SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2004
Commission file number 1-10299
FOOT LOCKER, INC.
(Exact name of Registrant as specified in its charter)
New York (State or other jurisdiction of incorporation or organization) | 13-3513936 (I.R.S. Employer Identification No.) | |||||
112 West 34th Street, New York, New York (Address of principal executive offices) | 10120 (Zip Code) |
Registrant’s telephone number, including area code:
(212) 720-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |||||
---|---|---|---|---|---|---|
Common Stock, par value $0.01 | New York Stock Exchange | |||||
Preferred Stock Purchase Rights | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
See pages 60 through 63 for Index of Exhibits.
Number of shares of Common Stock outstanding at March 26, 2004: | 144,761,434 | |||||
The aggregate market value of voting stock held by non-affiliates of the Registrant computed by reference to the closing price as of the last business day of the Registrant’s most recently completed second fiscal quarter, August 1, 2003, was approximately: | $ | 1,788,814,575 | * |
* | For purposes of this calculation only (a) all directors plus one executive officer and owners of five percent or more of the Registrant are deemed to be affiliates of the Registrant and (b) shares deemed to be “held” by such persons at August 1, 2003, include only outstanding shares of the Registrant’s voting stock with respect to which such persons had, on such date, voting or investment power. |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement (the “Proxy Statement”) to be filed in connection with the 2004 Annual Meeting of Shareholders: Parts III and IV.
TABLE OF CONTENTS
PART I | ||||||||||
Item 1 | Business | 1 | ||||||||
Item 2 | Properties | 2 | ||||||||
Item 3 | Legal Proceedings | 2 | ||||||||
Item 4 | Submission of Matters to a Vote of Security Holders | 2 | ||||||||
PART II | ||||||||||
Item 5 | Market for the Company’s Common Equity and Related Stockholder Matters | 3 | ||||||||
Item 6 | Selected Financial Data | 3 | ||||||||
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 | ||||||||
Item 7A | Quantitative and Qualitative Disclosures about Market Risk | 19 | ||||||||
Item 8 | Consolidated Financial Statements and Supplementary Data | 20 | ||||||||
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 57 | ||||||||
Item 9A | Controls and Procedures | 57 | ||||||||
PART III | ||||||||||
Item 10 | Directors and Executive Officers of the Company | 57 | ||||||||
Item 11 | Executive Compensation | 57 | ||||||||
Item 12 | Security Ownership of Certain Beneficial Owners and Management | 57 | ||||||||
Item 13 | Certain Relationships and Related Transactions | 58 | ||||||||
Item 14 | Principal Accountant Fees and Services | 58 | ||||||||
PART IV | ||||||||||
Item 15 | Exhibits, Financial Statement Schedules and Reports on Form 8-K | 58 |
PART I
Item 1. Business
General
Information Regarding Business Segments and Geographic Areas
Employees
Competition
Merchandise Purchases
1
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Company
Chairman of the Board, President and Chief Executive Officer | Matthew D. Serra | |||||
Executive Vice President and Chief Financial Officer | Bruce L. Hartman | |||||
President and Chief Executive Officer, Foot Locker, Inc. — U.S.A. | Richard T. Mina | |||||
Senior Vice President, General Counsel and Secretary | Gary M. Bahler | |||||
Senior Vice President — Real Estate | Jeffrey L. Berk | |||||
Senior Vice President — Chief Information Officer | Marc D. Katz | |||||
Senior Vice President — Strategic Planning | Lauren B. Peters | |||||
Senior Vice President — Human Resources | Laurie J. Petrucci | |||||
Vice President — Investor Relations and Treasurer | Peter D. Brown | |||||
Vice President and Chief Accounting Officer | Robert W. McHugh |
2
PART II
Item 5. Market for the Company’s Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
3
Athletic Stores
Store Profile
At February 1, 2003 | Opened | Closed | At January 31, 2004 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Foot Locker | 2,060 | 94 | 66 | 2,088 | ||||||||||||||
Lady Foot Locker | 606 | 2 | 24 | 584 | ||||||||||||||
Kids Foot Locker | 377 | — | 20 | 357 | ||||||||||||||
Champs Sports | 582 | 17 | 18 | 581 | ||||||||||||||
Total Athletic Stores | 3,625 | 113 | 128 | 3,610 |
4
Direct-to-Customers
Sales by Segment
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Athletic Stores | $ | 4,413 | $ | 4,160 | $ | 3,999 | ||||||||||||
Direct-to-Customers | 366 | 349 | 326 | |||||||||||||||
4,779 | 4,509 | 4,325 | ||||||||||||||||
Disposed(1) | — | — | 54 | |||||||||||||||
$ | 4,779 | $ | 4,509 | $ | 4,379 |
Division Profit
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Athletic Stores | $ | 363 | $ | 279 | $ | 283 | ||||||||||||
Direct-to-Customers | 53 | 40 | 24 | |||||||||||||||
Division profit from ongoing operations | 416 | 319 | 307 | |||||||||||||||
Disposed(1) | — | — | (12 | ) | ||||||||||||||
Restructuring income (charges)(2) | (1 | ) | 2 | (33 | ) | |||||||||||||
Total division profit | 415 | 321 | 262 | |||||||||||||||
Corporate expense(3) | (73 | ) | (52 | ) | (65 | ) | ||||||||||||
Total operating profit | 342 | 269 | 197 | |||||||||||||||
Non-operating income | — | 3 | 2 | |||||||||||||||
Interest expense, net | (18 | ) | (26 | ) | (24 | ) | ||||||||||||
Income from continuing operations before | ||||||||||||||||||
income taxes | $ | 324 | $ | 246 | $ | 175 |
(1) | Includes The San Francisco Music Box Company and Burger King and Popeye’s franchises. |
(2) | Restructuring charges of $1 million and $33 million in 2003 and 2001, respectively, and restructuring income of $2 million in 2002 reflect the disposition of non-core businesses and an accelerated store-closing program. |
(3) | 2001 includes a $1 million restructuring charge related to the 1999 closure of a distribution center. |
5
Sales
Gross Margin
Segment Information
Athletic Stores
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Sales | $ | 4,413 | $ | 4,160 | $ | 3,999 | ||||||||||||
Division profit | ||||||||||||||||||
Stores | $ | 363 | $ | 279 | $ | 283 | ||||||||||||
