Benefits | Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2003 | 2002 | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||||||||||||||
Discount rate | 5.90 | % | 6.50 | % | 5.90 | % | 6.50 | % | 5.50 | % | 5.90 | % | 5.50 | % | 5.90 | % | ||||||||||||||||||||||
Rate of compensation increase | 3.72 | % | 3.65 | % | 3.79 | % | 3.72 | % |
Pension Benefits | Postretirement Benefits | Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | 2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Service cost | $ | 8 | $ | 8 | $ | 8 | $ | — | $ | — | $ | — | $ | 9 | $ | 8 | $ | 8 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||
Interest cost | 43 | 44 | 45 | 2 | 2 | 3 | 39 | 43 | 44 | 1 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (46 | ) | (50 | ) | (58 | ) | — | — | — | (48 | ) | (46 | ) | (50 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||
Amortization of prior service cost | — | 1 | 1 | (1 | ) | (1 | ) | (2 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Amortization of prior service cost (benefit) | 1 | — | 1 | (1 | ) | (1 | ) | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Amortization of net (gain) loss | 9 | 3 | — | (16 | ) | (12 | ) | (9 | ) | 11 | 9 | 3 | (13 | ) | (16 | ) | (12 | ) | ||||||||||||||||||||||||||||||||||||
Net benefit expense (income) | $ | 14 | $ | 6 | $ | (4 | ) | $ | (15 | ) | $ | (11 | ) | $ | (8 | ) | $ | 12 | $ | 14 | $ | 6 | $ | (13 | ) | $ | (15 | ) | $ | (11 | ) |
Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2004 | 2003 | 2002 | 2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||
Discount rate | 6.50 | % | 7.00 | % | 7.44 | % | 6.50 | % | 7.00 | % | 7.50 | % | 5.90 | % | 6.50 | % | 7.00 | % | 5.90 | % | 6.50 | % | 7.00 | % | ||||||||||||||||||||||||||||||
Rate of compensation increase | 3.72 | % | 3.53 | % | 4.96 | % | 3.79 | % | 3.72 | % | 3.53 | % | ||||||||||||||||||||||||||||||||||||||||||
Expected long-term rate of return on assets | 8.88 | % | 8.87 | % | 9.93 | % | 8.89 | % | 8.88 | % | 8.87 | % | �� |
49
50
Plan Assets as of | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2004 | 2003 | ||||||||||||||||||
Asset Category | |||||||||||||||||||||
Equity securities | 63 | % | 61 | % | 63 | % | 63 | % | |||||||||||||
Foot Locker, Inc. common stock | 2 | % | 1 | % | 2 | % | 2 | % | |||||||||||||
Debt securities | 33 | % | 36 | % | 33 | % | 33 | % | |||||||||||||
Real estate | 1 | % | 1 | % | 1 | % | 1 | % | |||||||||||||
Other | 1 | % | 1 | % | 1 | % | 1 | % | |||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
Pension Benefits | Postretirement Benefits | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
2005 | $63 | $5 | |||||||||
2006 | 62 | 4 | |||||||||
2007 | 60 | 3 | |||||||||
2008 | 58 | 3 | |||||||||
2009 | 58 | 2 | |||||||||
2010–2014 | 266 | 8 |
401(k) PlanSavings Plans
50
21 Stock Plans
51
Stock Option Plans | Stock Purchase Plan | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Weighted-average risk free rate of interest | 2.26 | % | 4.17 | % | 4.17 | % | 1.11 | % | 2.59 | % | 3.73 | % | |||||||||||||||
Expected volatility | 37 | % | 42 | % | 48 | % | 31 | % | 35 | % | 40 | % | |||||||||||||||
Weighted-average expected award life | 3.4 | years | 3.5 | years | 4.0 | years | .7 | years | .7 | years | .7 | years | |||||||||||||||
Dividend yield | 1.2 | % | 1.2 | % | — | — | — | — | |||||||||||||||||||
Weighted-average fair value | $ | 2.90 | $ | 5.11 | $ | 5.31 | $ | 14.15 | $ | 4.23 | $ | 4.42 |
Stock Option Plans | Stock Purchase Plan | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | ||||||||||||||||||||||
