UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 
(Mark One)

(Mark One)

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: October 27, 2012

November 2, 2013
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 1-10299

 

FOOT LOCKER, INC.

(Exact Name of Registrant as Specified in its Charter)

   

New York
13-3513936
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)

112 West 34th Street, New York, New York, 10120

(Address of Principal Executive Offices, Zip Code)

(212-720-3700)

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes þ   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filerþ
Accelerated filero
Non-accelerated filer  o
Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No þ
Number of shares of Common Stock outstanding at November 23, 2012: 150,724,967

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No þ
Number of shares of Common Stock outstanding at November 29, 2013: 146,739,055
FOOT LOCKER, INC.
TABLE OF CONTENTS
 

FOOT LOCKER, INC.

TABLE OF CONTENTS

Page
Part I.Financial Information 
 Item 1.Financial Statements 
  Condensed Consolidated Balance Sheets3
  Condensed Consolidated Statements of Operations4
  Condensed Consolidated Statements of Comprehensive Income5
  Condensed Consolidated Statements of Cash Flows6
  Notes to Condensed Consolidated Financial Statements7
 Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1719
 Item 4.Controls and Procedures2527
Part II.Other Information 
 Item 1.Legal Proceedings2527
 Item 1A.Risk Factors2628
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2629
Item 6.Exhibits29
  Item 6. SignatureExhibits 2630
Signature 27
  Index of Exhibits2831
2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in

 (in millions, except shares)

  October 27,  October 29,  January 28, 
  2012  2011  2012 
  (Unaudited)  (Unaudited)  * 
ASSETS            
Current assets            
Cash and cash equivalents $804  $698  $851 
Short-term investments  49   —   — 
Merchandise inventories  1,240   1,204   1,069 
Other current assets  202   157   159 
   2,295   2,059   2,079 
Property and equipment, net  462   421   427 
Deferred taxes  285   295   284 
Goodwill  144   145   144 
Other intangibles and other assets  113   125   116 
  $3,299  $3,045  $3,050 
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Current liabilities            
Accounts payable $327  $284  $240 
Accrued expenses and other current liabilities  298   284   308 
   625   568   548 
Long-term debt  133   136   135 
Other liabilities  252   248   257 
   1,010   952   940 
Shareholders’ equity            
Common stock and paid-in capital: 166,510,340, 163,765,923 and 164,460,073 shares, respectively  842   761   779 
Retained earnings  1,999   1,732   1,788 
Accumulated other comprehensive loss  (203)  (154)  (204)
Less: Treasury stock at cost: 15,800,222, 12,546,560 and 12,840,961 shares, respectively  (349)  (246)  (253)
Total shareholders’ equity  2,289   2,093   2,110 
  $3,299  $3,045  $3,050 

  November 2, October 27, February 2, 
  2013 2012 2013 
  (Unaudited) (Unaudited) * 
ASSETS          
           
Current assets          
Cash and cash equivalents $764 $804 $880 
Short-term investments  32  49  48 
Merchandise inventories  1,316  1,240  1,167 
Other current assets  208  202  268 
   2,320  2,295  2,363 
Property and equipment, net  589  462  490 
Deferred taxes  257  285  257 
Goodwill  163  144  145 
Other intangibles and other assets  148  113  112 
  $3,477 $3,299 $3,367 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities          
Accounts payable $310 $327 $298 
Accrued expenses and other current liabilities  330  298  338 
Current portion of capital lease obligations  3  —  — 
   643  625  636 
Long-term debt and obligations under capital leases  137  133  133 
Other liabilities  231  252  221 
   1,011  1,010  990 
Shareholders’ equity          
Common stock and paid-in capital: 168,675,093, 166,510,340
    and 166,909,151 shares, respectively		  905  842  856 
Retained earnings  2,295  1,999  2,076 
Accumulated other comprehensive loss  (170)  (203)  (171) 
Less: Treasury stock at cost: 22,035,758, 15,800,222 and
    16,839,222 shares, respectively		  (564)  (349)  (384) 
Total shareholders’ equity  2,466  2,289  2,377 
  $3,477 $3,299 $3,367 
See Accompanying Notes to Condensed Consolidated Financial Statements. 
* The balance sheet at January 28, 2012February 2, 2013 has been derived from the previously reported audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 28, 2012.February 2, 2013.

3

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in

 (in millions, except per share amounts)

  Thirteen weeks ended  Thirty-nine weeks ended 
  October 27,  October 29,  October 27,  October 29, 
  2012  2011  2012  2011 
Sales $1,524  $1,394  $4,469  $4,121 
                 
Cost of sales  1,019   941   2,999   2,805 
Selling, general and administrative expenses  319   320   931   919 
Depreciation and amortization  30   27   88   82 
Interest expense, net  1   1   3   4 
Other income  —   —   (1)  (1)
   1,369   1,289   4,020   3,809 
                 
Income before income taxes  155   105   449   312 
Income tax expense  49   39   156   115 
Net income $106  $66  $293  $197 
                 
Basic earnings per share:                
Net income $0.70  $0.43  $1.93  $1.28 
Weighted-average common shares outstanding  151.0   152.3   151.4   153.4 
                 
Diluted earnings per share:                
Net income $0.69  $0.43  $1.90  $1.27 
Weighted-average common shares assuming dilution  153.9   153.6   154.0   154.8 

  Thirteen weeks ended Thirty-nine weeks ended 
  November 2, October 27, November 2, October 27, 
  2013 2012 2013 2012 
Sales $1,622 $1,524 $4,714 $4,469 
              
Cost of sales  1,085  1,019  3,163  2,999 
Selling, general and administrative expenses  340  319  969  931 
Depreciation and amortization  35  30  97  88 
Other charges  —  —  2  — 
Interest expense, net  2  1  4  3 
Other income  —  —  (3)  (1) 
   1,462  1,369  4,232  4,020 
Income before income taxes  160  155  482  449 
Income tax expense  56  49  174  156 
Net income $104 $106 $308 $293 
              
Basic earnings per share $0.70 $0.70 $2.06 $1.93 
              
Weighted-average common shares outstanding  147.7  151.0  149.2  151.4 
              
Diluted earnings per share $0.70 $0.69 $2.04 $1.90 
Weighted-average common shares assuming dilution  149.5  153.9  151.2  154.0 
See Accompanying Notes to Condensed Consolidated Financial Statements.

4

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in

 (in millions)

  Thirteen weeks ended  Thirty-nine weeks ended 
  October 27,  October 29,  October 27,  October 29, 
  2012  2011  2012  2011 
Net income $106  $66  $293  $197 
                 
Other comprehensive income (loss):                
                 
Foreign currency translation adjustment:                
Translation adjustment arising during the period, net of tax  35   (31)  (7)  12 
                 
Cash flow hedges:                
Change in fair value of derivatives, net of tax  2   (1)  1   (1)
                 
Available for sale securities:                
Unrealized gain/(loss)  —   (1)  1   (1)
                 
Pension and postretirement adjustments:                
Amortization of net actuarial gain/loss and prior services included in net periodic benefit costs, net of income tax expense of  $1, $—, $3, and $2 million, respectively  2   2   6   4 
                 
Comprehensive income $145  $35  $294  $211 

 Thirteen weeks ended Thirty-nine weeks ended 
 November 2, October 27, November 2, October 27, 
 2013 2012 2013 2012 
Net income$104 $106 $308 $293 
             
Other comprehensive income (loss), net of income tax            
             
Foreign currency translation adjustment:            
Translation adjustment arising during the period, net of income tax 22  35  (5)  (7) 
             
Cash flow hedges:            
Change in fair value of derivatives, net of income tax (2)  2  (2)  1 
             
Available for sale securities:            
Unrealized gain —  —  —  1 
             
Pension and postretirement adjustments:            
             
Amortization of net actuarial gain/loss included in net periodic benefit costs, net of income tax expense of $1 $1, $3, and $3 million, respectively 3  2  7  6 
             
Comprehensive income$127 $145 $308 $294 
See Accompanying Notes to Condensed Consolidated Financial Statements.

5

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)

  Thirty-nine weeks ended 
  October 27,  October 29, 
  2012  2011 
From Operating Activities:        
Net income $293  $197 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  88   82 
Share-based compensation expense  15   13 
Qualified pension plan contributions  —   (1)
Excess tax benefits on share-based compensation  (8)  (3)
Change in assets and liabilities:        
Merchandise inventories  (172)  (142)
Accounts payable  87   60 
Other accruals  (18)  11 
Other, net  (26)  48 
Net cash provided by operating activities  259   265 
         
From Investing Activities:        
Sales of short-term investments  7   — 
Purchases of short-term investments  (57)  — 
Capital expenditures  (120)  (111)
Net cash used in investing activities  (170)  (111)
         
From Financing Activities:        
Reduction in long-term debt  (2)  — 
Purchase of treasury shares  (94)  (97)
Dividends paid  (82)  (76)
Issuance of common stock  35   9 
Treasury stock issued under employee stock plan  5   4 
Excess tax benefits on share-based compensation  9   3 
Net cash used in financing activities  (129)  (157)
         
Effect of exchange rate fluctuations on Cash and Cash Equivalents   (7)  5 
Net change in Cash and Cash Equivalents  (47)  2 
Cash and Cash Equivalents at beginning of year  851   696 
Cash and Cash Equivalents at end of interim period $804  $698 
         
Cash paid during the period:        
   Interest $6  $6 
   Income taxes $182  $113 

  Thirty-nine weeks ended 
  November 2,  October 27, 
  2013  2012 
From Operating Activities:        
Net income $308  $293 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  97   88 
Share-based compensation expense  19   15 
Qualified pension plan contributions  (2)   — 
Excess tax benefits on share-based compensation  (7)   (8) 
Change in assets and liabilities:        
Merchandise inventories  (108)   (172) 
Accounts payable  (3)   87 
Other accruals  (44)   (18) 
Other, net  67   (26) 
Net cash provided by operating activities  327   259 
         
From Investing Activities:        
Lease termination gains  2   — 
Sales and maturities of short-term investments  38   7 
Purchases of short-term investments  (23)   (57) 
Capital expenditures  (157)   (120) 
Purchase of business, net of cash acquired  (81)   — 
Net cash used in investing activities  (221)   (170) 
         
From Financing Activities:        
Purchase of treasury shares  (167)   (94) 
Dividends paid  (89)   (82) 
Issuance of common stock  19   35 
Treasury stock issued under employee stock purchase plan  3   5 
Excess tax benefits on share-based compensation  8   9 
Reduction in long-term debt  —   (2) 
Net cash used in financing activities  (226)   (129) 
         
Effect of exchange rate fluctuations on Cash and Cash Equivalents  4   (7) 
Net change in Cash and Cash Equivalents  (116)   (47) 
Cash and Cash Equivalents at beginning of year  880   851 
Cash and Cash Equivalents at end of interim period $764  $804 
         
Cash paid during the period:        
Interest $5  $6 
Income taxes $123  $182 
See Accompanying Notes to Condensed Consolidated Financial Statements.

6

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods of the fiscal year ending February 2, 20131, 2014 and of the fiscal year ended January 28, 2012.February 2, 2013. Certain items included in these statements are based on management’s estimates. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Company’s Form 10-K for the year ended January 28, 2012,February 2, 2013, as filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2012.

April 1, 2013. 

Recent Accounting Pronouncements

During the first quarter of 2012,2013, the Company adopted Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (“ASU No. 2011-08,Testing Goodwill for Impairment2013-02”). The revised standard is intended to reduceASU 2013-02 amended existing guidance by requiring additional disclosure either on the cost and complexityface of the annual goodwill impairment test by providing entities an optionincome statement or in the notes to perform a qualitative assessment to determine whether further impairment testingthe financial statements of significant amounts reclassified out of accumulated other comprehensive income. The provisions of this new guidance were effective prospectively as of the beginning of 2013. Accordingly, enhanced footnote disclosure is necessary.included in Note 5. The adoption of this ASU did not have a significant2013-02 had no effect on our results of operations or financial position.