Restructuring income | — | 1 | — | |||||||||||||||
Total division profit | $ | 363 | $ | 280 | $ | 283 | ||||||||||||
Sales as a percentage of consolidated total | 92 | % | 92 | % | 92 | % | ||||||||||||
Number of stores at year end | 3,610 | 3,625 | 3,590 | |||||||||||||||
Selling square footage (in millions) | 7.92 | 8.04 | 7.94 | |||||||||||||||
Gross square footage (in millions) | 13.14 | 13.22 | 13.14 |
6
7
Direct-to-Customers
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Sales | $ | 366 | $ | 349 | $ | 326 | ||||||||||||
Division profit | $ | 53 | $ | 40 | $ | 24 | ||||||||||||
Sales as a percentage of consolidated total | 8 | % | 8 | % | 7 | % |
8
All Other Businesses
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Sales | $ | — | $ | — | $ | 54 | ||||||||||||
Division profit (loss) | ||||||||||||||||||
Disposed | $ | — | $ | — | $ | (12 | ) | |||||||||||
Restructuring income (charges) | (1 | ) | 1 | (33 | ) | |||||||||||||
Total division profit (loss) | $ | (1 | ) | $ | 1 | $ | (45 | ) | ||||||||||
Sales as a percentage of consolidated total | — | % | — | % | 1 | % |
Corporate Expense
9
Results of Operations
Selling, General and Administrative Expenses
Depreciation and Amortization
Interest Expense, Net
2003 | 2002 | 2001 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | ||||||||||||||||||
Interest expense | $ | 26 | $ | 33 | $ | 35 | ||||||||||||
Interest income | (8 | ) | (7 | ) | (11 | ) | ||||||||||||
Interest expense, net | $ | 18 | $ | 26 | $ | 24 | ||||||||||||
Weighted-average interest rate (excluding facility fees): | ||||||||||||||||||
Short-term debt | — | % | — | % | 6.0 | % | ||||||||||||
Long-term debt | 6.1 | % | 7.2 | % | 7.4 | % | ||||||||||||
Total debt | 6.1 | % | 7.2 | % | 7.4 | % | ||||||||||||
Short-term debt outstanding during the year: | ||||||||||||||||||
High | $ | — | $ | — | $ | 11 | ||||||||||||
Weighted-average | $ | — | $ | — | $ | — |
10
Income Taxes
11
Liquidity and Capital Resources
Cash Flow and Liquidity
12
Capital Structure
13
Credit Rating
Debt Capitalization
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Cash and cash equivalents, net of debt and capital lease obligations | $ | 112 | $ | — | |||||||
Present value of operating leases | 1,683 | 1,571 | |||||||||
Total net debt | 1,571 | 1,571 | |||||||||
Shareholders’ equity | 1,375 | 1,110 | |||||||||
Total capitalization | $ | 2,946 | $ | 2,681 | |||||||
Net debt capitalization percent | 53.3 | % | 58.6 | % | |||||||
Net debt capitalization percent without operating leases | — | % | — | % |
14
Contractual Obligations and Commitments
Payments Due by Period | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Cash Obligations | Total | Less than 1 Year | 2 – 3 Years | 4 – 5 Years | After 5 Years | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Long-term debt(1) | $ | 321 | $ | — | $ | — | $ | 150 | $ | 171 | |||||||||||||
Operating leases | 2,366 | 387 | 693 | 533 | 753 | ||||||||||||||||||
Capital lease obligations | 14 | — | — | 14 | — | ||||||||||||||||||
Other long-term liabilities(2) | — | — | — | — | — | ||||||||||||||||||
Total contractual cash obligations | $ | 2,701 | $ | 387 | $ | 693 | $ | 697 | $ | 924 |
Amount of Commitment Expiration by Period | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Other Commercial Commitments | Total Amounts Committed | Less than 1 Year | 2 – 3 Years | 4 – 5 Years | After 5 Years | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Line of credit | $ | 176 | $ | — | $ | 176 | $ | — | $ | — | |||||||||||||
Stand-by letters of credit | 24 | — | 24 | — | — | ||||||||||||||||||
Purchase commitments(3) | 1,377 | 1,377 | — | — | — | ||||||||||||||||||
Other(4) | 56 | 6 | 19 | 27 | 4 | ||||||||||||||||||
Total commercial commitments | $ | 1,633 | $ | 1,383 | $ | 219 | $ | 27 | $ | 4 |
(1) | The Company raised $150 million in cash through the issuance of subordinated convertible notes in 2001. The Company may redeem all or a portion of the notes at any time on or after June 4, 2004. If the Company exercises its option, the Company anticipates that the holders of the notes will convert to common stock, provided that the Company’s common stock price at that time exceeds the conversion price of $15.806; however, holders may elect to receive cash at the then applicable conversion premium. |
(2) | The Company’s other liabilities in the Consolidated Balance Sheet as of January 31, 2004 primarily include pension and postretirement benefits, deferred taxes, workers’ compensation and general liability reserves and various other sundry accruals. These liabilities have been excluded from the above table as the timing and/or amount of any cash payment is uncertain. The timing of the remaining amounts that are known have not been included as they are minimal and not useful to the presentation. Additional information on the balance sheet caption is included in the “Other Liabilities” footnote under “Item 8. Consolidated Financial Statements and Supplementary Data.” |
(3) | Represents open purchase orders at January 31, 2004. The Company is obligated under the terms of purchase orders; however, the Company is generally able to renegotiate the timing and quantity of these orders with certain vendors, in response to shifts in consumer preferences. Commitments associated with non-inventory services are not significant and have also been excluded. |
(4) | Represents minimum payments required by merchandising and sales agreements. |
15
Critical Accounting Policies
Merchandise Inventories
Vendor Allowances
Impairment of Long-Lived Assets
16
Pension and Postretirement Liabilities
Discontinued, Repositioning and Restructuring Reserves
17
Income Taxes
Business Concentration
18
Disclosure Regarding Forward-Looking Statements
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
19
Item 8. Consolidated Financial Statements and Supplementary Data
MANAGEMENT’S REPORT
MATTHEW D. SERRA,
Chairman of the Board,
President and
Chief Executive Officer
BRUCE L. HARTMAN,
Executive Vice President and
Chief Financial Officer
April 1, 2004
20
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of
Foot Locker, Inc.