Weighted-average risk free rate of interest | 2.57 | % | 2.26 | % | 4.17 | % | 1.33 | % | 1.11 | % | 2.59 | % | |||||||||||||||
Expected volatility | 33 | % | 37 | % | 42 | % | 32 | % | 31 | % | 35 | % | |||||||||||||||
Weighted-average expected award life | 3.7 | years | 3.4 | years | 3.5 | years | .7 | years | .7 | years | .7 | years | |||||||||||||||
Dividend yield | 1.1 | % | 1.2 | % | 1.2 | % | — | — | — | ||||||||||||||||||
Weighted-average fair value | $ | 6.51 | $ | 2.90 | $ | 5.11 | $ | 11.44 | $ | 14.15 | $ | 4.23 |
51
52
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | |||||||||||||||||||||||||||||||||||||||||||
(in thousands, except prices per share) | (in thousands, except prices per share) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Options outstanding at beginning of year | 7,676 | $ | 15.18 | 7,557 | $ | 14.63 | 7,696 | $ | 14.49 | 6,886 | $ | 14.73 | 7,676 | $ | 15.18 | 7,557 | $ | 14.63 | ||||||||||||||||||||||||||||||||||||
Granted | 1,439 | $ | 10.81 | 1,640 | $ | 15.72 | 2,324 | $ | 12.81 | 1,183 | $ | 25.20 | 1,439 | $ | 10.81 | 1,640 | $ | 15.72 | ||||||||||||||||||||||||||||||||||||
Exercised | 1,830 | $ | 12.50 | 783 | $ | 6.67 | 995 | $ | 7.28 | 1,853 | $ | 14.43 | 1,830 | $ | 12.50 | 783 | $ | 6.67 | ||||||||||||||||||||||||||||||||||||
Expired or canceled | 399 | $ | 19.55 | 738 | $ | 19.80 | 1,468 | $ | 15.98 | 307 | $ | 19.13 | 399 | $ | 19.55 | 738 | $ | 19.80 | ||||||||||||||||||||||||||||||||||||
Options outstanding at end of year | 6,886 | $ | 14.73 | 7,676 | $ | 15.18 | 7,557 | $ | 14.63 | 5,909 | $ | 16.69 | 6,886 | $ | 14.73 | 7,676 | $ | 15.18 | ||||||||||||||||||||||||||||||||||||
Options exercisable at end of year | 4,075 | $ | 15.99 | 4,481 | $ | 15.94 | 4,371 | $ | 16.83 | 3,441 | $ | 15.34 | 4,075 | $ | 15.99 | 4,481 | $ | 15.94 | ||||||||||||||||||||||||||||||||||||
Options available for future grant at end of year | 8,780 | 6,739 | 7,389 | 7,464 | 8,780 | 6,739 |
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | Shares | Weighted- Average Remaining Contractual Life | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | ||||||||||||||||||
(in thousands, except prices per share) | |||||||||||||||||||||||
$ 4.53 to $10.78 | 1,815 | 8.0 | $ | 9.58 | 553 | $ | 8.10 | ||||||||||||||||
$10.90 to $12.99 | 1,891 | 7.0 | 12.28 | 1,476 | 12.13 | ||||||||||||||||||
$13.21 to $16.02 | 1,726 | 7.4 | 15.77 | 711 | 15.67 | ||||||||||||||||||
$16.19 to $28.13 | 1,454 | 4.0 | 23.08 | 1,335 | 23.69 | ||||||||||||||||||
$ 4.53 to $28.13 | 6,886 | 6.7 | $ | 14.73 | 4,075 | $ | 15.99 |
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | Shares | Weighted- Average Remaining Contractual Life | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | ||||||||||||||||||
(in thousands, except prices per share) | |||||||||||||||||||||||
$ 4.53 to $10.75 | 1,230 | 7.7 | $ | 9.85 | 483 | $ | 9.25 | ||||||||||||||||
$10.78 to $15.75 | 1,529 | 5.9 | 12.53 | 1,487 | 12.51 | ||||||||||||||||||
$15.85 to $21.88 | 1,318 | 7.0 | 16.55 | 772 | 16.70 | ||||||||||||||||||
$22.19 to $28.13 | 1,832 | 6.7 | 24.84 | 699 | 24.09 | ||||||||||||||||||
$ 4.53 to $28.13 | 5,909 | 6.8 | $ | 16.69 | 3,441 | $ | 15.34 |
22 Restricted Stock
22 | Restricted Stock |
23 Shareholder Rights Plan52
23 | Shareholder Rights Plan |
53
24 | Legal Proceedings |
24 Legal Proceedings
25 Commitments
25 | Commitments |
26 Shareholder InformationMarket Prices (Unaudited)disclosed above or unconsolidated special purpose entities. The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, including variable interest entities.