During

We performed our annual goodwill impairment assessment during the first quarter of 2012,2013, using a qualitative approach as permitted under Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment. In performing the Company also adopted ASU No. 2011-05,Presentationassessment, we identified and considered the significance of Comprehensive Income, which requires presentationrelevant key factors, events, and circumstances that affected the fair value and/or carrying amounts of total comprehensive income,our reporting units. These factors included external factors such as macroeconomic, industry and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. Based on the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The implementationresults of the amended reporting guidance had no effect on our disclosures.

During the second quarter of 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which allows an entity to first assess qualitative factors to determine whetherimpairment assessment performed, we concluded that it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. If an entity concludes, based on an evaluation of all relevant qualitative factors, that it is not more likely than not that the fair valuevalues of an indefinite-lived intangible asset is less than itsour reporting units substantially exceeded their respective carrying amount, it will not be required to perform a quantitative impairment test for that asset. Entitiesvalues and there are required to test indefinite-lived assets for impairmentno reporting units at least annually, and more frequently if indicatorsrisk of impairment exist. This ASU will be effective for the Company on February 3, 2013, with early adoption permitted. The adoption of this ASU is not expected to have a significant effect on our results of operations or financial position.

impairment.

Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.


2. Acquisition
Effective July 7, 2013, the Company acquired 100 percent of the shares of Runners Point Warenhandelsgesellschaft mbH, (“Runners Point Group”) a specialty athletic store and online retailer based in Recklinghausen, Germany. The aggregate purchase price paid for the acquisition was $87 million in cash, subject to adjustment for finalization of the purchase price for working capital adjustments. At the date of acquisition, Runners Point Group operated 194 stores in Germany, Austria, and the Netherlands. Additionally, there were 24 Runners Point Group franchise stores operating in Germany and Switzerland. The acquisition is intended to enhance the Company’s position in Germany and also provide additional banners to further diversify and expand the Company’s European business. Also, the addition of the strong digital capabilities of Tredex, the e-commerce subsidiary of Runners Point Group, allows for the potential of accelerated e-commerce growth in Europe. 
The results of Runners Point Group are included in our consolidated financial statements since the acquisition date.
7

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.Acquisition – (continued)
The following table summarizes allocation of the purchase price to the fair value of assets acquired, based on the exchange rate in effect at the date of our acquisition of Runners Point Group. The Company has allocated the purchase price, in part, upon internal estimates of cash flows and considering the report of a third-party valuation expert retained to assist the Company. The allocation of the purchase price in the table below is preliminary and subject to change based on the finalization of the purchase price.
  Allocation 
(in millions) as Revised 
Assets acquired:    
Cash and cash equivalents $6 
Inventory  41 
Other current assets  11 
Property and equipment  24 
Other long-term assets  1 
Tradenames  29
(1)
Favorable leases  5 
     
Liabilities assumed:    
Accounts payable and other accruals  (27) 
Income taxes and deferred taxes, net  (11) 
Obligations under capital leases  (9) 
Other long-term liabilities  (1) 
     
Goodwill  18 
Total purchase price $87 
(1)Due to foreign currency fluctuations, the U.S. dollar value of tradenames increased to $30 million as of November 2, 2013.
We determined that the tradenames have an indefinite life and will not be amortized. These tradenames will be tested annually for impairment, along with the goodwill recorded for the purchase. The value of the favorable leases will be amortized over the terms of the respective leases. 
The amount of goodwill expected to be tax deductible is $4 million.

3. Segment Information

The Company has determined that its reportable segments are those that are based on its method of internal reporting. As of October 27, 2012,November 2, 2013, the Company has two reportable segments, Athletic Stores and Direct-to-Customers. Sales and division results for the Company’s reportable segments for the thirteen weeks and thirty-nine weeks ended November 2, 2013 and October 27, 2012 and October 29, 2011 are presented below. Division profit reflects income before income taxes, corporate expense, net interest expense, and net non-operating income.

  Thirteen weeks ended  Thirty-nine weeks ended 
Sales October 27,  October 29,  October 27,  October 29, 
(in millions)  2012  2011  2012  2011 
Athletic Stores $1,375  $1,268  $4,060  $3,773 
Direct-to-Customers  149   126   409   348 
Total sales $1,524  $1,394  $4,469  $4,121 

  Thirteen weeks ended  Thirty-nine weeks ended 
Operating Results 

October 27,

  October 29,  October 27,  October 29, 
(in millions)  

2012

  2011  2012  2011 
Athletic Stores $166  $119  $480  $360 
Direct-to-Customers  18   12   47   32 
Restructuring charge(1)   —   —   —   (1)
Division profit  184   131   527   391 
Less: Corporate expense, net  28   25   76   76 
Operating profit  156   106   451   315 
Other income (2)   —   —   1   1 
Interest expense, net  1   1   3   4 
Income before income taxes $155  $105  $449  $312 

As discussed in Note 2, Acquisition, the Company acquired Runners Point Group during the second quarter of 2013. Sales and division results for the Runners Point Group stores, including Runners Point, Sidestep and Run2, are included in the Athletic Stores segment since the date of acquisition. Sales and division results for Tredex, a direct-to-customer subsidiary of Runners Point Group, are included in the Direct-to-Customers segment since the date of acquisition.
8

FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Segment Information - (continued)
  Thirteen weeks ended Thirty-nine weeks ended 
Sales November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 
Athletic Stores $1,444 $1,375 $4,228 $4,060 
Direct-to-Customers  178  149  486  409 
Total sales $1,622 $1,524 $4,714 $4,469 
  Thirteen weeks ended Thirty-nine weeks ended 
Operating Results November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 
Athletic Stores (1)
 $159 $166 $486 $480 
Direct-to-Customers  20  18  53  47 
Division profit  179  184  539  527 
Less: Corporate expense, net  17  28  56  76 
Operating profit  162  156  483  451 
Other income (2)
  —  —  3  1 
Interest expense, net  2  1  4  3 
Income before income taxes $160 $155 $482 $449 
(1)
Included in the Athletic Stores segment for the thirty-nine weeks ended November 2, 2013 is a $2 million charge recorded in connection with the closure of all CCS stores.
 

During the first quarter of 2011, the Company increased its 1993 Repositioning and 1991 Restructuring reserve by $1 million for repairs necessary to one of the locations comprising this reserve. This amount is included in selling, general and administrative expenses in the Condensed Consolidated Statement of Operations. 

(2)
Other income includes non-operating items, such as:as lease termination gains, from insurance recoveries; discounts/premiums paid on the repurchase and retirement of bonds; royalty income;income, and the changes in fair value, premiums paid and realized gains associated with foreign currency option contracts. Other income for the thirty-nine weeks ended October 27, 2012 primarily represents royalty income, partially offset by a premium paid on the repurchase and retirement of bonds.Other income for the thirty-nine weeks ended October 29, 2011 primarily represents lease termination gains related to the sale of leasehold interests and royalty income.

During the second quarter of 2013 the Company closed all 22 of its CCS stores. As of November 2, 2013, 12 of these stores were converted to other store formats, 2 will be converted by the end of the year and 1 will be converted during the first quarter of 2014. The CCS store closures are not presented as part of discontinued operations as the operations and cash flows related to the majority of the closed stores are expected to continue through other store formats and the Company’s websites. The Company will continue to operate the CCS catalog and e-commerce website. 
Athletic Stores sales include $64 million and $84 million for thirteen and thirty-nine week periods ended November 2, 2013, respectively, related to the Runners Point Group stores. Direct-to-Customers sales include $8 million and $10 million, respectively, related to the Tredex division of Runners Point Group.
Athletic Stores division profit includes $1 million and $3 million for thirteen and thirty-nine week periods ended November 2, 2013, respectively, related to the Runners Point Group stores. The effect on Direct-to-Customers division profit was not significant. Costs associated with the acquisition and integration of $1 million and $4 million for the thirteen and thirty-nine weeks ended November 2, 2013 are included in corporate expense.

3.4. Goodwill and Other Intangible Assets

Annually during the first quarter, or more frequently if impairment indicators arise, the Company reviews goodwill and intangible assets with indefinite lives for impairment. The annual reviewassessment of goodwill and assets with indefinite lives performed during the first quarters of 20122013 and 20112012 did not result in impairment charges. The fair value of each of the reporting units substantially exceeds its carrying value for both periods. The following table provides a summary of goodwill by reportable segment. The changes represent foreign exchange fluctuations.

9

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.
4. Goodwill and Other Intangible Assets - (continued)

  October 27,  October 29,  January 28, 
(in millions) 2012  2011  2012 
Athletic Stores $17  $18  $17 
Direct-to-Customers  127   127   127 
Goodwill $144  $145  $144 

Goodwill as of November 2, 2013 includes $18 million relating to the acquisition of Runners Point Group, which was allocated to the segments based upon their relative fair values. Other changes include foreign exchange fluctuations. Of the $18 million of goodwill relating to the acquisition of Runners Point Group, $3 million was allocated to the Athletic Stores segment related to the Runners Point Group stores and $15 million was allocated to the Direct-to-Customers segment related to the Tredex division.
  November 2, October 27, February 2, 
Goodwill (in millions) 2013 2012 2013 
Athletic Stores $21 $17 $18 
Direct-to-Customers  142  127  127 
  $163 $144 $145 
The components of finite-lived intangible assets and intangible assets not subject to amortization are as follows:

  October 27, 2012  October 29, 2011  January 28, 2012 
  Gross  Accum.  Net  Gross  Accum.  Net  Gross  Accum.  Net 
(in millions) value  amort.  value  Value  amort.  value  Value  amort.  value 
Finite life intangible assets:                                    
Lease acquisition costs $163  $(141) $22  $180  $(154) $26  $171  $(149) $22 
Trademark  21  (9)  12   21  (8)  13   21  (8)  13 
Favorable leases  5  (5)  —   9  (9)  —   7  (7)  — 
CCS customer relationships  21  (17)  4   21  (12)  9   21  (13)  8 
                                     
  $210  $(172) $38  $231  $(183) $48  $220  $(177) $43 
                                     
Indefinite life intangible assets:                                    
Republic of Ireland trademark          1           2           1 
CCS tradename          10           15           10 
          $11          $17          $11 
Net identifiable intangible assets         $49          $65          $54 

For

  November 2, 2013 October 27, 2012 February 2, 2013 
  Gross Accum. Net Gross Accum. Net Gross Accum. Net 
(in millions) value amort. value value amort. value value amort. value 
Amortized intangible assets:                            
Lease acquisition costs $159 $(140) $19 $163 $(141) $22 $158 $(137) $21 
Trademarks  21  (10)  11  21  (9)  12  21  (9)  12 
Favorable leases  9  (4)  5  5  (5)  —  5  (5)  — 
Customer relationships  21  (21)  —  21  (17)  4  21  (18)  3 
  $210 $(175) $35 $210 $(172) $38 $205 $(169) $36 
                             
Indefinite life intangible assets:                            
                             
Tradenames:                            
Republic of Ireland        2        1        1 
CCS        3        10        3 
Runners Point Group        30        —        — 
        $35       $11       $4 
                             
Other intangible assets, net       $70       $49       $40 
As of November 2, 2013, in connection with the thirty-nine week period ended October 27, 2012, activity included amortization expense of $10 million, the effectallocation of the weakeningpurchase price of the euroRunners Point Group acquisition, the Company recognized $30 million of indefinite life intangible assets for the Runners Point Group tradenames. Also as compared toa result of the U.S. dollar of $3purchase price allocation, $5 million partially offset by lease acquisition additions of $8 million. The lease acquisition additions recorded during the periodwas recognized for favorable leases in 15 locations with rents below their fair value, which are being amortized over a weighted-average life of 6 years.
The change since year end also includes $2 million of lease acquisition additions related to Foot Locker Europe, which are being amortized over a weighted-average life of 10 years.