New York, New York
March 2, 2004
21
CONSOLIDATED STATEMENTS OF OPERATIONS
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions, except per share amounts) | |||||||||||||||
Sales | $ | 4,779 | $ | 4,509 | $ | 4,379 | |||||||||
Costs and expenses | |||||||||||||||
Cost of sales | 3,302 | 3,165 | 3,071 | ||||||||||||
Selling, general and administrative expenses | 987 | 928 | 923 | ||||||||||||
Depreciation and amortization | 147 | 149 | 154 | ||||||||||||
Restructuring charges (income) | 1 | (2 | ) | 34 | |||||||||||
Interest expense, net | 18 | 26 | 24 | ||||||||||||
4,455 | 4,266 | 4,206 | |||||||||||||
Other income | — | (3 | ) | (2 | ) | ||||||||||
4,455 | 4,263 | 4,204 | |||||||||||||
Income from continuing operations before income taxes | 324 | 246 | 175 | ||||||||||||
Income tax expense | 115 | 84 | 64 | ||||||||||||
Income from continuing operations | 209 | 162 | 111 | ||||||||||||
Loss on disposal of discontinued operations, net of income tax benefit of $4, $2, and $—, respectively | (1 | ) | (9 | ) | (19 | ) | |||||||||
Cumulative effect of accounting change, net of income tax benefit of $— | (1 | ) | — | — | |||||||||||
Net income | $ | 207 | $ | 153 | $ | 92 | |||||||||
Basic earnings per share: | |||||||||||||||
Income from continuing operations | $ | 1.47 | $ | 1.15 | $ | 0.79 | |||||||||
Loss from discontinued operations | (0.01 | ) | (0.06 | ) | (0.13 | ) | |||||||||
Cumulative effect of accounting change | — | — | — | ||||||||||||
Net income | $ | 1.46 | $ | 1.09 | $ | 0.66 | |||||||||
Diluted earnings per share: | |||||||||||||||
Income from continuing operations | $ | 1.40 | $ | 1.10 | $ | 0.77 | |||||||||
Loss from discontinued operations | (0.01 | ) | (0.05 | ) | (0.13 | ) | |||||||||
Cumulative effect of accounting change | — | — | — | ||||||||||||
Net income | $ | 1.39 | $ | 1.05 | $ | 0.64 |
See Accompanying Notes to Consolidated Financial Statements.
22
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Net income | $ | 207 | $ | 153 | $ | 92 | |||||||||
Other comprehensive income (loss), net of tax | |||||||||||||||
Foreign currency translation adjustment: | |||||||||||||||
Translation adjustment arising during the period | 31 | 38 | (12 | ) | |||||||||||
Cash flow hedges: | |||||||||||||||
Cumulative effect of accounting change, net of income tax expense of $1 | — | — | 1 | ||||||||||||
Change in fair value of derivatives, net of income tax | — | — | — | ||||||||||||
Reclassification adjustments, net of income tax benefit of $1 | (1 | ) | — | (1 | ) | ||||||||||
Net change in cash flow hedges | (1 | ) | — | — | |||||||||||
Minimum pension liability adjustment: | |||||||||||||||
Minimum pension liability adjustment, net of deferred tax expense (benefit) of $10, $(56) and $(71), respectively | 16 | (83 | ) | (115 | ) | ||||||||||
Comprehensive income (loss) | $ | 253 | $ | 108 | $ | (35 | ) |
See Accompanying Notes to Consolidated Financial Statements.
23
CONSOLIDATED BALANCE SHEETS
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
ASSETS | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 448 | $ | 357 | |||||||
Merchandise inventories | 920 | 835 | |||||||||
Assets of discontinued operations | 2 | 2 | |||||||||
Other current assets | 149 | 90 | |||||||||
1,519 | 1,284 | ||||||||||
Property and equipment, net | 644 | 636 | |||||||||
Deferred taxes | 194 | 240 | |||||||||
Goodwill | 136 | 136 | |||||||||
Intangible assets, net | 96 | 80 | |||||||||
Other assets | 100 | 110 | |||||||||
$ | 2,689 | $ | 2,486 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 234 | $ | 251 | |||||||
Accrued liabilities | 300 | 296 | |||||||||
Liabilities of discontinued operations | 2 | 3 | |||||||||
Current portion of repositioning and restructuring reserves | 1 | 3 | |||||||||
Current portion of reserve for discontinued operations | 8 | 18 | |||||||||
Current portion of long-term debt and obligations under capital leases | — | 1 | |||||||||
545 | 572 | ||||||||||
Long-term debt and obligations under capital leases | 335 | 356 | |||||||||
Other liabilities | 434 | 448 | |||||||||
Total liabilities | 1,314 | 1,376 | |||||||||
Shareholders’ equity | 1,375 | 1,110 | |||||||||
$ | 2,689 | $ | 2,486 |
See Accompanying Notes to Consolidated Financial Statements.