26 | Shareholder Information and Market Prices (Unaudited) |
2003 | 2002 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
High | Low | High | Low | High | Low | High | Low | |||||||||||||||||||||||||||||||
Common Stock Quarter | ||||||||||||||||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||||||||||||
Quarter | ||||||||||||||||||||||||||||||||||||||
1st Q | $ | 11.40 | $ | 9.28 | $ | 17.95 | $ | 14.35 | $ | 27.59 | $ | 21.75 | $ | 11.40 | $ | 9.28 | ||||||||||||||||||||||
2nd Q | 15.20 | 10.10 | 16.00 | 9.02 | 25.03 | 19.97 | 15.20 | 10.10 | ||||||||||||||||||||||||||||||
3rd Q | 18.20 | 13.85 | 11.19 | 8.20 | 24.80 | �� | 19.98 | 18.20 | 13.85 | |||||||||||||||||||||||||||||
4th Q | 25.97 | 18.01 | 13.73 | 9.75 | 27.26 | 22.75 | 25.97 | 18.01 |
5453
27 Quarterly Results (Unaudited)
27 | Quarterly Results (Unaudited) |
1st Q | 2nd Q | 3rd Q | 4th Q | Year | 1st Q | 2nd Q | 3rd Q | 4th Q | Year | |||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions, except per share amounts) | (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||
Sales | ||||||||||||||||||||||||||||||||||||||||||||||
2004 | $ | 1,186 | 1,268 | 1,366 | 1,535 | 5,355 | ||||||||||||||||||||||||||||||||||||||||
2003 | $ | 1,128 | 1,123 | 1,194 | 1,334 | 4,779 | 1,128 | 1,123 | 1,194 | 1,334 | 4,779 | |||||||||||||||||||||||||||||||||||
2002 | 1,090 | 1,085 | 1,120 | 1,214 | 4,509 | |||||||||||||||||||||||||||||||||||||||||
Gross margin(a) | ||||||||||||||||||||||||||||||||||||||||||||||
2004 | $ | 361 | 369 | 426 | 477 | 1,633 | ||||||||||||||||||||||||||||||||||||||||
2003 | $ | 345 | 331 | 389 | 412 | 1,477 | 346 | 332 | 390 | 414 | 1,482 | |||||||||||||||||||||||||||||||||||
2002 | 320 | 312 | 343 | 369 | 1,344 | |||||||||||||||||||||||||||||||||||||||||
Operating profit(b) | ||||||||||||||||||||||||||||||||||||||||||||||
2004 | $ | 78 | 61 | 117 | 133 | 389 | ||||||||||||||||||||||||||||||||||||||||
2003 | $ | 67 | 59 | 102 | 114 | 342 | 67 | 59 | 102 | 114 | 342 | |||||||||||||||||||||||||||||||||||
2002 | 64 | 55 | 72 | (c) | 78 | (d) | 269 | |||||||||||||||||||||||||||||||||||||||
Income from continuing operations | ||||||||||||||||||||||||||||||||||||||||||||||
2004 | $ | 47 | 45 | 74 | 89 | 255 | ||||||||||||||||||||||||||||||||||||||||
2003 | $ | 39 | 37 | 62 | 71 | 209 | 39 | 37 | 62 | 71 | 209 | |||||||||||||||||||||||||||||||||||
2002 | �� | 38 | (e) | 33 | 43 | (e) | 48 | 162 | (e) | |||||||||||||||||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||||||||||||||
2004 | $ | 48 | 82 | 74 | 89 | 293 | ||||||||||||||||||||||||||||||||||||||||
2003 | $ | 38 | 36 | 62 | 71 | 207 | 38 | 36 | 62 | 71 | 207 | |||||||||||||||||||||||||||||||||||
2002 | 20 | (e) | 31 | 45 | (e) | 57 | 153 | (e) | ||||||||||||||||||||||||||||||||||||||
Basic earnings per share: | ||||||||||||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.33 | 0.30 | 0.47 | 0.58 | 1.69 | ||||||||||||||||||||||||||||||||||||||||
Income from discontinued operations | — | 0.25 | — | — | 0.25 | |||||||||||||||||||||||||||||||||||||||||
Net income | 0.33 | 0.55 | 0.47 | 0.58 | 1.94 | |||||||||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.28 | 0.26 | 0.43 | 0.50 | 1.47 | $ | 0.28 | 0.26 | 0.43 | 0.50 | 1.47 | ||||||||||||||||||||||||||||||||||
Loss from discontinued operations | — | (0.01 | ) | — | — | (0.01 | ) | — | (0.01 | ) | — | — | (0.01 | ) | ||||||||||||||||||||||||||||||||
Cumulative effect of accounting change(f) | (0.01 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Net income | 0.27 | 0.25 | 0.43 | 0.50 | 1.46 | |||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.27 | (e) | 0.23 | 0.30 | (e) | 0.35 | 1.15 | (e) | |||||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations | (0.13 | ) | (0.01 | ) | 0.02 | 0.06 | (0.06 | ) | ||||||||||||||||||||||||||||||||||||||
Cumulative effect of accounting change(c) | (0.01 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Net income | 0.14 | (e) | 0.22 | 0.32 | (e) | 0.41 | 1.09 | (e) | 0.27 | 0.25 | 0.43 | 0.50 | 1.46 | |||||||||||||||||||||||||||||||||
Diluted earnings per share: | ||||||||||||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.31 | 0.29 | 0.47 | 0.57 | 1.64 | ||||||||||||||||||||||||||||||||||||||||
Income from discontinued operations | — | 0.24 | — | — | 0.24 | |||||||||||||||||||||||||||||||||||||||||
Net income | 0.31 | 0.53 | 0.47 | 0.57 | 1.88 | |||||||||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.27 | 0.25 | 0.41 | 0.47 | 1.40 | $ | 0.27 | 0.25 | 0.41 | 0.47 | 1.40 | ||||||||||||||||||||||||||||||||||
Loss from discontinued operations | — | (0.01 | ) | — | — | (0.01 | ) | — | (0.01 | ) | — | — | (0.01 | ) | ||||||||||||||||||||||||||||||||
Cumulative effect of accounting change(f) | (0.01 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Cumulative effect of accounting change(c) | (0.01 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Net income | 0.26 | 0.24 | 0.41 | 0.47 | 1.39 | 0.26 | 0.24 | 0.41 | 0.47 | 1.39 | ||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.26 | (e) | 0.22 | 0.29 | (e) | 0.33 | 1.10 | (e) | |||||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations | (0.12 | ) | (0.01 | ) | 0.02 | 0.06 | (0.05 | ) | ||||||||||||||||||||||||||||||||||||||