  Thirteen weeks ended  Thirty-nine weeks ended 
  October 27,  October 29,  October 27,  October 29, 
(in millions) 2012  2011  2012  2011 
Amortization expense $3  $4  $10  $13 

 Foreign exchange fluctuations related to the euro increased the balance by $2 million. This was offset by amortization expense of $9 million recorded for the thirty-nine weeks ended November 2, 2013.

10

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.4. Goodwill and Other Intangible Assets - (continued)

  Thirteen weeks ended Thirty-nine weeks ended 
  November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 
Amortization expense $3 $3 $9 $10 
Future expected amortization expense for finite life intangible assets is estimated as follows:

  (in millions) 
Remainder of 2012 $3 
2013  10 
2014  4 
2015  3 
2016  3 
2017  3 
  (in millions) 
Remainder of 2013 $2 
2014  6 
2015  5 
2016  4 
2017  4 
2018  3 

4.5. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss comprised the following:

  October 27,  October 29,  January 28, 
(in millions) 2012  2011  2012 
Foreign currency translation adjustments $56  $98  $63 
Cash flow hedges  —   —   (1)
Unrecognized pension cost and postretirement benefit  (258)  (249)  (264)
Unrealized loss on available-for-sale security  (1)  (3)  (2)
  $(203) $(154) $(204)

  November 2, October 27, February 2, 
(in millions) 2013 2012 2013 
Foreign currency translation adjustments $77 $56 $82 
Cash flow hedges  1  —  3 
Unrecognized pension cost and postretirement benefit  (247)  (258)  (255) 
Unrealized loss on available-for-sale security  (1)  (1)  (1) 
  $(170) $(203) $(171) 
The changes in accumulated other comprehensive loss for the thirty-nine week period ended November 2, 2013 were as follows:
(in millions) Foreign 
currency
translation
adjustments		 Cash flow
hedges		 Items related to
pension and
postretirement
benefits		 Unrealized
loss on
available-
for-sale
security		 Total 
Balance as of February 2, 2013 $82 $3 $(255) $(1) $(171) 
                 
Other comprehensive income (loss) before reclassification  (5)  (2)  1  —  (6) 
                 
Amounts reclassified from accumulated other comprehensive income  —  —  7  —  7 
                 
Other comprehensive income (loss)  (5)  (2)  8  —  1 
                 
Balance as of November 2, 2013 $77 $1 $(247) $(1) $(170) 
11

FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.Accumulated Other Comprehensive Loss- (continued)
Reclassifications from accumulated other comprehensive loss for the thirty-nine week period ended November 2, 2013 were as follows:
(in millions)    
Amortization of actuarial (gain) loss:    
Pension benefits- amortization of actuarial loss $12 
Postretirement benefits- amortization of actuarial gain  (2) 
Net periodic benefit cost (see Note 9)  10 
Income tax expense  (3) 
Net of tax $7 

6. Financial Instruments

The Company operates internationally and utilizes certain derivative financial instruments to mitigate its foreign currency exposures, primarily related to third-party and intercompany forecasted transactions. As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties will fail to meet their contractual obligations. To mitigate this counterparty credit risk, the Company has a practicepolicy of entering into contracts only with major financial institutions, selected based upon their credit ratings and other financial factors. The Company monitors the creditworthiness of counterparties throughout the duration of the derivative instrument.
Additional information is contained within Note 6,7, Fair Value Measurements.

 

Derivative Holdings Designated as Hedges

For a derivative to qualify as a hedge at inception and throughout the hedged period, the Company formally documents the nature of the hedged items and the relationships between the hedging instruments and the hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions, and the methods of assessing hedge effectiveness and hedge ineffectiveness. In addition, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction would occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss on the derivative instrument would be recognized in earnings immediately. No such gains or losses were recognized in earnings for any of the periods presented. Derivative financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period, which management evaluates periodically.

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.Financial Instruments – (continued)

The primary currencies to which the Company is exposed are the euro, British pound, Canadian dollar, and Australian dollar. For option and forward foreign exchange forward contracts designated as cash flow hedges of the purchase of inventory, the effective portion of gains and losses is deferred as a component of Accumulated Other Comprehensive Loss (“AOCL”) and is recognized as a component of cost of sales when the related inventory is sold. The amount reclassified to cost of sales andrelated to such contracts was not significant for any of the periods presented. The effective portion of gains or losses associated with other forward contracts is deferred as a component of AOCL until the underlying transaction is reported in earnings. The ineffective portion of gains and losses related to such contractscash flow hedges recorded to earnings was also not significant for any of the periods presented. When using a forward contract as a hedging instrument, the Company excludes the time value of the contract from the assessment of effectiveness. At each quarter-end, the Company had not hedged forecasted transactions for more than the next twelve months, and the Company expects all derivative-related amounts reported in AOCL to be reclassified to earnings within twelve months.
12

FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Financial Instruments – (continued)
The notional value of the contracts outstanding at October 27, 2012 was $43 million and these contracts extend through June 2013.

Derivative Holdings Designated as Non-Hedges

The Company mitigates the effect of fluctuating foreign exchange rates on the reporting of foreign-currency denominated earnings by entering into currency option contracts. Changesnet change in the fair value of these foreign currency option contracts, which areexchange derivative financial instruments designated as non-hedges, are recorded in earnings immediately within other income. The realized gains, premiums paid and changes incash flow hedges of the fair market value recorded in the Condensed Consolidated Statementspurchase of Operations wereinventory was not significant for any of the periods presented. The notional value of the contracts outstanding at October 27, 2012November 2, 2013 was $25$58 million and these contracts extend through January 2013.

July 2014.

Derivative Holdings Designated as Non-Hedges
The Company also enters into forward foreign exchange forward contracts to hedge foreign-currency denominated merchandise purchases and intercompany transactions that are not designated as hedges. Net changes in the fair value of foreign exchange derivative financial instruments designated as non-hedges were substantially offset by the changes in value of the underlying transactions, which were recorded in selling, general and administrative expenses. The net change in fair value was not significant for any of the periods presented. The notional value of the contracts outstanding at October 27, 2012November 2, 2013 was $31$33 million and these contracts extend through January 2013.

December 2013.

Additionally, the Company enters into diesel fuel forward and option contracts to mitigate a portion of the Company’s freight expense due to the variability caused by fuel surcharges imposed by our third-party freight carriers. Changes in the fair value of these contracts are recorded in earnings immediately. The effect was not significant for any of the periods presented. The notional value of the contracts outstanding at October 27, 2012November 2, 2013 was $3 million and these contracts extend through May 2013.

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.Financial Instruments – (continued)

not significant.

Fair Value of Derivative Contracts

The following represents the fair value of the Company’s derivative contracts.  Many of the Company’s agreements allow for a netting arrangement. The following is presented on a gross basis, by type of contract:

 

  Balance Sheet October 27,  October 29,  January 28, 
(in millions)  Caption 2012  2011  2012 
Hedging Instruments:              
Forward foreign exchange contracts Current asset $1  $—  $— 
Forward foreign exchange contracts Current liability $1  $—  $2 

  Balance Sheet November 2, October 27, February 2, 
(in millions) Caption 2013 2012 2013 
Hedging Instruments:            
Foreign exchange forward contracts Current assets $1 $1 $4 
Foreign exchange forward contracts Current liabilities $— $1 $— 
             
Non-Hedging Instruments:            
Foreign exchange forward contracts Current assets $— $— $2 

Fair Value of Financial Instruments

The carrying value and estimated fair value of long-term debt were as follows:

  October 27,  October 29,  January 28, 
(in millions)  2012  2011  2012 
Carrying value $133  $136  $135 
Fair value $145  $137  $140 

During the second quarter of 2012, the Company purchased and retired $2 million of its 8.50 percent debentures payable in 2022.

The carrying values of cash and cash equivalents, short-term investments, and other current receivables and payables approximate their fair value.


6.7. Fair Value Measurements

The Company’s financial assets recorded at fair value are categorized as follows:

 
Level 1 –
Quoted prices for identical instruments in active markets.

 
Level 2 –
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

 
Level 3 –
Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

1213

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6.7. Fair Value Measurements – (continued)

Fair Value of Recognized Assets and Liabilities
The following tables provide a summary of the Company’s recognized assets and liabilities that are measured at fair value on a recurring basis:

  At October 27, 2012  At October 29, 2011  At January 28, 2012 
(in millions) Level 1  Level 2  Level 3  Level 1  Level 2  Level 3  Level 1  Level 2  Level 3 
Assets                                    
Short-term investments $—  $49  $—  $—  $—  $—  $—  $—  $— 
Auction rate security  —   6   —   —   4   —   —   5   — 
Forward foreign exchange contracts  —   1   —   —   —   —   —   —   — 
Total Assets $—  $56  $—  $—  $4  $—  $—  $5  $— 
                                     
Liabilities                                    
Forward foreign exchange contracts  —   1   —   —   —   —   —   2   — 
Total Liabilities $—  $1  $—  $—  $—  $—  $—  $2  $— 

  At November 2, 2013 At October 27, 2012 At February 2, 2013 
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 
Assets                            
Short-term investments $— $32 $— $— $49 $— $— $48 $— 
Auction rate security  —  6  —  —  6  —  —  6  — 
Foreign exchange forward contracts  —  1  —  —  1  —  —  6  — 
                             
Total Assets $— $39 $— $— $56 $— $— $60 $— 
                             
Liabilities                            
Foreign exchange forward contracts  —  —  —  —  1  —  —  —  — 
Total Liabilities $— $— $— $— $1 $— $— $— $— 
Available-for-sale securities are recorded at fair value with unrealized gains and losses reported, net of tax, in other comprehensive income, unless unrealized losses are determined to be other than temporary. As of October 27, 2012,November 2, 2013, the Company held $55$38 million of available-for-sale securities, which was comprised of $49$32 million inof short-term investments and a $6$6 million auction rate security.

security, which is included in other assets.

Short-term investments represent corporate bonds with maturity dates within one year from the purchase date. These securities are valued using quoted prices for similar instrumentsmodel-derived valuations in which all significant inputs or significant value-drivers are observable in active markets and therefore are classified as Level 2 instruments. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments.

The fair value of the auction rate security is determined by review of the underlying security at each reporting period.

using quoted prices for similar instruments in active markets and accordingly is classified as a Level 2 instrument.

The Company’s derivative financial instruments are valued using market-based inputs to valuation models. These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility.

Interest income related to the short-term investments included within interest expense was not significantfor both the thirteen and thirty-nine weeks ended October 27, 2012.

There were no transfers into or out of Level 1, Level 2, or Level 3 assets and liabilities for any of the periods presented.

Additionally, in connection with the acquisition and purchase price allocation of Runners Point Group, the Company recognized its assets and liabilities at fair value. See Note 2, Acquisition, for further discussion and additional disclosures. All amounts are categorized as Level 3.
14

FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7.Fair Value Measurements – (continued)
Fair Value of Financial Instruments
The carrying value and estimated fair value of long-term debt and obligations under capital leases were as follows:
  November 2, October 27, February 2, 
(in millions) 2013 2012 2013 
Carrying value (1)
 $140 $133 $133 
Fair value (1)
 $157 $145 $152 
(1)
In connection with the acquisition of Runners Point Group in the second quarter of 2013, the Company recognized capital lease obligations.These were existing agreements primarily related to the financing of certain store fixtures. As of November 2, 2013, $8 million is included in the total above; $3 million is classified as short-term and $5 million is classified as long-term.
The fair value of long-term debt is determined by using model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets and therefore is classified as Level 2.
The carrying values of cash and cash equivalents, short-term investments, and other current receivables and payables approximate their fair value.

8. Earnings Per Share

The Company accounts for and discloses net earnings per share using the treasury stock method. The Company’s basic earnings per share is computed by dividing the Company’s reported net income for the period by the weighted-average number of common shares outstanding at the end of the period. The Company’s restricted stock awards, which contain non-forfeitable rights to dividends, are considered participating securities and are included in the calculation of basic earnings per share. Diluted earnings per share reflects the weighted-average number of common shares outstanding during the period used in the basic earnings per share computation plus dilutive common stock equivalents.