24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
2003 | 2002 | 2001 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||
(shares in thousands, amounts in millions) | |||||||||||||||||||||||||||
Common Stock and Paid-In Capital | |||||||||||||||||||||||||||
Par value $0.01 per share, 500 million shares authorized | |||||||||||||||||||||||||||
Issued at beginning of year | 141,180 | $ | 378 | 139,981 | $ | 363 | 138,691 | $ | 351 | ||||||||||||||||||
Restricted stock issued under stock option and award plans | 845 | — | 60 | — | 210 | (2 | ) | ||||||||||||||||||||
Forfeitures of restricted stock | — | 1 | — | 1 | — | 1 | |||||||||||||||||||||
Amortization of stock issued under restricted stock option plans | — | 4 | — | 2 | — | 2 | |||||||||||||||||||||
Issued under director and employee stock plans, net of tax | 1,984 | 28 | 1,139 | 12 | 1,080 | 11 | |||||||||||||||||||||
Issued at end of year | 144,009 | 411 | 141,180 | 378 | 139,981 | 363 | |||||||||||||||||||||
Common stock in treasury at beginning of year | (105 | ) | (1 | ) | (70 | ) | — | (200 | ) | (2 | ) | ||||||||||||||||
Reissued under employee stock plans | 152 | 1 | — | — | 192 | 1 | |||||||||||||||||||||
Restricted stock issued under stock option and award plans | — | — | 30 | — | 210 | 2 | |||||||||||||||||||||
Forfeitures of restricted stock | (80 | ) | (1 | ) | (60 | ) | (1 | ) | (270 | ) | (1 | ) | |||||||||||||||
Exchange of options | (24 | ) | — | (5 | ) | — | (2 | ) | — | ||||||||||||||||||
Common stock in treasury at end of year | (57 | ) | (1 | ) | (105 | ) | (1 | ) | (70 | ) | — | ||||||||||||||||
143,952 | 410 | 141,075 | 377 | 139,911 | 363 | ||||||||||||||||||||||
Retained Earnings | |||||||||||||||||||||||||||
Balance at beginning of year | 946 | 797 | 705 | ||||||||||||||||||||||||
Net income | 207 | 153 | 92 | ||||||||||||||||||||||||
Cash dividends declared on common stock $0.15, $0.03 and $— per share, respectively | (21 | ) | (4 | ) | — | ||||||||||||||||||||||
Balance at end of year | 1,132 | 946 | 797 | ||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||
Foreign Currency Translation Adjustment | |||||||||||||||||||||||||||
Balance at beginning of year | (15 | ) | (53 | ) | (41 | ) | |||||||||||||||||||||
Translation adjustment arising during the period | 31 | 38 | (12 | ) | |||||||||||||||||||||||
Balance at end of year | 16 | (15 | ) | (53 | ) | ||||||||||||||||||||||
Cash Flow Hedges | |||||||||||||||||||||||||||
Balance at beginning of year | — | — | — | ||||||||||||||||||||||||
Change during year, net of tax | (1 | ) | — | — | |||||||||||||||||||||||
Balance at end of year | (1 | ) | — | — | |||||||||||||||||||||||
Minimum Pension Liability Adjustment | |||||||||||||||||||||||||||
Balance at beginning of year | (198 | ) | (115 | ) | — | ||||||||||||||||||||||
Change during year, net of tax | 16 | (83 | ) | (115 | ) | ||||||||||||||||||||||
Balance at end of year | (182 | ) | (198 | ) | (115 | ) | |||||||||||||||||||||
Total Accumulated Other Comprehensive Loss | (167 | ) | (213 | ) | (168 | ) | |||||||||||||||||||||
Total Shareholders’ Equity | $ | 1,375 | $ | 1,110 | $ | 992 |
See Accompanying Notes to Consolidated Financial Statements.
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
From Operating Activities | |||||||||||||||
Net income | $ | 207 | $ | 153 | $ | 92 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: | |||||||||||||||
Loss on disposal of discontinued operations, net of tax | 1 | 9 | 19 | ||||||||||||
Restructuring charges (income) | 1 | (2 | ) | 34 | |||||||||||
Cumulative effect of accounting change, net of tax | 1 | — | — | ||||||||||||
Depreciation and amortization | 147 | 149 | 154 | ||||||||||||
Impairment of long-lived assets | — | 7 | 2 | ||||||||||||
Restricted stock compensation expense | 4 | 2 | 2 | ||||||||||||
Tax benefit on stock compensation | 2 | 2 | 2 | ||||||||||||
Gains on sales of real estate and assets | — | (3 | ) | (2 | ) | ||||||||||
Deferred income taxes | (5 | ) | 38 | 38 | |||||||||||
Change in assets and liabilities, net of dispositions: | |||||||||||||||
Merchandise inventories | (63 | ) | (22 | ) | (69 | ) | |||||||||
Accounts payable and other accruals | (17 | ) | (22 | ) | 9 | ||||||||||
Repositioning and restructuring reserves | (1 | ) | (3 | ) | (62 | ) | |||||||||
Pension contribution | (50 | ) | — | — | |||||||||||
Income taxes | 9 | 42 | (45 | ) | |||||||||||
Other, net | 28 | (3 | ) | 30 | |||||||||||
Net cash provided by operating activities of continuing operations | 264 | 347 | 204 | ||||||||||||
From Investing Activities | |||||||||||||||
Proceeds from sales of real estate and assets | — | 6 | 20 | ||||||||||||
Lease acquisition costs | (15 | ) | (18 | ) | (20 | ) | |||||||||
Capital expenditures | (144 | ) | (150 | ) | (116 | ) | |||||||||
Net cash used in investing activities of continuing operations | (159 | ) | (162 | ) | (116 | ) | |||||||||
From Financing Activities | |||||||||||||||