Net income | 0.14 | (e) | 0.21 | 0.31 | (e) | 0.39 | 1.05 | (e) |
(a) | Gross margin represents sales less cost of sales. Includes the effects of the reclassification of tenant allowances as deferred credits, which are amortized as a reduction of rent expense as a component of costs of sales. Costs of sales was reduced by $1 million in each of the first three quarters of 2004 and 2003 and by $2 million for each of the fourth quarters of 2004 and 2003. |
(b) | Operating profit represents income from continuing operations before income taxes, interest expense, net and non-operating income. |
(c) |
Cumulative effect of accounting change became further diluted during the second quarter, and therefore is not shown in the year-to-date amount. |
5554
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
2003 | 2002 | 2001 | 2000 | 1999 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions, except per share amounts) | | |||||||||||||||||||||||||||||||||||||||||||
($ in millions, except per share amounts) | | | | | | ||||||||||||||||||||||||||||||||||||||||
Summary of Continuing Operations | |||||||||||||||||||||||||||||||||||||||||||||
Sales | $ | 4,779 | 4,509 | 4,379 | 4,356 | 4,263 | $ | 5,355 | 4,779 | 4,509 | 4,379 | 4,356 | |||||||||||||||||||||||||||||||||
Gross margin | 1,477 | 1,344 | 1,308 | 1,309 | 1,164 | (1) | 1,633 | 1,482 | 1,348 | 1,312 | 1,312 | ||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 987 | 928 | 923 | 975 | 985 | 1,088 | 987 | 928 | 923 | 975 | |||||||||||||||||||||||||||||||||||
Restructuring charges (income) | 1 | (2 | ) | 34 | 1 | 85 | 2 | 1 | (2 | ) | 34 | 1 | |||||||||||||||||||||||||||||||||
Depreciation and amortization | 147 | 149 | 154 | 151 | 169 | 154 | 152 | 153 | 158 | 154 | |||||||||||||||||||||||||||||||||||
Interest expense, net | 18 | 26 | 24 | 22 | 51 | 15 | 18 | 26 | 24 | 22 | |||||||||||||||||||||||||||||||||||
Other income | — | (3 | ) | (2 | ) | (16 | ) | (223 | ) | ||||||||||||||||||||||||||||||||||||
Other (income) expense | — | — | (3 | ) | (2 | ) | (16 | ) | |||||||||||||||||||||||||||||||||||||
Income from continuing operations | 209 | 162 | 111 | (4) | 107 | (4) | 59 | (4) | 255 | 209 | 162 | 111 | (3) | 107 | (3) | ||||||||||||||||||||||||||||||
Cumulative effect of accounting change(2) | (1 | ) | — | — | (1 | ) | 8 | — | (1 | ) | — | — | (1 | ) | |||||||||||||||||||||||||||||||
Basic earnings per share from continuing operations | 1.47 | 1.15 | 0.79 | (4) | 0.78 | (4) | 0.43 | (4) | 1.69 | 1.47 | 1.15 | 0.79 | (3) | 0.78 | (3) | ||||||||||||||||||||||||||||||
Basic earnings per share from cumulative effect of accounting change | — | — | — | (0.01 | ) | 0.06 | — | — | — | — | (0.01 | ) | |||||||||||||||||||||||||||||||||
Diluted earnings per share from continuing operations | 1.40 | 1.10 | 0.77 | (4) | 0.77 | (4) | 0.43 | (4) | 1.64 | 1.40 | 1.10 | 0.77 | (3) | 0.77 | (3) | ||||||||||||||||||||||||||||||
Diluted earnings per share from cumulative effect of accounting change | — | — | — | (0.01 | ) | 0.06 | — | — | — | — | (0.01 | ) | |||||||||||||||||||||||||||||||||
Common stock dividends declared | 0.15 | 0.03 | — | — | — | 0.26 | 0.15 | 0.03 | — | — | |||||||||||||||||||||||||||||||||||
Weighted-average common shares outstanding (in millions) | 141.6 | 140.7 | 139.4 | 137.9 | 137.2 | 150.9 | 141.6 | 140.7 | 139.4 | 137.9 | |||||||||||||||||||||||||||||||||||
Weighted-average common shares outstanding assuming dilution (in millions) | 152.9 | 150.8 | 146.9 | 139.1 | 138.2 | 157.1 | 152.9 | 150.8 | 146.9 | 139.1 | |||||||||||||||||||||||||||||||||||
Financial Condition | |||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 448 | 357 | 215 | 109 | 162 | |||||||||||||||||||||||||||||||||||||||
Cash, cash equivalents and short-term investments | $ | 492 | 448 | 357 | 215 | 109 | |||||||||||||||||||||||||||||||||||||||
Merchandise inventories | 920 | 835 | 793 | 730 | 697 | 1,151 | 920 | 835 | 793 | 730 | |||||||||||||||||||||||||||||||||||
Property and equipment, net | 644 | 636 | 637 | 684 | 754 | 715 | 668 | 664 | 665 | 712 | |||||||||||||||||||||||||||||||||||
Total assets | 2,689 | 2,486 | 2,300 | 2,278 | 2,525 | 3,237 | 2,713 | 2,514 | 2,328 | 2,306 | |||||||||||||||||||||||||||||||||||
Short-term debt | — | — | — | — | 71 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Long-term debt and obligations under capital leases | 335 | 357 | 399 | 313 | 418 | 365 | 335 | 357 | 399 | 313 | |||||||||||||||||||||||||||||||||||
Total shareholders’ equity | 1,375 | 1,110 | 992 | 1,013 | 1,139 | 1,830 | 1,375 | 1,110 | 992 | 1,013 | |||||||||||||||||||||||||||||||||||
Financial Ratios | |||||||||||||||||||||||||||||||||||||||||||||