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.Earnings Per Share - (continued)

The Company’s basic and diluted weighted-average number of common shares outstanding as of October 27, 2012 and October 29, 2011, werewas as follows:

  Thirteen weeks ended  Thirty-nine weeks ended 
  October 27,  October 29,  October 27,  October 29, 
(in millions)  2012  2011  2012  2011 
Weighted-average common shares outstanding  151.0   152.3   151.4   153.4 
Effect of Dilution:                 
Stock options and awards  2.9   1.3   2.6   1.4 
Weighted-average common shares assuming dilution  153.9   153.6   154.0   154.8 

  Thirteen weeks ended Thirty-nine weeks ended 
  November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 
Weighted-average common shares outstanding  147.7  151.0  149.2  151.4 
Effect of Dilution:             
Stock options and awards  1.8  2.9  2.0  2.6 
Weighted-average common shares assuming dilution  149.5  153.9  151.2  154.0 
Options to purchase 0.91.1 million and 4.10.9 million shares of common stock were not included in the computation of weighted-average common shares outstanding for the thirteen weeks ended November 2, 2013 and October 27, 2012, and October 29, 2011, respectively. Options to purchase 0.70.9 million and 3.80.7 million shares of common stock were not included in the computation of weighted-average common shares outstanding for the thirty-nine weeks ended November 2, 2013 and October 27, 2012, and October 29, 2011, respectively. These options were not included primarily because the exercise prices of the options were greater than the average market price of the common shares and, therefore, the effect would behave been antidilutive. As of October 27, 2012,November 2, 2013, contingently issuable shares of 0.20.4 million have not been included as the vesting conditions have not been satisfied.

15

8.FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Pension and Postretirement Plans

The Company has defined benefit pension plans covering certain of its North American employees, which are funded in accordance with the provisions of the laws where the plans are in effect. In addition to providing pension benefits, the Company sponsors postretirement medical and life insurance plans, which are available to most of its retired U.S. employees. These medical and life insurance plans are contributory and are not funded.

The following are the components of net periodic pension benefit cost and net periodic postretirement benefit income:

  Pension Benefits  Postretirement Benefits 
  Thirteen weeks  Thirty-nine weeks  Thirteen weeks  Thirty-nine weeks 
  Ended  ended  ended  ended 
  October 27,  October 29,  October 27,  October 29,  October 27,  October 29,  October 27,  October 29, 
(in millions) 2012  2011  2012  2011  2012  2011  2012  2011 
Service cost $3  $3  $10  $9  $—  $—  $—  $— 
Interest cost  7   8   21   24   —   —   —   — 
Expected return on plan assets  (10)  (10)  (30)  (30)  —   —   —   — 
Amortization of net loss (gain)  4   4   12   11   (1)  (2)  (3)  (4)
Net benefit expense (income) $4  $5  $13  $14  $(1) $(2) $(3) $(4)

income, which is recognized as part of SG&A expense:

  Pension Benefits Postretirement Benefits 
  Thirteen weeks Thirty-nine weeks Thirteen weeks Thirty-nine weeks 
  ended ended ended ended 
  November 2, October 27, November 2, October 27, November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 2013 2012 2013 2012 
Service cost $4 $3 $11 $10 $— $— $— $— 
Interest cost  6  7  19  21  —  —  —  — 
Expected return on plan assets  (10)  (10)  (30)  (30)  —  —  —  — 
Amortization of net loss (gain)  4  4  12  12  (1)  (1)  (2)  (3) 
Net benefit expense (income) $4 $4 $12 $13 $(1) $(1) $(2) $(3) 
During the second quarter of 2013, the Company made a $2 million contribution to the Canadian qualified plan. No pension contributions to the U.S. or Canadian qualified plansplan were made during the thirty-nine weeks ended November 2, 2013 and October 27, 2012. Additionally, no pensionThe Company continually evaluates the amount and timing of any future contributions. Additional contributions to its U.S. or Canadian qualified plans are required in 2012.

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

will depend on the plan asset performance and other factors.


9.10. Share-Based Compensation

Total compensation expense related to the Company’s share-based compensation plans was $6 million for the thirteen weeks ended November 2, 2013, $5 million for the thirteen weeks ended October 27, 2012, and was $19 million and $15 million for the thirty-nine weeks ended November 2, 2013 and October 27, 2012, respectively. The associated tax benefits recognized for the thirteen weeks ended November 2, 2013 and October 27, 2012 was $2 million for both periods. The associated tax benefit recognized was $6 million for the thirty-nine weeks ended November 2, 2013 and $5 million for the thirty-nine weeks ended October 27, 2012.
Tax deductions in excess of the cumulative compensation cost recognized for share-based compensation arrangements were $8 million and $9 million for the thirty-nine weeks ended November 2, 2013 and October 27, 2012, respectively, and are classified as a financing activity within the Condensed Consolidated Statements of Cash Flows.
The Company uses a Black-Scholes option-pricing model to estimate the fair value of share-based awards. Total compensation expense related to the Company’s share-based compensation plans was $5 million for both the thirteen weeks ended October 27, 2012 and October 29, 2011 and was $15 million and $13 million for the thirty-nine weeks ended October 27, 2012 and October 29, 2011, respectively. The associated tax benefits recognized for the thirteen weeks ended October 27, 2012 and October 29, 2011 were $2 million and $1 million, respectively. The associated tax benefits recognized were $5 million and $4 million for the thirty-nine weeks ended October 27, 2012 and October 29, 2011, respectively. Tax deductions in excess of the cumulative compensation cost recognized for share-based compensation arrangements were $9 million and $3 million for the thirty-nine weeks ended October 27, 2012 and October 29, 2011, respectively, and are classified as financing activities within the Condensed Consolidated Statements of Cash Flows.

The Black-Scholes option-pricing model incorporates various and highly subjective assumptions, including expected term and expected volatility.

16

FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Share-Based Compensation- (continued)
The following table shows the Company’s assumptions used to compute the share-based compensation expense:

  Stock Option Plans
Thirty-nine weeks ended		  Stock Purchase Plan
Thirty-nine weeks ended		 
  October 27,  October 29,  October 27,  October 29, 
  2012  2011  2012  2011 
Weighted-average risk free rate of interest  1.5%  2.07%  0.22%  0.34%
Expected volatility  43%  45%  38%  37%
Weighted-average expected award life  5.5 years   5.0 years   1.0 year   1.0 year 
Dividend yield  2.3%  3.5%  2.5%  3.5%
Weighted-average fair value $10.12  $5.86  $5.91  $3.69 

  Stock Option Plans
Thirty-nine weeks ended		   Stock Purchase Plan
Thirty-nine weeks ended		 
  November 2,  October 27,  November 2,  October 27, 
  2013  2012  2013  2012 
Weighted-average risk free rate of interest  1.02%  1.50%  0.17%  0.22%
Expected volatility  42%  43%  40%  38%
Weighted-average expected award life  6.0 years   5.5 years   1.0 year   1.0 year 
Dividend yield  2.3%  2.3%  2.3%  2.5%
Weighted-average fair value $10.98  $10.12  $5.80  $5.91 
The information in the following table covers options granted under the Company’s stock option plans for the thirty-nine weeks ended October 27, 2012:

(in thousands, except weighted-average term and price per share) Shares  Weighted-
Average
Term		  Weighted-
Average
Exercise
Price		 
Options outstanding at the beginning of the year  7,227      $18.44 
Granted  932      $30.93 
Exercised  (1,827)     $19.45 
Expired or cancelled  (40)     $23.68 
Options outstanding at October 27, 2012  6,292   6.29  $19.96 
Options exercisable at October 27, 2012  3,977   4.93  $18.11 
Options available for future grant at October 27, 2012  5,558         

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.Share-Based Compensation – (continued)

  Thirteen weeks ended  Thirty-nine weeks ended 
  October 27,  October 29,  October 27,  October 29, 
Intrinsic value of stock options (in millions) 2012  2011  2012  2011 
Exercised $9  $—  $24  $8 
Outstanding         $85  $42 
Outstanding and exercisable         $61  $27 

November 2, 2013:

(in thousands, except price per share and weighted-average term) Shares Weighted-
Average
Term		 Weighted-
Average
Exercise
Price		 
Options outstanding at the beginning of the year  5,907   $19.93 
Granted  1,154    34.25 
Exercised  (964)    19.12 
Expired or cancelled  (59)    29.56 
Options outstanding at November 2, 2013  6,038 6.59 $22.70 
Options exercisable at November 2, 2013  3,857 5.40 $18.51 
Options available for future grant at November 2, 2013  3,336      
  Thirteen weeks ended Thirty-nine weeks ended 
  November 2, October 27, November 2, October 27, 
Intrinsic value of stock options (in millions) 2013 2012 2013 2012 
Exercised $2 $9 $15 $24 
Outstanding       $74 $85 
Outstanding and exercisable       $64 $61 
The cash received from option exercises for the thirteen and thirty-nine weeks ended November 2, 2013 was $4 million and $19 million, respectively. The cash received from option exercises for the thirteen and thirty-nine weeks ended October 27, 2012 was $15$15 million and $35$35 million, respectively. The cash received from option exercises was not significant for the thirteen weeks ended October 29, 2011 and was $9 million for the thirty-nine weeks ended October 29, 2011. Thetotal tax benefit realized from option exercises was $3$1 million and $8$5 million for the thirteen and thirty-nine weeks ended October 27, 2012,November 2, 2013, respectively, and was not significant$3 million and $3$8 million for the corresponding prior-year periods.

17

FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Share-Based Compensation- (continued)
The following table summarizes information about stock options outstanding and exercisable at October 27, 2012:

   

Options Outstanding

  Options Exercisable 
Range of Exercise
Prices		  Number
Outstanding		  Weighted-
Average
Remaining
Contractual
Life		  Weighted-
Average
Exercise
Price		  Number
Exercisable		  Weighted-
Average Exercise
Price		 
(in thousands, except price per share and contractual life) 
$9.85  $15.10   2,283   6.34  $12.52   1,888  $11.98 
$15.74  $23.92   2,202   6.58  $20.45   1,250  $21.65 
$24.04  $34.12   1,807   5.88  $28.76   839  $26.62 
$9.85  $34.12   6,292   6.29  $19.96   3,977  $18.11 

November 2, 2013:

      Options Outstanding Options Exercisable 
Range of Exercise
Prices		 Number
Outstanding		 Weighted-
Average
Remaining
Contractual Life		 Weighted-
Average
Exercise
Price		 Number
Exercisable		 Weighted-
Average
Exercise Price		 
(in thousands, except price per share and contractual life) 
$9.85 $15.10 1,756 5.86 $12.60 1,756 $12.60 
$15.74 $23.42 1,603 6.36 $19.71 1,156 $20.04 
$23.63 $30.92 1,540 5.61 $28.77 937 $27.55 
$31.79 $36.59 1,139 9.36 $34.26 8 $34.17 
$9.85 $36.59 6,038 6.59 $22.70 3,857 $18.51 
Changes in the Company’s nonvested options for the thirty-nine weeks ended October 27, 2012November 2, 2013 are summarized as follows:

(in thousands, except price per share) Number of
Shares		  Weighted-
Average Grant
Date Fair Value
per Share		 
Nonvested at January 28, 2012  2,629  $16.84 
Granted  932  $30.93 
Vested  (1,206) $15.43 
Expired or cancelled  (40) $23.68 
Nonvested at October 27, 2012         2,315  $23.13 

(in thousands, except price per share)  Number of
Shares		 Weighted-
Average Grant
Date Fair Value
per Share		 
Nonvested at the beginning of the year  2,314 $23.18 
Granted  1,154  34.25 
Vested  (1,228)  20.97 
Expired or cancelled  (59)  29.56 
Nonvested at November 2, 2013  2,181 $30.11 
Compensation expense related to the Company’s stock option and stock purchase plans was $2$3 million and $7$9 million for the thirteen and thirty-nine weeks ended November 2, 2013, respectively, and was $2 million and $7 million for the thirteen and thirty-nine weeks ended October 27, 2012, respectively, and was $2 million and $6 million for the thirteen and thirty-nine weeks ended October 29, 2011, respectively. As of October 27, 2012,November 2, 2013, there was $7$11 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.021.10 years.