Issuance of convertible long-term debt | — | — | 150 | ||||||||||||
Debt issuance costs | — | — | (8 | ) | |||||||||||
Reduction in long-term debt | (19 | ) | (41 | ) | (58 | ) | |||||||||
Reduction in capital lease obligations | — | (1 | ) | (4 | ) | ||||||||||
Dividends paid on common stock | (21 | ) | (4 | ) | — | ||||||||||
Issuance of common stock | 27 | 10 | 9 | ||||||||||||
Net cash (used in) provided by financing activities of continuing operations | (13 | ) | (36 | ) | 89 | ||||||||||
Net Cash Provided by (Used in) Discontinued Operations | 7 | (10 | ) | (75 | ) | ||||||||||
Effect of Exchange Rate Fluctuations on Cash and Cash Equivalents | (8 | ) | 3 | 4 | |||||||||||
Net Change in Cash and Cash Equivalents | 91 | 142 | 106 | ||||||||||||
Cash and Cash Equivalents at Beginning of Year | 357 | 215 | 109 | ||||||||||||
Cash and Cash Equivalents at End of Year | $ | 448 | $ | 357 | $ | 215 | |||||||||
Cash Paid During the Year: | |||||||||||||||
Interest | $ | 25 | $ | 27 | $ | 36 | |||||||||
Income taxes | $ | 77 | $ | 39 | $ | 35 |
See Accompanying Notes to Consolidated Financial Statements.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies
Basis of Presentation
Reporting Year
Revenue Recognition
Store Pre-Opening and Closing Costs
Advertising Costs
Catalog Costs
27
Earnings Per Share
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Income from continuing operations | $ | 209 | $ | 162 | $ | 111 | |||||||||
Effect of Dilution: | |||||||||||||||
Convertible debt | 5 | 5 | 3 | ||||||||||||
Income from continuing operations assuming dilution | $ | 214 | $ | 167 | $ | 114 | |||||||||
Weighted-average common shares outstanding | 141.6 | 140.7 | 139.4 | ||||||||||||
Effect of Dilution: | |||||||||||||||
Stock options and awards | 1.8 | 0.6 | 1.3 | ||||||||||||
Convertible debt | 9.5 | 9.5 | 6.2 | ||||||||||||
Weighted-average common shares outstanding assuming dilution | 152.9 | 150.8 | 146.9 |
Stock-Based Compensation
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions, except per share amounts) | |||||||||||||||
Net income: | |||||||||||||||
As reported | $ | 207 | $ | 153 | $ | 92 | |||||||||
Compensation expense included in reported net income, net of income tax benefit | 2 | 1 | 1 | ||||||||||||
Total compensation expense under fair value method for all awards, net of income tax benefit | (7 | ) | (6 | ) | (7 | ) | |||||||||
Pro forma | $ | 202 | $ | 148 | $ | 86 | |||||||||
Basic earnings per share: | |||||||||||||||
As reported | $ | 1.46 | $ | 1.09 | $ | 0.66 | |||||||||
Pro forma | $ | 1.43 | $ | 1.05 | $ | 0.62 | |||||||||
Diluted earnings per share: | |||||||||||||||
As reported | $ | 1.39 | $ | 1.05 | $ | 0.64 | |||||||||
Pro forma | $ | 1.36 | $ | 1.02 | $ | 0.61 |
28
Cash and Cash Equivalents
Merchandise Inventories and Cost of Sales
Property and Equipment
29
Recoverability of Long-Lived Assets
Goodwill and Intangible Assets
2001 | ||||||
---|---|---|---|---|---|---|
(in millions, except per share amounts) | ||||||
Income from continuing operations: | ||||||
As reported | $ | 111 | ||||
Pro forma | $ | 118 | ||||
Basic earnings per share: | ||||||
As reported | $ | 0.79 | ||||
Pro forma | $ | 0.84 | ||||
Diluted earnings per share: | ||||||
As reported | $ | 0.77 | ||||
Pro forma | $ | 0.82 |
Derivative Financial Instruments
Fair Value of Financial Instruments
30
Income Taxes
Insurance Liabilities
Foreign Currency Translation
Reclassifications
Recent Accounting Pronouncements
• | SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” |
• | SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” |
• | FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” |
31
2 Discontinued Operations
32
33
Northern Group
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Realized loss — currency movement | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
Asset write-offs & impairments | — | 23 | (23 | ) | — | 18 | (18 | ) | — | — | — | — | |||||||||||||||||||||||||||||||
Recognition of note receivable | — | — | — | — | (10 | ) | 10 | — | — | — | — | ||||||||||||||||||||||||||||||||
Real estate & lease liabilities | 68 | (16 | ) | (46 | ) | 6 | 1 | (1 | ) | 6 | 1 | (7 | ) | — | |||||||||||||||||||||||||||||
Severance & personnel | 23 | (13 | ) | (8 | ) | 2 | — | (2 | ) | — | — | — | — | ||||||||||||||||||||||||||||||
Operating losses & other costs | 24 | 18 | (39 | ) | 3 | — | (2 | ) | 1 | — | 1 | 2 | |||||||||||||||||||||||||||||||
Total | $ | 115 | $ | 12 | $ | (116 | ) | $ | 11 | $ | 9 | $ | (13 | ) | $ | 7 | $ | 1 | $ | (6 | ) | $ | 2 |
International General Merchandise
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | Charge/ (Income) | Net Usage* | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Woolco | $ | — | $ | 4 | $ | (4 | ) | $ | — | $ | 1 | $ | — | $ | 1 | $ | — | $ | (1 | ) | $ | — | |||||||||||||||||||||
The Bargain! Shop | 7 | — | (1 | ) | 6 | — | — | 6 | — | (1 | ) | 5 | |||||||||||||||||||||||||||||||