Return on equity (ROE) | 16.8 | % | 15.4 | 11.1 | 10.0 | 5.4 | 15.9 | % | 16.8 | 15.4 | 11.1 | 10.0 | |||||||||||||||||||||||||||||||||
Operating profit margin | 7.2 | % | 6.0 | 4.5 | 4.2 | (1.8 | ) | 7.3 | % | 7.2 | 6.0 | 4.5 | 4.2 | ||||||||||||||||||||||||||||||||
Income from continuing operations as a percentage of sales | 4.4 | % | 3.6 | 2.5 | (4) | 2.5 | (4) | 1.4 | (4) | 4.8 | % | 4.4 | 3.6 | 2.5 | (3) | 2.5 | (3) | ||||||||||||||||||||||||||||
Net debt capitalization percent | 53.3 | % | 58.6 | 61.1 | 60.9 | 61.2 | 50.4 | % | 53.3 | 58.6 | 61.1 | 60.9 | |||||||||||||||||||||||||||||||||
Net debt capitalization percent (without present value of operating leases) | — | — | 15.6 | 16.8 | 22.3 | — | — | — | 15.6 | 16.8 | |||||||||||||||||||||||||||||||||||
Current ratio | 2.8 | 2.2 | 2.0 | 1.5 | 1.5 | 2.7 | 2.8 | 2.2 | 2.0 | 1.5 | |||||||||||||||||||||||||||||||||||
Other Data | |||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures | $ | 144 | 150 | 116 | 94 | 152 | $ | 156 | 144 | 150 | 116 | 94 | |||||||||||||||||||||||||||||||||
Number of stores at year end | 3,610 | 3,625 | 3,590 | 3,752 | 3,953 | 3,967 | 3,610 | 3,625 | 3,590 | 3,752 | |||||||||||||||||||||||||||||||||||
Total selling square footage at year end (in millions) | 7.92 | 8.04 | 7.94 | 8.09 | 8.40 | 8.89 | 7.92 | 8.04 | 7.94 | 8.09 | |||||||||||||||||||||||||||||||||||
Total gross square footage at year end (in millions) | 13.14 | 13.22 | 13.14 | 13.32 | 13.35 | 14.78 | 13.14 | 13.22 | 13.14 | 13.32 |
(1) |
(2) | 2003 relates to adoption of SFAS No. 143 “Accounting for Asset Retirement Obligations” (see note 1). 2000 reflects change in method of accounting for layaway sales. |
(3) |
As more fully described in note |
(4) | Property and equipment, net and total assets include the reclassification of tenant allowances as deferred credits, which were previously recorded as a reduction to the cost of property and equipment, and are now classified as part of the deferred rent liability. Property and equipment, net and total assets were increased by $22 million in 2004, $24 million in 2003 and $28 million in each of 2002, 2001 and 2000. |
(5) | Represents total debt, net of cash, cash equivalents and short-term investments and excludes the effect of interest rate swaps of $4 million that increased long-term debt at January 29, 2005 and $1 million that reduced long-term debt at January 31, 2004. |
5655
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
(a) | Evaluation of Disclosure Controls and Procedures. |
PART III PART IV SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on FOOT LOCKER, 59 60 61 62 Exhibits filed with this Form 10-K: 63Item 9A. ControlsProceduresThewith the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer have evaluated(“CFO”), and completed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as such(as that term is defined in Rules 13a-14(c)13a-15(e) and 15d-14(c)15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.January 29, 2005. Based on that evaluation, the Chief Executive OfficerCompany’s CEO and the Chief Financial OfficerCFO concluded that the Company’s disclosure controls and procedures arewere effective as of January 29, 2005 in ensuring thatalerting them in a timely manner to all material information required to be includeddisclosed in this annual report has been made known to them in a timely fashion.report.(b) Management’s Annual Report on Internal Control over Financial Reporting. Chief Executive Officermanagement is responsible for establishing and Chief Financial Officer also conducted an evaluationmaintaining adequate internal control over financial reporting (as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). To evaluate the effectiveness of the Company’s internal control over financial reporting, to determine whether anythe Company uses the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Using the COSO Framework, the Company’s management, including the CEO and CFO, evaluated the Company’s internal control over financial reporting and concluded that the Company’s internal control over financial reporting was effective as of January 29, 2005. KPMG LLP, the independent registered public accounting firm that audits the Company’s consolidated financial statements included in this annual report, has issued an attestation report on the Company’s assessment of internal control over financial reporting, which is included herein under the caption “Management’s Report on Internal Control over Financial Reporting” in “Item 8. Consolidated Financial Statements and Supplementary Data.”