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.Share-Based Compensation – (continued)

Restricted Stock and Units

Restricted shares of the Company’s common stock and restricted stock units have beenmay be awarded to certain officers and certain key employees of the Company. Awards made to executives outside of the United States and to non-employee directors are made in the form ofThe Company also issues restricted stock units.units to its non-employee directors. Each restricted stock unit represents the right to receive one share of the Company’s common stock, provided that the vesting conditions are satisfied. As of October 27, 2012,November 2, 2013, 997,542 restricted stock units totaling 1,253,075 were outstanding. Compensation expense is recognized using the fair market value at the date of grant and is amortized over the vesting period, provided the recipient continues to be employed by the Company.
Generally, awards fully vest after the passage of time, typically three years. However, restricted stock unit grants made after May 19, 2010 in connection with the Company’s long-term incentive program vest after the attainment of certain performance metrics and the passage of time.Restricted stock is considered outstanding at the time of grant and the holders have voting rights. Dividends are paid to holders of restricted stock that vestvests with the passage of time; for any performance-based restricted stock granted after May 19, 2010, dividends will be accumulated and paid after the performance criteria are met.

18

FOOT LOCKER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Share-Based Compensation- (continued)
Restricted sharesshare and unitsunit activity for the thirty-nine weeks ended November 2, 2013 and October 27, 2012 and October 29, 2011 is summarized as follows:

  Number of Shares and Units 
(in thousands) October 27, 2012  October 29, 2011 
Outstanding at beginning of period  2,068   1,759 
Granted  264   686 
Vested  (482)  (327)
Cancelled or forfeited  —   (50)
Outstanding at end of period  1,850   2,068 
Aggregate value (in millions) $33  $30 
Weighted-average remaining contractual life  0.95 years   1.44 years 

  Number of Shares and Units 
(in thousands) November 2, 2013 October 27, 2012 
Outstanding at beginning of period  1,564  2,068 
Granted  440  264 
Vested  (649)  (482) 
Cancelled or forfeited  (15)  — 
Outstanding at end of period  1,340  1,850 
Aggregate value (in millions) $36 $33 
Weighted-average remaining contractual life  1.09 years  0.95 years 
The weighted-average grant-date fair value per share was $30.75$34.59 and $20.18$30.75 for the thirty-nine weeks ended   November 2, 2013 and October 27, 2012, and October 29, 2011, respectively. The total value of awards for which restrictions lapsed during the thirty-nine weeks ended November 2, 2013 and October 27, 2012 and October 29, 2011 was $5$9 million and $4$5 million, respectively. As of October 27, 2012,November 2, 2013, there was $13$13 million of total unrecognized compensation cost related to nonvested restricted awards. The Company recorded compensation expense related to restricted stock awards, net of forfeitures, of $3$3 million for both the thirteen weeks ended November 2, 2013 and October 27, 2012, and October 29, 2011 and $8$10 million and $7$8 million for the thirty-nine weeks ended November 2, 2013 and October 27, 2012, and October 29, 2011, respectively.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OVERVIEW

Foot Locker, Inc., through its subsidiaries, operates in two reportable segments – Athletic Stores and Direct-to-Customers. The Athletic Stores segment is one of the largest athletic footwear and apparel retailers in the world, whosewith formats that include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction and CCS.SIX:02, as well as the retail stores of Runners Point Group, including Runners Point, Sidestep, and Run2, which was acquired during the second quarter of 2013. The Direct-to-Customers segment is multi-branded and multi-channeled. This segment sells, through its affiliates, directly to customers through its Internet websites, mobile devices, and catalogs. Eastbay, one of the affiliates, is among the largest direct marketers in the United States. The Direct-to-Customers segment operates the websitewebsites for eastbay.com, final-score.com, andeastbayteamservices.com, ccs.com, as well as. Additionally, this segment operates websites aligned with the brand names of its store banners (footlocker.com, ladyfootlocker.com, kidsfootlocker.com, champssports.com, footaction.com, champssports.com, and ccs.com)six02.com).

Additionally, this segment includes Tredex, the direct-to-customer subsidiary of Runners Point Group, which operates the websites for runnerspoint.com, sidestep.com, and sp24.com.

STORE COUNT

At October 27, 2012,November 2, 2013, the Company operated 3,3673,510 stores as compared with 3,3693,335 and 3,4023,367 stores at January 28, 2012February 2, 2013 and October 29, 2011,27, 2012, respectively. During the thirty-nine weeks ended October 27, 2012,November 2, 2013, the Company opened 7077 stores, acquired 194 stores, remodeled or relocated 159271 stores and closed 7296 stores.

Store count as of November 2, 2013 includes 195 Runners Point Group stores.

A total of 4072 franchised stores were operating at November 2, 2013, as compared with 42 and 40 stores at February 2, 2013 and October 27, 2012, as compared with 34respectively. Included in the most recent number of franchised stores are 27 franchised Runners Point Group stores operating in Germany and 32 stores at January 28, 2012 and October 29, 2011, respectively. RevenueSwitzerland. Royalty income from the franchised stores was not significant for any of the periods presented. These stores are not included in the Company’s operating store count above.

19

SALES AND OPERATING RESULTS

All references to comparable-store sales for a given period relate to sales of stores that are open at the period-end thatand have been open for more than one year, and excludeyear. The computation of comparable-store sales also includes the effectsales of foreign currency fluctuations. Accordingly, storesthe Direct-to-Customers segment. Stores opened andor closed during the period are not included in the comparable-store base; however, stores closed temporarily for relocation or remodeling are included. Computations exclude the effects of foreign currency fluctuations.
Sales from the Direct-to-Customers segmentacquired businesses that include inventory are included in the total Company calculationcomputation of comparable-store sales for all periods presented. Division profit reflects income before income taxes, corporate expense, net interest expense, and net non-operating income.

after 15 months of operations. Accordingly, sales of Runners Point Group have been excluded from the computation of comparable-store sales.

The following table summarizes results by segment:

  Thirteen weeks ended  Thirty-nine weeks ended 
Sales October 27,  October 29,  October 27,  October 29, 
(in millions)  2012  2011  2012  2011 
Athletic Stores $1,375  $1,268  $4,060  $3,773 
Direct-to-Customers  149   126   409   348 
Total sales $1,524  $1,394  $4,469  $4,121 

  Thirteen weeks ended  Thirty-nine weeks ended 
Operating Results 

October 27,

  October 29,  October 27,  October 29, 
(in millions)  

2012

  2011  2012  2011 
Athletic Stores $166  $119  $480  $360 
Direct-to-Customers  18   12   47   32 
Restructuring charge(1)   —   —   —   (1)
Division profit  184   131   527   391 
Less: Corporate expense, net  28   25   76   76 
Operating profit  156   106   451   315 
Other income (2)   —   —   1   1 
Interest expense, net  1   1   3   4 
Income before income taxes $155  $105  $449  $312 

  Thirteen weeks ended Thirty-nine weeks ended 
Sales November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 
Athletic Stores $1,444 $1,375 $4,228 $4,060 
Direct-to-Customers  178  149  486  409 
Total sales $1,622 $1,524 $4,714 $4,469 
  Thirteen weeks ended Thirty-nine weeks ended 
Operating Results November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 
Athletic Stores (1)
 $159 $166 $486 $480 
Direct-to-Customers  20  18  53  47 
Division profit  179  184  539  527 
Less: Corporate expense, net(2)
  17  28  56  76 
Operating profit  162  156  483  451 
Other income (3)
  —  —  3  1 
Interest expense, net  2  1  4  3 
Income before income taxes $160 $155 $482 $449 
(1)
Included in the Athletic Stores segment for the thirty-nine weeks ended November 2, 2013 is a $2 million charge recorded in connection with the closure of all CCS stores.
(2)

During

Corporate expense for the first quarterthirteen and thirty-nine weeks ended November 2, 2013 reflects the reallocation of 2011,expense between corporate and the Companyoperating divisions. Based upon an internal study of corporate expense, the allocation of such expenses to the operating divisions was increased its 1993 Repositioningthereby reducing corporate expense. Corporate expense was reduced by $7 million and 1991 Restructuring reserve by $1$20 million for repairs necessary to one of the locations comprising this reserve. This amount is included in selling, generalthirteen and administrative expenses in the Condensed Consolidated Statement of Operations. 

thirty-nine weeks ended November 2, 2013, respectively.
(2)(3)
Other income includes non-operating items, such as:as lease termination gains, from insurance recoveries; discounts/premiums paid on the repurchase and retirement of bonds; royalty income;income, and the changes in fair value, premiums paid and realized gains associated with foreign currency option contracts. Other income for the thirty-nine weeks ended October 27, 2012 primarily represents royalty income, partially offset by a premium paid on the repurchase and retirement of bonds.Other income for the thirty-nine weeks ended October 29, 2011 primarily represents lease termination gains related to the sale of leasehold interests and royalty income.

Sales increased by $130$98 million, or 9.36.4 percent, to $1,622 million for the thirteen weeks ended November 2, 2013 from $1,524 million for the thirteen weeks ended October 27, 2012, from $1,394 million for the thirteen weeks ended October 29, 2011.2012. For the thirty-nine weeks ended October 27, 2012,November 2, 2013, sales of $4,714 million increased 5.5 percent from sales of $4,469 million increased 8.4 percent from sales of $4,121 million for the comparable prior-yearthirty-nine week period of 2011. ended October 27, 2012.
Excluding the effecteffects of foreign currency fluctuations and sales of Runners Point Group, total sales for the thirteen-weekthirteen weeks and thirty-nine weekweeks periods increased 11.01.3 percent and 10.43.2 percent, respectively, as compared with the corresponding prior-year periods. Comparable-store sales increased by 10.24.1 percent and 9.93.7 percent for the thirteen weeks and thirty-nine weeks ended November 2, 2013, respectively.
Gross margin, as a percentage of sales, remained unchanged at 33.1 percent and 32.9 percent for the thirteen and thirty-nine weeks ended October 27, 2012, respectively.

Gross margin, as a percentage of sales, increased by 60 basis points to 33.1 percent for the thirteen weeks ended October 27, 2012,November 2, 2013, as compared with the corresponding prior-year period. For the thirty-nine weeks ended October 27, 2012, gross margin, asperiods. As a percentage of sales, the cost of merchandise for the thirteen and thirty-nine weeks ended November 2, 2013 increased by 10010 basis points as compared with the prior year periods, primarily reflecting a decrease in the initial markup rate. This increase was offset by an improvement of 10 basis points from leveraging occupancy and buying costs.

20

Segment Analysis
Athletic Stores
Athletic Stores sales increased by 5.0 percent to 32.9$1,444 million and 4.1 percent to $4,228 million for the thirteen and thirty-nine weeks ended November 2, 2013, respectively, as compared with the corresponding prior-year period.

For the thirteen weeks ended October 27, 2012, the occupancy and buyers’ salary expense rate decreased by 100 basis points, as a percentage of sales, as compared with the corresponding prior-year periods, reflecting improved occupancy leverage. Partially offsetting this improvement was a 30 basis point decrease in the merchandise margin rate due to higher markdowns, primarily in Europe, and the effect of lower initial markups. The additional markdowns in Europe were necessary to ensure that merchandise inventories remained current and in line with the sales trend. Additionally, 10 basis points of the decline is attributable to the effect of lower shipping and handling income as the Direct-to-Customers segment continued to provide free shipping offers to remain competitive with other Internet retailers. For the thirty-nine weeks ended October 27, 2012, the occupancy and buyers’ salary expense rate decreased by 110 basis points, as a percentage of sales, as compared with the corresponding prior-year period, reflecting improved leverage.The merchandise margin rate for the thirty-nine weeks ended October 27, 2012 decreased by 10 basis points from the corresponding prior-year period.