Total | $ | 7 | $ | 4 | $ | (5 | ) | $ | 6 | $ | 1 | $ | — | $ | 7 | $ | — | $ | (2 | ) | $ | 5 |
Specialty Footwear
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Lease liabilities | $ | 9 | $ | — | $ | (2 | ) | $ | 7 | $ | (4 | ) | $ | (1 | ) | $ | 2 | $ | — | $ | — | $ | 2 | ||||||||||||||||||||
Operating losses & other costs | 3 | — | (1 | ) | 2 | — | (1 | ) | 1 | — | (1 | ) | — | ||||||||||||||||||||||||||||||
Total | $ | 12 | $ | — | $ | (3 | ) | $ | 9 | $ | (4 | ) | $ | (2 | ) | $ | 3 | $ | — | $ | (1 | ) | $ | 2 |
Domestic General Merchandise
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Lease liabilities | $ | 16 | $ | — | $ | (6 | ) | $ | 10 | $ | — | $ | (3 | ) | $ | 7 | $ | — | $ | (1 | ) | $ | 6 | ||||||||||||||||||||
Legal and other costs | 2 | 3 | (3 | ) | 2 | 5 | (4 | ) | 3 | 4 | (3 | ) | 4 | ||||||||||||||||||||||||||||||
Total | $ | 18 | $ | 3 | $ | (9 | ) | $ | 12 | $ | 5 | $ | (7 | ) | $ | 10 | $ | 4 | $ | (4 | ) | $ | 10 |
* | Net usage includes effect of foreign exchange translation adjustments |
34
Northern Group | Specialty Footwear | Domestic General Merchandise | Total | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||||||
2003 | |||||||||||||||||||
Assets | $ | — | $ | — | $ | 2 | $ | 2 | |||||||||||
Liabilities | 1 | — | 1 | 2 | |||||||||||||||
$ | (1 | ) | $ | — | $ | 1 | $ | — | |||||||||||
2002 | |||||||||||||||||||
Assets | $ | — | $ | — | $ | 2 | $ | 2 | |||||||||||
Liabilities | 1 | — | 2 | 3 | |||||||||||||||
$ | (1 | ) | $ | — | $ | — | $ | (1 | ) |
35
3 Repositioning and Restructuring Reserves
1999 Restructuring
1993 Repositioning and 1991 Restructuring
36
Non-Core Businesses
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 4 | $ | — | $ | (3 | ) | $ | 1 | $ | — | $ | — | $ | 1 | $ | 1 | $ | (1 | ) | $ | 1 | |||||||||||||||||||||
Asset impairment | — | 30 | (30 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Severance & personnel | 2 | — | (2 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Other disposition costs | 3 | 3 | (3 | ) | 3 | (2 | ) | (1 | ) | — | — | — | — | ||||||||||||||||||||||||||||||
Total | $ | 9 | $ | 33 | $ | (38 | ) | $ | 4 | $ | (2 | ) | $ | (1 | ) | $ | 1 | $ | 1 | $ | (1 | ) | $ | 1 |
Corporate Overhead and Logistics
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | — | $ | 1 | $ | — | $ | 1 | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
Severance & personnel | 2 | — | (2 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Other disposition costs | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Total | $ | 2 | $ | 1 | $ | (2 | ) | $ | 1 | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — |
Total 1999 Restructuring
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 4 | $ | 1 | $ | (3 | ) | $ | 2 | $ | — | $ | (1 | ) | $ | 1 | $ | 1 | $ | (1 | ) | $ | 1 | ||||||||||||||||||||
Asset impairment | — | 30 | (30 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Severance & personnel | 4 | — | (4 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Other disposition costs | 3 | 3 | (3 | ) | 3 | (2 | ) | (1 | ) | — | — | — | — | ||||||||||||||||||||||||||||||
Total | $ | 11 | $ | 34 | $ | (40 | ) | $ | 5 | $ | (2 | ) | $ | (2 | ) | $ | 1 | $ | 1 | $ | (1 | ) | $ | 1 |
1993 Repositioning and 1991 Restructuring
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 3 | $ | — | $ | (2 | ) | $ | 1 | $ | — | $ | — | $ | 1 | $ | — | $ | — | $ | 1 | ||||||||||||||||||||||
Other disposition costs | 3 | — | (1 | ) | 2 | — | (1 | ) | 1 | — | — | 1 | |||||||||||||||||||||||||||||||
Total | $ | 6 | $ | — | $ | (3 | ) | $ | 3 | $ | — | $ | (1 | ) | $ | 2 | $ | — | $ | — | $ | 2 |
Total Restructuring Reserves
2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | Charge/ (Income) | Net Usage | Balance | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||
Real estate | $ | 7 | $ | 1 | $ | (5 | ) | $ | 3 | $ | — | $ | (1 | ) | $ | 2 | $ | 1 | $ | (1 | ) | $ | 2 | ||||||||||||||||||||
Asset impairment | — | 30 | (30 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Severance & personnel | 4 | — | (4 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Other disposition costs | 6 | 3 | (4 | ) | 5 | (2 | ) | (2 | ) | 1 | — | — | 1 | ||||||||||||||||||||||||||||||
Total | $ | 17 | $ | 34 | $ | (43 | ) | $ | 8 | $ | (2 | ) | $ | (3 | ) | $ | 3 | $ | 1 | $ | (1 | ) | $ | 3 |
37
4 Other Income
5 Impairment of Long-Lived Assets
6 Segment Information
Sales
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Athletic Stores | $ | 4,413 | $ | 4,160 | $ | 3,999 | |||||||||
Direct-to-Customers | 366 | 349 | 326 | ||||||||||||
4,779 | 4,509 | 4,325 | |||||||||||||
All Other | — | — | 54 | ||||||||||||
Total sales | $ | 4,779 | $ | 4,509 | $ | 4,379 |
38
Operating Results
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Athletic Stores(1) | $ | 363 | $ | 280 | $ | 283 | |||||||||
Direct-to-Customers | 53 | 40 | 24 | ||||||||||||
416 | 320 | 307 | |||||||||||||