(c) Attestation Report of the Independent Registered Public Accounting Firm. (d) Changes in Internal Control over Financial Reporting. occurred during the period covered by this reportin internal control over financial reporting that have materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reporting. There have been no material changes in the Company’s internal controls, or in the factors that could materially affect internal controls, subsequent to the date the Chief Executive Officer and the Chief Financial Officer completed their evaluation.Item 10. Directors and Executive Officers of the CompanyItem 10. Directors and Executive Officers of the Company (a) Directors of the Company (b) Executive Officers of the Company (c) Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is set forth under the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated herein by reference. (d) Information on our audit committee financials expertsfinancial expert is contained in the Proxy Statement under the section captioned “Committees of the Board of Directors” and is incorporated herein by reference.(e) Information about the Code of Business Conduct governing our employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and the Board of Directors, is set forth under the heading “Code of Business Conduct” under the Corporate Governance section of the Proxy Statement and is incorporated herein by reference. Item 11. Executive Compensation56Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and ManagementItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 57Item 13. Certain Relationships and Related Transactions Item 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesItem 14. Principal Accountant Fees and Services Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K(a) (1) (a)(2)Exhibits and Financial StatementsStatement Schedules“”6059 through 63. The exhibits filed with this report immediately follow the index.(b) Reports on Form 8-KThe Company filed the following reports on Form 8-K during the fourth quarter of the year ended January 31, 2004:Form 8-K, dated November 6, 2003, under Items 7 and 12, reporting the Company’s sales results for the third quarter of 2003.Form 8-K, dated November 19, 2003, under Items 7 and 12, reporting operating results for the third quarter of 2003.Form 8-K, dated November 19, 2003, under Items 5 and 7, reporting an amendment to the Rights Agreement between the Company and The Bank of New York.Form 8-K, dated January 14, 2004, under Item 5, reporting that a Form 144 filed with the Securities and Exchange Commission by the Company’s President and Chief Executive Officer was filed in error.5857
By:Matthew D. SerraChairman of the Board, President andChief Executive Officer
Chairman of the Board, President and
Chief Executive OfficerApril 5, 2004,March 28, 2005, by the following persons on behalf of the Company and in the capacities indicated.
Matthew D. Serra
Chairman of the Board,
President and
Chief Executive Officer
Bruce L. Hartman
Executive Vice President and
Chief Financial Officer W.W. MCCHUGHHUGH
Robert W. McHugh
Vice President and
Chief Accounting Officer
J. Carter Bacot
Lead Director
Purdy Crawford
Director
James E. Preston
Director PNURDYICHOLAS CDRAWFORDIPAOLOPurdy CrawfordNicholas DiPaolo
Director
David Y. Schwartz
Director NAICHOLASLAN DIPAOLO.
FELDMANNicholas DiPaoloAlan D. Feldman
Director
Christopher A. Sinclair
Director
Philip H. Geier Jr.
Director .IDO TURPIN
Cheryl N.Nido Turpin
Director
Jarobin Gilbert Jr.
Director
Dona D. Young
Director 5958INCINC.
INDEX OF EXHIBITS REQUIRED
BY ITEM 15 OF FORM 10-K
AND FURNISHED IN ACCORDANCE
WITH ITEM 601 OF REGULATION S-KExhibit No.
in Item 601 of
Regulation S-K Description 3(i)(a) Certificate of Incorporation of the Registrant, as filed by the Department of State of the State of New York on April 7, 1989 (incorporated herein by reference to Exhibit 3(i)(a) to the Quarterly Report on Form 10-Q for the quarterly period ended July 26, 1997, filed by the Registrant with the SEC on September 4, 1997 (the “July 26, 1997 Form 10-Q”)). 3(i)(b) Certificates of Amendment of the Certificate of Incorporation of the Registrant, as filed by the Department of State of the State of New York on (a) July 20, 1989, (b) July 24, 1990, (c) July 9, 1997 (incorporated herein by reference to Exhibit 3(i)(b) to the July 26, 1997 Form 10-Q), (d) June 11, 1998 (incorporated herein by reference to Exhibit 4.2(a) of the Registration Statement on Form S-8 (Registration No. 333-62425), and (e) November 1, 2001 (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-8 (Registration No. 333-74688) previously filed by the Registrant with the SEC). 3(ii) By-laws of the Registrant, as amended (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended May 5, 2001 (the “May 5, 2001 Form 10-Q”), filed by the Registrant with the SEC on June 13, 2001). 4.1 The rights of holders of the Registrant’s equity securities are defined in the Registrant’s Certificate of Incorporation, as amended (incorporated herein by reference to (a) Exhibits 3(i)(a) and 3(i)(b) to the July 26, 1997 Form 10-Q, Exhibit 4.2(a) to the Registration Statement on Form S-8 (Registration No. 333-62425) previously filed by the Registrant with the SEC, and Exhibit 4.2 to the Registration Statement on Form S-8 (Registration No. 333-74688) previously filed by the Registrant with the SEC). 