The effect of vendor allowances was not significant for any of the periods presented.

Segment Analysis

Athletic Stores

periods. Athletic Stores sales increased by 8.4include $64 million and $84 million for the thirteen and thirty-nine week periods ended November 2, 2013, respectively, related to the Runners Point Group stores. Excluding the effects of foreign currency fluctuations and sales of Runners Point Group stores, sales from the Athletic Stores segment decreased 0.1 percent and 7.6increased 1.9 percent for the thirteen and thirty-nine weeks ended October 27, 2012,November 2, 2013, respectively, as compared with the corresponding prior-year periods. Excluding the effect of foreign currency fluctuations,

Comparable-store sales from athletic stores increased 10.2by 2.9 percent and 9.82.5 percent for the thirteen and thirty-nine weeks ended October 27, 2012, respectively,November 2, 2013, respectively. These increases were primarily driven by Kids Foot Locker and Foot Locker U.S., which posted strong comparable-store gains. The children’s footwear category was a key driver across multiple banners, as compared withbasketball styles performed very well. This was offset, in part, by comparable-store sales declines in Lady Foot Locker and Champs Sports, while Footaction was essentially flat. Lady Foot Locker continued to experience sales declines, as management continues to close underperforming stores and redefine the corresponding prior-year periods. Comparable-storeproduct offerings. Test locations, including SIX:02 stores, are performing better than the balance of the chain and continue to be evaluated. Various initiatives are being implemented, including the launch of the SIX:02 e-commerce website during the third quarter, in order to optimize performance before a roll-out strategy is determined. The Company is working to improve the performance of the remaining Lady Foot Locker stores and is testing additional merchandise and store layout changes in an effort to improve future performance. Champs Sports’s comparable-store sales increasedwere negatively affected, in part, by 9.4 percent and 9.2 percentthe level of store remodel projects, which resulted in store closings for the thirteen and thirty-nine weeks ended October 27, 2012, respectively.

Forperiod of time during remodeling. International sales were led by Foot Locker Europe, which experienced a mid-single digit comparable-store sales increase for both the thirteen weeks and thirty-nine weeks ended October 27, 2012, most divisions posted strong comparable-storeNovember 2, 2013. These increases were primarily related to sales gains. The strongest performers were Kids Foot Locker, Champs Sportsof men’s basketball and domestic Foot Locker. Foot Locker Europe’s comparable-store sales were essentially flat for the quarter and reflected a modest decline in the year-to-date period, primarily reflecting the macroeconomic conditions in that region. Total sales for Foot Locker Europe were higher than the corresponding prior-year periods for both the quarter and year-to-date periods as a result of new store openings. The total store count increased by 39 as compared with the corresponding prior-year period.

Lady Foot Locker’s total sales declined in the quarter partially due to lower store count, as management has continued to close underperforming locations. Comparable-store sales for Lady Foot Locker also decreased for the quarter; however, year-to-date comparable-store sales were essentially flat. Management has continued to review the women’s business and is developing and implementing various initiatives, such as expanded apparel offerings and a new store design, which is currently being tested in 14 locations. In November, the Company announced the introduction of a new banner, SIX:02, an elevated retail concept featuring top brands in fitness apparel and athletic footwear for women. The Company will open three stores in the fourth quarter. Management believes that these initiatives will improve the performance of the women’s category over time, as the tests are studied and the actions are refined across all stores.

The overall sales performance was very consistent for footwear, apparel, and accessories. Total footwear sales gains were led by the kids category, which had strong gains across all banners, and the basketball category which benefited from key marquee player shoes. Overall apparel sales increased in the low double-digits, reflecting strong domestic increases offset, in part, by a decline in Europe’s apparel sales.

running styles.

Athletic Stores division profit for the thirteen weeks ended October 27, 2012 increasedNovember 2, 2013 decreased to $166$159 million, or 12.111.0 percent as a percentage of sales, as compared with division profit of $119$166 million, or 9.412.1 percent as a percentage of sales, for the thirteen weeks ended October 29, 2011.27, 2012. For the thirty-nine weeks ended October 27, 2012,November 2, 2013 division profit increased to $480$486 million, or 11.811.5 percent as a percentage of sales, as compared with division profit of $360$480 million, or 9.511.8 percent of sales, for the corresponding prior-year period. Athletic Stores division profit includes $1 million and $3 million for thirteen and thirty-nine week periods ended November 2, 2013, respectively, related to Runners Point Group stores.
The decrease in division profit for the thirteen weeks ended November 2, 2013 was mainly attributed to higher occupancy costs as a percentage of sales, reflecting the shift in sales resulting from the 53rd week in 2012. Accordingly, division profit for the thirty-nine weeks ended October 29, 2011. These increases were mainly attributable to improved sales, as wellNovember 2, 2013, as a slightly improved gross margin rate driven by improved leveragepercentage of sales, was essentially flat with the fixed expenses within gross margin. Also contributing to the improvement was continued expense control.

corresponding prior-year period.

Direct-to-Customers

Direct-to-Customers sales increased by 18.319.5 percent to $149 millionand 18.8 percent for the thirteen and thirty-nine weeks ended October 27, 2012,November 2, 2013, respectively, as compared with the corresponding prior-year period of $126 million. Forperiods. Comparable sales increased 13.7 percent and 15.7 percent for the thirteen weeks and thirty-nine weeks ended October 27, 2012,November 2, 2013, respectively. Direct-to-Customers sales increased by 17.5 percentinclude $8 million and $10 million, respectively, related to $409 million, as compared with the corresponding prior-year periodTredex division of $348 million. TheseRunners Point Group during the same periods in 2013. Excluding sales from Tredex, increases were primarily athe result of the continued strong sales performance of the Company’s store bannerstore-banner websites, andwhich  increased approximately 40.0 percent, coupled with sales growth in the Eastbay both of which benefited from improved and fresh product offerings. Additionally, we continue to investbusiness. These increases were offset, in our websites,part, by providing entertaining, engaging content,a decline in CCS’s sales, as well as developing and optimizing the sites for smart phone and tablet use. The Companythat format continues to experience the migration of catalog sales to internet sales; therefore, providing the breakdown between catalog and internet sales is no longer meaningful.

perform below expectations.

21

Direct-to-Customers division profit for the thirteen weeks ended November 2, 2013 increased 50.0 percentto $20 million, as compared to $18 million andfor the corresponding prior-year period. Division profit for the thirty-nine weeks ended November 2, 2013 increased 46.9 percentto $53 million, as compared to $47 million for the thirteen and thirty-nine weeks ended October 27, 2012, respectively, as compared with the corresponding prior-year periods.period. Division profit as a percentage of sales increaseddecreased to 12.111.2 percent and 11.510.9 percent for the thirteen and thirty-nine weeks ended October 27, 2012,November 2, 2013, respectively, as compared with 9.512.1 percent and 9.211.5 percent respectively, infor the corresponding prior-year periods. These increasesThe decrease in division profit as a percentage of sales for the thirteen and thirty-nine weeks ended November 2, 2013 is primarily reflectdriven by increased advertising and publicity expense, as Eastbay launched a new marketing campaign late in the improvement in sales. The resultssecond quarter of CCS have been primarily adversely affected by2013 to increase the overall downturnexposure of the skate market. The Company has refined its merchandise offerings as well as modified its catalogs to provide more content and product images, in an effort to improvebrand, coupled with the future results of this business. Management will monitor the results of this business during the fourth quarter, which may include an analysiscontinued underperformance of the recoverabilityCCS business. The effect of its intangible assets.

the Tredex acquisition was not significant to the Direct-to-Customers segment for any of the periods presented.

Corporate Expense

Corporate expense consists of unallocated selling, general and administrative expenses (“SG&A”), as well as depreciation and amortization related to the Company’s corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items. Corporate expense for the thirteen weeks ended October 27, 2012 increasedNovember 2, 2013 decreased by $3$11 million to $28$17 million from the corresponding prior-year period, primarily reflecting increased incentive compensation and higher professional fees. Corporate expense forperiod. For the thirty-nine weeks ended October 27, 2012 was unchanged as compared withNovember 2, 2013 corporate expense decreased by $20 million to $56 million from the corresponding prior-year period.

The decline is primarily a result of a reallocation of expense between corporate and the operating divisions. Based upon an internal study of corporate expense, the allocation of such expenses to the operating divisions was increased thereby reducing corporate expense. This decrease was partially offset by $1 million and $4 million for the thirteen and thirty-nine weeks ended November 2, 2013, respectively, of costs incurred related to the Company’s acquisition and integration of Runners Point Group.

Selling, General and Administrative

Selling, general and administrative expenses (“

SG&A”)&A of $319$340 million decreasedincreased by $1$21 million, or 6.6 percent, for the thirteen weeks ended October 27, 2012November 2, 2013 as compared with the corresponding prior-year period. SG&A, as a percentage of sales, decreasedincreased to 20.921.0 percent for the thirteen weeks ended October 27, 2012,November 2, 2013, as compared with 23.020.9 percent in the corresponding prior-year period.
For the thirty-nine weeks ended October 27, 2012,November 2, 2013, SG&A increased by $12$38 million, or 1.34.1 percent, as compared with the corresponding prior-year period. SG&A, as a percentage of sales, decreased to 20.6 percent for the thirty-nine weeks ended November 2, 2013, as compared with 20.8 percent in the corresponding prior-year period.
Excluding the effects of foreign currency fluctuations, SG&A increased by $18 million and $34 million for the thirteen and thirty-nine weeks ended November 2, 2013, respectively, as compared with the corresponding prior-year periods.
Included in SG&A for the thirteen and thirty-nine weeks ended November 2, 2013, is $1 million and $4 million, respectively, of costs related to the Company’s acquisition and integration of Runners Point Group as noted above in the discussion of corporate expense. Additionally, Runners Point Group’s SG&A represented $22 million and $27 million for the thirteen and thirty-nine weeks ended November 2, 2013, respectively. Excluding the acquisition costs, integration costs, and Runners Point Group, SG&A as a percentage of sales, would have declined 40 and 50 basis points for the thirteen and thirty-nine weeks ended November 2, 2013, respectively, as compared with the corresponding prior-year periods. This improvement was driven by effective expense management, specifically managing store wages and marketing costs.
22

Depreciation and Amortization
Depreciation and amortization increased by $5 million for the thirteen weeks ended November 2, 2013 to $35 million, as compared with the corresponding prior-year period of $30 million. For the thirty-nine weeks ended November 2, 2013, depreciation and amortization increased by $9 million to $97 million as compared with $88 million for the thirty-nine weeks ended October 27, 2012, as compared with 22.3 percent in2012. This increase reflects increased capital spending on store improvements and technology. In addition, this increase reflects the corresponding prior-year period.

Excludinginclusion of depreciation and amortization relating to Runners Point Group of $2 million for the effectthirteen and thirty-nine weeks ended November 2, 2013. The effects of foreign currency fluctuations SG&A increasedwere not significant.