All Other(2) | (1 | ) | 1 | (45 | ) | ||||||||||
Division profit | 415 | 321 | 262 | ||||||||||||
Corporate expense(3) | (73 | ) | (52 | ) | (65 | ) | |||||||||
Operating profit | 342 | 269 | 197 | ||||||||||||
Non-operating income | — | 3 | 2 | ||||||||||||
Interest expense, net | (18 | ) | (26 | ) | (24 | ) | |||||||||
Income from continuing operations before income taxes | $ | 324 | $ | 246 | $ | 175 |
(1) | 2002 includes reductions in restructuring charges of $1 million. |
(2) | 2003 includes restructuring charges of $1 million. 2002 includes a $1 million reduction in restructuring charges. 2001 includes restructuring charges of $33 million. |
(3) | 2001 includes restructuring charges of $1 million. |
Depreciation and Amortization | Capital Expenditures | Total Assets | |||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||
Athletic Stores | $ | 118 | $ | 119 | $ | 115 | $ | 126 | $ | 124 | $ | 106 | $ | 1,715 | $ | 1,564 | $ | 1,474 | |||||||||||||||||||||
Direct-to-Customers(1) | 4 | 4 | 11 | 6 | 8 | 4 | 183 | 177 | 179 | ||||||||||||||||||||||||||||||
122 | 123 | 126 | 132 | 132 | 110 | 1,898 | 1,741 | 1,653 | |||||||||||||||||||||||||||||||
Corporate | 25 | 26 | 28 | 12 | 18 | 6 | 789 | 743 | 612 | ||||||||||||||||||||||||||||||
Assets of business transferred under contractual arrangement | — | — | 30 | ||||||||||||||||||||||||||||||||||||
Discontinued operations, net | �� | 2 | 2 | 5 | |||||||||||||||||||||||||||||||||||
Total Company | $ | 147 | $ | 149 | $ | 154 | $ | 144 | $ | 150 | $ | 116 | $ | 2,689 | $ | 2,486 | $ | 2,300 |
(1) | Decrease in 2002 depreciation and amortization primarily reflects the impact of no longer amortizing goodwill. |
Sales
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
United States | $ | 3,597 | $ | 3,639 | $ | 3,686 | |||||||||
International | 1,182 | 870 | 693 | ||||||||||||
Total sales | $ | 4,779 | $ | 4,509 | $ | 4,379 |
Long-Lived Assets
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
United States | $ | 504 | $ | 518 | $ | 549 | |||||||||
International | 140 | 118 | 88 | ||||||||||||
Total long-lived assets | $ | 644 | $ | 636 | $ | 637 |
39
7 Merchandise Inventories
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
LIFO inventories | $ | 651 | $ | 622 | |||||||
FIFO inventories | 269 | 213 | |||||||||
Total merchandise inventories | $ | 920 | $ | 835 |
8 Other Current Assets
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Net receivables | $ | 41 | $ | 33 | |||||||
Prepaid expenses and other current assets | 45 | 37 | |||||||||
Deferred taxes | 60 | 15 | |||||||||
Current portion of Northern Group note receivable | 2 | 4 | |||||||||
Fair value of derivative contracts | 1 | 1 | |||||||||
$ | 149 | $ | 90 |
9 Property and Equipment, net
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Land | $ | 3 | $ | 3 | |||||||
Buildings: | |||||||||||
Owned | 32 | 32 | |||||||||
Leased | — | 1 | |||||||||
Furniture, fixtures and equipment: | |||||||||||
Owned | 1,015 | 994 | |||||||||
Leased | 14 | 18 | |||||||||
1,064 | 1,048 | ||||||||||
Less: accumulated depreciation | (706 | ) | (675 | ) | |||||||
358 | 373 | ||||||||||
Alterations to leased and owned buildings, net of accumulated amortization | 286 | 263 | |||||||||
$ | 644 | $ | 636 |
10 Goodwill
11 Intangible Assets, net
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Intangible assets not subject to amortization | $ | 2 | $ | 2 | |||||||
Intangible assets subject to amortization | 94 | 78 | |||||||||
$ | 96 | $ | 80 |
40
Lease Acquisition Costs (in millions) | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | $ | 145 | $ | (51 | ) | $ | 94 | |||||||
2002 | $ | 114 | $ | (36 | ) | $ | 78 |
12 Other Assets
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Deferred tax costs | $ | 35 | $ | 39 | |||||||
Investments and notes receivable | 23 | 23 | |||||||||
Northern Group note receivable, net of current portion | 6 | 6 | |||||||||
Income taxes receivable | 1 | 8 | |||||||||
Fair value of derivative contracts | — | 1 | |||||||||
Other | 35 | 33 | |||||||||
$ | 100 | $ | 110 |
13 Accrued Liabilities
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Pension and postretirement benefits | $ | 57 | $ | 59 | |||||||
Incentive bonuses | 38 | 29 | |||||||||
Other payroll and payroll related costs, excluding taxes | 44 | 38 | |||||||||
Taxes other than income taxes | 44 | 36 | |||||||||
Property and equipment | 32 | 25 | |||||||||
Gift cards and certificates | 16 | 21 | |||||||||
Income taxes payable | 9 | 23 | |||||||||
Fair value of derivative contracts | 3 | 8 | |||||||||
Other operating costs | 57 | 57 | |||||||||
$ | 300 | $ | 296 |
41
14 Revolving Credit Facility
15 Long-Term Debt and Obligations under Capital Leases
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
8.50% debentures payable 2022 | $ | 171 | $ | 192 | |||||||
5.50% convertible notes payable 2008 | 150 | 150 | |||||||||
Total long-term debt | 321 | 342 | |||||||||