4.2 Amendment No. 4 to the Rights Agreement dated as of November 19, 2003 (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed by the Registrant with the SEC on November 20, 2003).4.3 Indenture dated as of October 10, 1991 (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 33-43334) previously filed by the Registrant with the SEC). 4.44.3 Form of 8 1/2% Debentures due 2022 (incorporated herein by reference to Exhibit 4 to the Registrant’s Form 8-K dated January 16, 1992). 4.5 Indenture dated as of June 8, 2001 (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed by the Registrant with the SEC).4.6Form of 5.50% Convertible Subordinated Note (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed by the Registrant with the SEC).4.7Registration Rights Agreement dated as of June 8, 2001 (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed by the Registrant with the SEC).60Exhibit No.in Item 601 ofRegulation S-KDescription4.8 Distribution Agreement dated July 13, 1995 and Forms of Fixed Rate and Floating Rate Notes (incorporated herein by reference to Exhibits 1, 4.1 and 4.2, respectively, to the Registrant’s Form 8-K dated July 13, 1995). 10.1 1986 Foot Locker Stock Option Plan (incorporated herein by reference to Exhibit 10(b) to the Registrant’s Annual Report on Form 10-K for the year ended January 28, 1995, filed by the Registrant with the SEC on April 24, 1995 (the “1994 Form 10-K”)). 10.2 Amendment to the 1986 Foot Locker Stock Option Plan (incorporated herein by reference to Exhibit 10(a) to the Registrant’s Annual Report on Form 10-K for the year ended January 27, 1996, filed by the Registrant with the SEC on April 26, 1996 (the “1995 Form 10-K”)). 10.3 Foot Locker 1995 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10(p) to the 1994 Form 10-K). 10.4 Foot Locker 1998 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended January 31, 1998, filed by the Registrant with the SEC on April 21, 1998 (the “1997 Form 10-K”)). Exhibit No.
in Item 601 of
Regulation S-KDescription 10.5 Amendment to the Foot Locker 1998 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended July 29, 2000, filed by the Registrant with the SEC on September 7, 2000 (the “July 29, 2000 Form 10-Q”)). 10.6 Executive Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10(d) to the Registration Statement on Form 8-B filed by the Registrant with the SEC on August 7, 1989 (Registration No. 1-10299) (the “8-B Registration Statement”)). 10.7 Amendment to the Executive Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10(c)(i) to the 1994 Form 10-K ). 10.8 Amendment to the Executive Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10(d)(ii) to the 1995 Form 10-K). 10.9 Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10(e) to the 1995 Form 10-K). 10.10 Long-Term Incentive Compensation Plan, as amended and restated (incorporated herein by reference to Exhibit 10(f) to the 1995 Form 10-K). 10.11 Annual Incentive Compensation Plan, as amended (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended August 2, 2003 filed by the Registrant with the SEC on September 15, 2003 (the August“August 2, 2003 Form 10-Q”))).61Exhibit No.in Item 601 ofRegulation S-KDescription10.12 Form of indemnification agreement, as amended (incorporated herein by reference to Exhibit 10(g) to the 8-B Registration Statement). 10.13 Amendment to form of indemnification agreement (incorporated herein by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarterly period ended May 5, 2001 filed by the Registrant with the SEC on June 13, 2001 (the “May 5, 2001 Form 10-Q”)). 10.14 Foot Locker Voluntary Deferred Compensation Plan (incorporated herein by reference to Exhibit 10(i) to the 1995 Form 10-K). 10.15 Foot Locker Directors Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the July 29, 2000 Form 10-Q). 10.16 Trust Agreement dated as of November 12, 1987 (“Trust Agreement”), between F.W. Woolworth Co. and The Bank of New York, as amended and assumed by the Registrant (incorporated herein by reference to Exhibit 10(j) to the 8-B Registration Statement). 10.17 Amendment to Trust Agreement made as of April 11, 2001 (incorporated herein by reference to Exhibit 10.4 to May 5, 2001 Form 10-Q). 10.18 Foot Locker Directors’ Retirement Plan, as amended (incorporated herein by reference to Exhibit 10(k) to the 8-B Registration Statement). 10.19 Amendments to the Foot Locker Directors’ Retirement Plan (incorporated herein by reference to Exhibit 10(c) to the Registrant’s Quarterly Report on Form 10-Q for the period ended October 28, 1995, filed by the Registrant with the SEC on December 11, 1995 (the “October 28, 1995 Form 10-Q”)). 10.20 Employment Agreement with Matthew D. Serra dated as of January 21, 2003February 9, 2005 (incorporated herein by reference to Exhibit 10.2010.1 to the AnnualCurrent Report on Form 10-K for the year ended8-K dated February 1, 20039, 2005 filed by the Registrant with the SEC on May 19, 2003February 11, 2005 (the “2002“February 9, 2005 Form 10-K”8-K”)).Exhibit No.