Other Charges
Other charges consist of $2 million of lease exit costs relating to the closure of all 22 CCS stores during the second quarter of 2013. As of November 2, 2013, 12 of these stores were converted to other store formats, 2 will be converted by $5the end of the year and 1 will be converted during the first quarter of 2014. The CCS store closures are not presented as part of discontinued operations as the operations and cash flows related to the majority of the closed stores are expected to continue through other store formats and the Company’s websites.
Interest Expense
  Thirteen weeks ended Thirty-nine weeks ended 
  November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 
Interest expense $3 $3 $8 $8 
Interest income  (1)  (2)  (4)  (5) 
Interest expense, net $2 $1 $4 $3 
The increase in net interest expense for the thirteen and thirty-nine weeks ended November 2, 2013, as compared with the corresponding prior-year period, reflects income earned on lower cash and cash equivalents balances as well as a decrease in the corresponding interest rate.
Income Taxes
The Company recorded income tax provisions of $56 million and $32$174 million, which represent effective tax rates of 35.0 and 36.1 percent for the thirteen and thirty-nine weeks ended November 2, 2013, respectively. For the thirteen and thirty-nine weeks ended October 27, 2012, respectively, as compared with the corresponding prior-year periods. These increases principally represented increased variable costs to support sales, such as store wages and banking expenses. Variable costs, while higher than the prior year, were managed efficiently resulting in the decline in the SG&A rate. The improved leverage was achieved while also making incremental investments in marketing programs.

Depreciation and Amortization

Depreciation and amortization increased by $3 million for the thirteen weeks ended October 27, 2012 to $30 million, as compared with the corresponding prior-year period. For the thirty-nine weeks ended October 27, 2012, depreciation and amortization increased by $6 million to $88 million as compared with the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, primarily related to the euro, depreciation and amortization increased by $8 million for the thirty-nine weeks ended October 27, 2012, as compared with the corresponding prior-year period. The effect of foreign currency fluctuations was not significant for the thirteen weeks ended October 27, 2012. These changes reflect additional depreciation and amortization associated with increased capital spending on stores, information systems, digital technology enhancements, and other projects.

Interest Expense

  Thirteen weeks ended  Thirty-nine weeks ended 
  October 27,  October 29,  October 27,  October 29, 
(in millions) 2012  2011  2012  2011 
Interest expense $3  $2  $8  $9 
Interest income  (2)  (1)  (5)  (5)
Interest expense, net $1  $1  $3  $4 

The decrease in net interest expense for the thirty-nine weeks ended October 27, 2012, as compared with the corresponding prior-year period, primarily reflects lower expenses associated with the Company’s revolving credit facility, which was amended at the end of 2011 with lower annual fees.

Income Taxes

The Company recorded income tax provisions of $49 million and $156 million, which represent anrepresented effective tax raterates of 31.7 percent and 34.8 percent, for the thirteen weeks and thirty-nine weeks ended October 27, 2012, respectively. For the thirteen weeks and thirty-nine weeks ended October 29, 2011, the Company recorded income tax provisions of $39 million and $115 million, which represent an effective tax rate of 37.3 percent and 36.9 percent, respectively. The Company’s interim provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items that occur within the periods presented.

The Company regularly assesses the adequacy of the Company’sits provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes. As a result, the Company may adjust the reserves for unrecognized tax benefits considering new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitation. Included in the effective tax rate for the thirteen weeks ended November 2, 2013 are tax reserve releases of $3 million due to foreign tax audit settlements. The effective tax rate for the thirteen weeks ended October 27, 2012 included a tax reserve release of $9 million due to a foreign tax audit settlement. The effective tax rate for the thirty-nine weeks ended October 27, 2012November 2, 2013 included tax benefits$5 million of $12 million related to tax reserve releases due to the settlements of federal, state, and foreign tax audits, offset by state audit settlements.expense of $1 million, as compared with reserve releases of $12 million recognized in the corresponding prior-year period.
23

For the thirty-nine weeks ended November 2, 2013, in connection with the purchase of Runners Point Group, the Company recorded a discrete item of $1 million representing the tax expense of acquisition costs for which a deduction is not allowable. The effective tax ratesrate for the thirteen weeks and thirty-nine weeks ended October 29, 2011 included tax reserve releases of $1 million due to the lapse of a foreign statute of limitations.

Changes in tax laws or tax rates are reflected on deferred tax assets and liabilities when enacted. The thirty-nine weeks ended October 27, 2012 included a tax benefit related to a Canadian provincial tax rate change that resulted in a $1 million increase in the value of the Company’s net deferred tax assets. The Company does not expect this change to have a significant effect on future periods.

Excluding the reserve releasesactivity and the Canadian provincial rate change,other discrete items, the effective tax rate for the thirteen weeks and thirty-nine weeks ended October 27, 2012 increasedNovember 2, 2013 decreased as compared with the corresponding prior-year periods,period, due primarily to the effect of certain recently implemented tax planning initiatives.
During the third quarter of 2013 the Internal Revenue Service issued the final regulations regarding the deduction and capitalization of expenditures related to tangible property. These final regulations apply to taxable years beginning on or after January 1, 2014. Management does not believe such regulations will have a higher proportion of income earned inmaterial effect on the United States, which bears a higher tax rate.

Company’s consolidated financial statements.

The Company currently expects the fourth quarter tax rate to be in the range ofapproximate 37 to 38 percent and its full year tax rate to approximatebe in the range of 36 to 37 percent, excluding the effect of any additional nonrecurring items that may occur. The actual tax rates will primarily depend on the level and mix of income earned in the United States as compared with its international operations.

Net Income
For the thirteen weeks ended November 2, 2013, net income decreased by $2 million, or 1.9 percent, as compared with the corresponding prior-year period. For the thirty-nine weeks ended November 2, 2013, net income increased by $15 million, or 5.1 percent, as compared with the corresponding prior-year period.
Reconciliation of Non-GAAP Measures

The Company provides non-GAAP information to assist investors with the comparison of the Company’s results period over period. The following represents the reconciliation of the non-GAAP measures:
  Thirteen weeks ended Thirty-nine weeks ended 
  November 2, October 27, November 2, October 27, 
(in millions) 2013 2012 2013 2012 
Net income, as reported $104 $106 $308 $293 
After-tax adjustments to arrive at non-GAAP:             
Runners Point Group acquisition and integration costs  1  —  4  — 
CCS store closure costs  —  —  1  — 
Canadian tax rate change  —  —  —  (1) 
Foreign tax audit settlements  (3)  (9)  (3)  (9) 
Net income, non-GAAP $102 $97 $310 $283 
              
Diluted EPS, as reported $0.70 $0.69 $2.04 $1.90 
Adjustments to arrive at non-GAAP:             
Runners Point Group acquisition and integration costs costs  —  —  0.02  — 
CCS store closure costs  —  —  0.01  — 
Canadian tax rate change  —  —  —  (0.01) 
Foreign tax audit settlements  (0.02)  (0.06)  (0.02)  (0.06) 
Diluted EPS, non-GAAP $0.68 $0.63 $2.05 $1.83 
The Company estimates the tax effect of the non-GAAP adjustments by applying its effective tax rate to each of the respective items.
24

In 2009, the Company excluded from its non-GAAP results the effect of a Canadianprovincial taxrate change that resulted in a $4 million reduction in the value of the Company’s deferred tax assets. Inchange. During the second quarter of 2012, the Company recorded a benefit of $1 million, or $0.01 per diluted share, to reflect the repeal of the last two stages of thecertain Canadian provincial tax rate changes. InThis benefit was excluded from the third quarter ofnon-GAAP results, consistent with the prior year’s presentation.
During the thirteen weeks ended November 2, 2013 and October 27, 2012, the Company also recorded a benefitbenefits of $3 million or $0.02 per diluted share and $9 million, or $0.06 per diluted share, respectively, to reflect the settlement of a foreign tax audit,audits, which resulted in a reduction in tax reserves established in prior periods. Accordingly, consistent with prior periods, the Company has excluded these benefits to arrive at its non-GAAP results.
The non-GAAP financial measure ismeasures are provided in addition to, and not as an alternative to, the Company’s reported results prepared in accordance with GAAP.

Net Income

For the thirteen weeks and thirty-nine weeks ended October 27, 2012, net income increased by $40 million or 60.6 percent and $96 million or 48.7 percent, respectively, as compared with the corresponding prior-year periods. Presented below are GAAP and non-GAAP results, as more fully described above.

  Thirteen weeks ended  Thirty-nine weeks ended 
  October 27,  October 29,  October 27,  October 29, 
(in millions)  2012  2011  2012  2011 
Net income $106  $66  $293  $197 
Diluted EPS $0.69  $0.43  $1.90  $1.27 
                 
Net income (non-GAAP) $97  $66  $283  $197 
Diluted EPS (non-GAAP) $0.63  $0.43  $1.83  $1.27 

The improved performance represented a 38.5 percent and 39.4 percent flow-through of increased sales to pre-tax income for the third quarter and year-to-date periods of 2012, respectively, reflecting leveraging of fixed costs and effectively controlling operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary source of liquidity has been cash flow from operations, while the principal uses of cash have been to: fund inventory and other working capital requirements; finance capital expenditures related to store openings, store remodelings, Internet and mobile sites, information systems, and other support facilities; make retirement plan contributions, quarterly dividend payments, and interest payments; and fund other cash requirements to support the development of its short-term and long-term operating strategies. The Company generally finances real estate with operating leases. Management believes its cash, cash equivalents, short-term investments, future cash flow from operations, and the Company’s current revolving credit facility will be adequate to fund these requirements.

The Company may also from time to time repurchase its common stock or seek to retire or purchase outstanding debt through open market purchases, privately negotiated transactions, or otherwise. Such repurchases, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.

Any material adverse change in customer demand, fashion trends, competitive market forces, or customer acceptance of the Company’s merchandise mix and retail locations, uncertainties related to the effect of competitive products and pricing, the Company’s reliance on a few key vendors for a significant portion of its merchandise purchases and risks associated with global product sourcing, economic conditions worldwide, the effectseffect of currency fluctuations, as well as other factors listed under the heading “Disclosure Regarding Forward-Looking Statements,” could affect the ability of the Company to continue to fund its needs from business operations.

On May 16, 2012, the Company’s Board of Directors approved an overall increase of $10 million to the 2012 capital expenditure and lease acquisition plan to $170 million, representing capital expenditures of $163 million and lease acquisition costs related to the Company’s operations in Europe of $7 million. Separately, in May 2012 the Company purchased from its U.S. pension trust an investment in real estate for $8 million.

Operating Activities

Net cash provided by operating activities was $259$327 million and $265$259 million for the thirty-nine weeks ended November 2, 2013 and October 27, 2012, and October 29, 2011, respectively. These amounts reflect net income adjusted for non-cash items and seasonal working capital changes. Net cash provided byThe increase in operating cash flowsflow is primarily the result of strong sales during the first three quarters, and improved working capital management. Additionally, cash paid for income taxes declined $59 million to $123 million for the thirty-nine weeks ended October 27, 2012 reflects higher net income, offset by higher income tax payments as compared with the prior year. The corresponding prior-year period reflected the receipt of a $46 million IRS income tax refund resulting from a loss carryback.

November 2, 2013.

Investing Activities

Net cash used in investing activities was $170$221 million and $111$170 million for the thirty-nine weeks ended November 2, 2013 and October 27, 2012 and October 29, 2011, respectively,2012. During the second quarter of 2013, the Company completed its purchase of Runners Point Group for $81 million, net of cash acquired. In addition, the Company spent $157 million on capital expenditures as compared with $120 million in the corresponding prior-year period, primarily reflecting the Company’s net purchases of $50 million of short-term investments as well as capital expenditures.initiative to update its existing stores. The Company’s current full yearfull-year forecast for capital expenditures is $163$206 million, of which $126$165 million relates to the modernizationsupdates of existing stores and new store openings and $37$41 million for the development of information systems and infrastructure. ForCurrent year investing activities also reflects net sales and maturities of short-term investments of $15 million, as compared with net purchases of $50 million of short-term investments in the full year of 2012, the Company expects to open 84 new stores and to modernize 198 stores. Capital expenditures for the thirty-nine weeks ended October 27, 2012 also includes $8 million to purchase land and buildings from the Company’s U.S. pension trust.

corresponding prior-year period.

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Financing Activities

Net cash used in financing activities was $129$226 million and $157$129 million for the thirty-nine weeks ended November 2, 2013 and October 27, 2012, and October 29, 2011, respectively. During the thirty-nine weeks ended October 27, 2012, theThe Company repurchased and retired $2 million of its 8.5 percent debentures payable in 2022.Additionally in 2012, the Company repurchased 2,961,161purchased 4,849,251 shares of its common stock at a cost of $167 million during the first nine months of 2013. This compares to 2,961,161 shares repurchased for $94 million as compared with $97 million purchased duringin the corresponding prior-year period. The Company declared and paid dividends during the first three quarters of 2013 and 2012 and 2011 of $82$89 million and $76$82 million, respectively. This represents a quarterly rate of $0.18$0.20 and $0.165$0.18 per share for 20122013 and 2011,2012, respectively. The Company received proceeds from the issuance of common stock in connection with employee stock programs of $40$22 million and $13$40 million for the thirty-nine weeks ended November 2, 2013 and October 27, 2012 and October 29, 2011,, respectively. In connection with stock option exercises and share-based compensation programs, the Company recorded excess tax benefits of $9$8 million as a financing activity during the thirty-nine week period ended October 27, 2012November 2, 2013, as compared with $3$9 million in the corresponding prior-year period. During the prior-year period, primarily reflecting higher stock option exercisesthe Company repurchased and retired $2 million of its 8.5 percent debentures payable in the current year.

Credit Rating

On October 17, 2012, Standard and Poor’s raised the Company’s corporate credit rating to BB+ from BB.

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2022.

Recent Accounting Pronouncements

During the first quarter of 2012,2013, the Company adopted Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (“ASU No. 2011-08,Testing Goodwill for Impairment2013-02”). The revised standard is intended to reduceASU 2013-02 amended existing guidance by requiring additional disclosure either on the cost and complexityface of the annual goodwill impairment test by providing entities an optionincome statement or in the notes to perform a qualitative assessment to determine whether further impairment testingthe financial statements of significant amounts reclassified out of accumulated other comprehensive income. The provisions of this new guidance were effective prospectively as of the beginning of 2013. Accordingly, enhanced footnote disclosure is necessary.included in Note 5. The adoption of this ASU did not have a significant2013-02 had no effect on our results of operations or financial position.

During

We performed our annual goodwill impairment assessment during the first quarter of 2012,2013, using a qualitative approach as permitted under Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment. In performing the Company also adopted ASU No. 2011-05,Presentationassessment, we identified and considered the significance of Comprehensive Income, which requires presentationrelevant key factors, events, and circumstances that affected the fair value and/or carrying amounts of total comprehensive income,our reporting units. These factors included external factors such as macroeconomic, industry and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. Based on the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The implementationresults of the amended reporting guidance had no effect on our disclosures.

During the second quarter of 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which allows an entity to first assess qualitative factors to determine whetherimpairment assessment performed, we concluded that it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. If an entity concludes, based on an evaluation of all relevant qualitative factors, that it is not more likely than not that the fair valuevalues of an indefinite-lived intangible asset is less than itsour reporting units substantially exceeded their respective carrying amount, it will not be required to perform a quantitative impairment test for that asset. Entitiesvalues and there are required to test indefinite-lived assets for impairmentno reporting units at least annually, and more frequently if indicatorsrisk of impairment exist. This ASU will be effective for the Company on February 3, 2013, with early adoption permitted. The adoption of this ASU is not expected to have a significant effect on our results of operations or financial position.

impairment.

Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

statements

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no significant changes to the Company’s critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

February 2, 2013 except for the addition of the critical accounting policy set forth below.

Business Combinations
The Company accounts for acquisitions of other businesses by recording the net assets of the acquired businesses at fair value and making estimates and assumptions to determine the fair value of these acquired assets and liabilities. The Company allocated the purchase price of the acquired business based, in part, upon internal estimates of cash flows and considering the report of a third-party valuation expert retained to assist the Company. Changes to the assumptions used to estimate the fair value could affect the recorded amounts of the assets acquired and the resultant goodwill.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the federal securities laws. Other than statements of historical facts, all statements which address activities, events, or developments that the Company anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, financial objectives, dividend payments, stock repurchases, growth of the Company’s business and operations, including future cash flows, revenues, and earnings, and other such matters, are forward-looking statements. These forward-looking statements are based on many assumptions and factors which are detailed in the Company’s filings with the Securities and Exchange Commission, including the effects of currency fluctuations, customer demand, fashion trends, competitive market forces, uncertainties related to the effect of competitive products and pricing, customer acceptance of the Company’s merchandise mix and retail locations, the Company’s reliance on a few key vendors for a majority of its merchandise purchases (including a significant portion from one key vendor), pandemics and similar major health concerns, unseasonable weather, further deterioration of global financial markets, economic conditions worldwide, further deterioration of business and economic conditions, any changes in business, political and economic conditions due to the threat of future terrorist activities in the United States or in other parts of the world and related U.S. military action overseas, the ability of the Company to execute its business and strategic plans effectively with regard to each of its business units, and risks associated with global product sourcing, including political instability, changes in import regulations, and disruptions to transportation services and distribution.

For additional discussion on risks and uncertainties that may affect forward-looking statements, see “Risk Factors”disclosed in the 20112012 Annual Report on Form 10-K, as well as Part II, Item 1A “Risk Factors” below. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.

Item 4. Controls and Procedures

The Company’s management performed an evaluation under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), and completed an evaluation as of October 27, 2012November 2, 2013 of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective to ensure that information relating to the Company that is required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended October 27, 2012,November 2, 2013, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) of the Exchange Act) that materially affected or are reasonably likely to affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Legal proceedings pending against the Company or its consolidated subsidiaries consist of ordinary, routine litigation, including administrative proceedings, incidental to the business of the Company or businesses that have been sold or disposed of by the Company in past years. These legal proceedings include commercial, intellectual property, customer, environmental, and labor-and-employment-relatedemployment-related claims.

Certain of the Company’s subsidiaries are defendants in a number of lawsuits filed in state and federal courts containing various class action allegations under federal or state wage and hour laws, including allegations concerning unpaid overtime, meal and rest breaks, and uniforms.

27

The Company is a defendant in one such case in which plaintiff alleges that the Company permitted unpaid off-the-clock hours in violation of the Fair Labor Standards Act and state labor laws. The case,Pereira v. Foot Locker, was filed in the U.S. District Court for the Eastern District of Pennsylvania in 2007. In his complaint, in addition to unpaid wage and overtime allegations, plaintiff seeks compensatory and punitive damages, injunctive relief, and attorneys’ fees and costs. In 2009, the Court conditionally certified a nationwide collective action. During the course of 2010, notices were sent to approximately 81,888 current and former employees of the Company offering them the opportunity to participate in the class action, and approximately5,027 have opted in.

The Company isa defendant in additional purported wage and hour class actions that assert claims similar to those asserted inPereira and seek similar remedies. With the exception ofHill v. Foot Locker filed in state court in Illinois, Kissinger v. Foot Locker filed in state court of California, Ghattas v. Foot Locker filed in state court of California, andCortes v. Foot Locker filed in federal court of New York, all of these actions were consolidated by the United States Judicial Panel on Multidistrict Litigation withPereira.Pereira under the caption In re Foot Locker, Inc. Fair Labor Standards Act and Wage and Hour Litigation.The consolidated cases are in thediscovery stages of proceedings. InHill v. Foot Locker, in May 2011, the court granted plaintiffs’ motion for certification of an opt-out class covering certain Illinois employees only. The Company's motion for leave to appeal was denied. The Company is currently engagedhas had and may in mediationthe futurehave discussions with plaintiff’splaintiffs’ counsel inPereira in an attempt to determine whether it will be possible to resolve the consolidated cases andHill. Meanwhile, the Company is vigorously defending these class actions. In Ghattas, the court has given final approval for a settlement of the action. Due to the inherent uncertainties of such matters, and because fact and expert discovery have not been completed, the Company is currently unable to make an estimate of the range of loss.

The Company and the Company’s U.S. retirement plan are defendants in a purported class action (Osberg v. Foot Locker, filed in the U.S. District Court for the Southern District of New York) in which the plaintiff alleges that, in connection with the 1996 conversion of the retirement plan to a defined benefit plan with a cash balance formula, the Company and the retirement plan failed to properly advise plan participants of the “wear-away” effect of the conversion. Plaintiff assertsasserted claims forfor: (a) breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA) and; (b) violation of the statutory provisions governing the content of the Summary Plan Description. Claims for alleged violationsDescription; (c) violation of the notice provision of Section 204(h) of ERISAERISA; and (d) violation of ERISA’s age discrimination provisions were dismissed byprovisions. In September 2009, the court.court granted the Company's motion to dismiss the Section 204(h) claim and the age discrimination claim. In December 2012, the court granted the Company’s motion for summary judgment on the remaining two claims, dismissing the action. Plaintiff has appealed to the U.S. Court of Appeals for the 2nd Circuit, which appeal is currently pending. Because of the inherent uncertainties of such matters because plaintiff is attempting to extend discovery on certain issues, and because certain motions relating to key portionsthe current status of thethis case, are currently pending with the court, the Company is currently unable to make an estimate of loss or range of loss for this case.

Management does not believe that the outcome of any such legal proceedings pending against the Company or its consolidated subsidiaries, including thePereiraIn re Foot Locker, Inc. Fair Labor Standards Act and Wage and Hour Litigationconsolidated cases,, Hill, Cortes, Kissinger, Ghattas,andOsberg,as described above, would have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations, taken as a whole.

Item 1A. Risk Factors

There were no material changes to the risk factors disclosed in the 20112012 Annual Report on Form 10-K.

10-K,except for the addition of the risk factor set forth below.

Risk associated with our recent acquisition.
During the second quarter of 2013, the Company acquired Runners Point Group, a specialty athletic store and online retailer based in Recklinghausen, Germany. The acquisition of Runners Point Group involves a number of risks, which could significantly and adversely affect our business, financial condition, and results of operations, including:
-failure of Runners Point Group to achieve the results that we expect;
-diversion of management’s attention from operational matters;
-difficulties integrating the operations and personnel;
-potential difficulties associated with the retention of key personnel; and
-increased business concentration in Germany.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to shares of the Company’s common stock that the Company repurchased during the thirteen weeks ended October 27, 2012.

Date Purchased 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)		 
July 29, 2012 through
August 25, 2012		  25,000  $34.07   25,000  $334,560,389 
August 26, 2012 through
September 29, 2012		  372,800  $35.49   372,800  $321,330,131 
September 30, 2012 through
October 27, 2012		  443,100  $35.19   443,100  $305,735,784 
   840,900  $35.29   840,900     

November 2, 2013.
Date Purchased 
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)
 
August 4, 2013 through August 31, 2013 170,000 $32.58 170,000 $494,461,596 
September 1, 2013 through October 5, 2013 1,728,743 $33.07 1,728,743 $437,299,251 
October 6, 2013 through November 2, 2013 129,206 $32.76 124,435 $433,227,849 
  2,027,949 $33.01 2,023,178    
(1)
These columns also reflect shares acquired in satisfaction of the tax withholding obligation of holders of restricted stock units which vested during the quarter. The calculation of the average price paid per share includes all fees, commissions, and other costs associated with the repurchase of such shares.
(2)
On February 14, 2012,20, 2013, the Company’s Board of Directors approved a new 3-year, $400$600 million share repurchase program extending through January 2015. 2016. 

Item 6. Exhibits
Item 6. Exhibits
(a)
Exhibits
 The exhibits that are in this report immediately follow the index.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 FOOT LOCKER, INC. 
Date: December 5, 201211, 2013(Company) 
 
 /s/ Lauren B. Peters 
 LAUREN B. PETERS 
 Executive Vice President and Chief Financial Officer 

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FOOT LOCKER, INC.

INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q

AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K

Exhibit No. in
  
Item 601
 
Description
12 Computation of Ratio of Earnings to Fixed Charges.
 
15 Accountants’ Acknowledgement.
   
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
99 Report of Independent Registered Public Accounting Firm.
   
101 Interactive Data Files.

28data files.

31