in Item 601 of
Regulation S-KDescription 10.21 Restricted Stock Agreement with Matthew D. Serra dated as of March 4, 2001 (incorporated herein by reference to Exhibit 10.3 to the May 5, 2001 Form 10-Q).10.22 Restricted Stock Agreement with Matthew D. Serra dated as of February 2, 2003 (incorporated
(incorporated herein by reference to Exhibit 10.22 to the 2002 Form 10-K).10.2310.22 Restricted Stock Agreement with Matthew D. Serra dated as of September 11, 2003 (incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the period ended November 1, 2003 filed by the Registrant with the SEC on December 15, 2003). 10.23 Restricted Stock Agreement with Matthew D. Serra dated as of February 18, 2004 (incorporated herein by reference to Exhibit 10 to the Registrant’s Quarterly Report on Form 10-Q for the period ended May 1, 2004, filed by the Registrant with the SEC on June 8, 2004). 10.24 Restricted Stock Agreement with Matthew D. Serra dated as of February 9, 2005 (incorporated herein by reference to Exhibit 10.2 to the February 9, 2005 Form 8-K). 10.25 Foot Locker Executive Severance Pay Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended October 31, 1998 (the “October 31, 1998 Form 10-Q”)). 10.2510.26 Form of Senior Executive Employment Agreement (incorporated herein by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form of Senior Executive Employment Agreement (incorporated herein10-K for the year ended January 29, 2000 filed by reference to Exhibit 10.23 to the Registrant’s Annual ReportRegistrant with the SEC on April 21, 2000 (the “1999 Form 10-K for the year ended January 29, 2000 filed by the Registrant with the SEC on April 21, 2000 (the “1999 Form 10-K”))).62Exhibit No.in Item 601 ofRegulation S-KDescription10.2610.27 Form of Executive Employment Agreement (incorporated herein by reference to Exhibit 10.24 to the 1999 Form 10-K). 10.2710.28 Foot Locker, Inc. Directors’ Stock Plan (incorporated herein by reference to Exhibit 10(b) to the Registrant’s October 28, 1995 Form 10-Q). 10.2810.29 Foot Locker, Inc. Excess Cash Balance Plan (incorporated herein by reference to Exhibit 10(c) to the 1995 Form 10-K). 10.2910.30 Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.30 to the 1998 Form 10-K). 10.3010.31 FourthFifth Amended and Restated Credit Agreement dated as of April 9, 1997, amended and restated as of July 30, 2003May 19, 2004 (incorporated herein by reference to Exhibit 10.1 to the August 2, 2003Quarterly Report on Form 10-Q)10-Q for the period ended July 31, 2004, filed by the Registrant with the SEC on September 8, 2004 (the “July 31, 2004 Form 10-Q”)).10.3110.32 Letter of Credit Agreement dated as of March 19, 1999 (incorporated herein by reference to Exhibit 10.35 to the 1998 10-K). 10.3210.33 Foot Locker 2002 Directors Stock Plan, as amended (incorporated herein by reference to Exhibit 10.1 to the QuarterlyCurrent Report on Form 10-Q for the quarterly period ended August 3, 20028-K dated February 18, 2005, filed by the Registrant with the SEC on September 12, 2002 (the “August 3, 2002 Form 10-Q”))February 18, 2005).10.3310.34 Foot Locker 2003 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.2 to the August 2, 2003 Form 10-Q). 10.35 Summary of Changes to Non-Employee Directors’ Compensation (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the period ended October 30, 2004, filed by the Registrant with the SEC on December 7, 2004). 10.36 Automobile Expense Reimbursement Program for Senior Executives 10.37 Executive Medical Expense Allowance Program for Senior Executives 10.38 Financial Planning Allowance Program for Senior Executives 10.39 Form of Nonstatutory Stock Option Award Agreement for Executive Officers Exhibit No.
in Item 601 of
Regulation S-KDescription 10.40 Form of Incentive Stock Option Award Agreement for Executive Officers 10.41 Form of Nonstatutory Stock Option Award Agreement for Non-employee Directors (incorporated herein by reference to Exhibit 10.2 to the July 31, 2004 Form 10-Q). 10.42 Long-term Disability Program for Senior Executives 12 Computation of Ratio of Earnings to Fixed Charges. 18 Letter on Change in Accounting Principle (incorporated herein by reference to Exhibit 18 to the 1999 Form 10-K). 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors.Registered Public Accounting Firm.31.1 Certification of Chief Executive Officer Pursuant to 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2 Certification of Chief Financial Officer Pursuant to 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- OxleySarbanes-Oxley Act of 2002.Exhibit No.
in Item 601 of
Regulation S-KDescription 10.1 Form of Nonstatutory Stock Option Award Agreement for Executive Officers. 10.2 Form of Incentive Stock Option Award Agreement for Executive Officers. 10.3 Automobile Expense Reimbursement Program for Senior Executives. 10.4 Executive Medical Expense Allowance Program for Senior Executives. 10.5 Financial Planning Allowance Program for Senior Executives. 10.6 Long-term Disability Program for Senior Executives 12 Computation of Ratio of Earnings to Fixed Charges. 21 Subsidiaries of the Registrant. 23 Consent of Independent Registered Public Accounting Firm. 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.