Obligations under capital leases | 14 | 15 | |||||||||
335 | 357 | ||||||||||
Less: Current portion | — | 1 | |||||||||
$ | 335 | $ | 356 |
42
Long-Term Debt | Capital Leases | Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
2004 | $ | — | $ | — | $ | — | |||||||||
2005 | — | — | — | ||||||||||||
2006 | — | — | — | ||||||||||||
2007 | — | 14 | 14 | ||||||||||||
2008 | 150 | — | 150 | ||||||||||||
Thereafter | 171 | — | 171 | ||||||||||||
321 | 14 | 335 | |||||||||||||
Less: Current portion | — | — | — | ||||||||||||
$ | 321 | $ | 14 | $ | 335 |
16 Leases
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Rent | $ | 537 | $ | 495 | $ | 475 | |||||||||
Contingent rent based on sales | 11 | 11 | 11 | ||||||||||||
Sublease income | (1 | ) | (1 | ) | (1 | ) | |||||||||
Total rent expense | $ | 547 | $ | 505 | $ | 485 |
(in millions) | ||||||
---|---|---|---|---|---|---|
2004 | $ | 387 | ||||
2005 | 361 | |||||
2006 | 332 | |||||
2007 | 296 | |||||
2008 | 237 | |||||
Thereafter | 753 | |||||
Total operating lease commitments | $ | 2,366 | ||||
Present value of operating lease commitments | $ | 1,683 |
43
17 Other Liabilities
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Pension benefits | $ | 175 | $ | 237 | |||||||
Postretirement benefits | 113 | 132 | |||||||||
Income taxes | 62 | 16 | |||||||||
Straight-line rent liability | 43 | 30 | |||||||||
Other | 12 | 10 | |||||||||
Workers’ compensation / general liability reserves | 12 | 14 | |||||||||
Reserve for discontinued operations | 11 | 9 | |||||||||
Asset retirement obligations | 3 | — | |||||||||
Repositioning and restructuring reserves | 2 | — | |||||||||
Fair value of derivatives | 1 | — | |||||||||
$ | 434 | $ | 448 |
18 Income Taxes
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Domestic | $ | 186 | $ | 160 | $ | 113 | |||||||||
International | 138 | 86 | 62 | ||||||||||||
Total pre-tax income | $ | 324 | $ | 246 | $ | 175 |
2003 | 2002 | 2001 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||
Current: | |||||||||||||||
Federal | $ | 48 | $ | 16 | $ | 7 | |||||||||
State and local | 14 | 5 | (5 | ) | |||||||||||
International | 58 | 25 | 24 | ||||||||||||
Total current tax provision | 120 | 46 | 26 | ||||||||||||
Deferred: | |||||||||||||||
Federal | 11 | 31 | 32 | ||||||||||||
State and local | (6 | ) | — | 7 | |||||||||||
International | (10 | ) | 7 | (1 | ) | ||||||||||
Total deferred tax provision | (5 | ) | 38 | 38 | |||||||||||
Total income tax provision | $ | 115 | $ | 84 | $ | 64 |
44
2003 | 2002 | 2001 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
State and local income taxes, net of federal tax benefit | 2.4 | 2.0 | 3.5 | |||||||||||
International income taxed at varying rates | 0.5 | 1.0 | (1.0 | ) | ||||||||||
Foreign tax credit utilization | (1.0 | ) | (1.2 | ) | (0.8 | ) | ||||||||
Increase (decrease) in valuation allowance | (1.5 | ) | (2.0 | ) | — | |||||||||
Change in Canadian tax rates | — | — | 1.1 | |||||||||||
State and local tax settlements | (0.2 | ) | (0.3 | ) | (4.1 | ) | ||||||||
Goodwill amortization | — | — | 1.5 | |||||||||||
Tax exempt obligations | (0.2 | ) | (0.1 | ) | — | |||||||||
Work opportunity tax credit | (0.1 | ) | (0.3 | ) | (0.5 | ) | ||||||||
Other, net | 0.6 | 0.1 | 1.9 | |||||||||||
Effective income tax rate | 35.5 | % | 34.2 | % | 36.6 | % |
2003 | 2002 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||
Deferred tax assets: | |||||||||||
Tax loss/credit carryforwards | $ | 99 | $ | 95 | |||||||
Employee benefits | 135 | 162 | |||||||||
Reserve for discontinued operations | 8 | 10 | |||||||||
Repositioning and restructuring reserves | 2 | 3 | |||||||||
Property and equipment | 82 | 76 | |||||||||
Allowance for returns and doubtful accounts | 10 | 6 | |||||||||
Straight-line rent | 17 | 11 | |||||||||
Other | 22 | 25 | |||||||||
Total deferred tax assets | 375 | 388 | |||||||||
Valuation allowance | (122 | ) | (121 | ) | |||||||
Total deferred tax assets, net | $ | 253 | $ | 267 | |||||||
Deferred tax liabilities: | |||||||||||
Inventories | $ | 13 | $ | 25 | |||||||
Other | 1 | 3 | |||||||||
Total deferred tax liabilities | 14 | 28 | |||||||||
Net deferred tax asset | $ | 239 | $ | 239 | |||||||
Balance Sheet caption reported in: | |||||||||||
Deferred taxes | $ | 194 | $ | 240 | |||||||
Other current assets | 60 | 15 | |||||||||
Other liabilities | (15 | ) | (16 | ) | |||||||
$ | 239 | $ | 239 |
45
19 Financial Instruments and Risk Management
Foreign Exchange Risk Management
46
Foreign Currency Exchange Rates
Fair Value (US in millions) | Contract Value (US in millions) | Weighted-Average Exchange Rate | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Inventory | ||||||||||||||
Buy euro/ Sell British pound | $ | (1 | ) | $ | 41 | 0.7028 | ||||||||
Buy $US/Sell euro | — | 2 | 1.2631 | |||||||||||
$ | (1 | ) | $ | 43 | �� | |||||||||
Intercompany | ||||||||||||||
Buy $US/Sell euro | $ | — | $ | 78 | 1.2331 | |||||||||
Buy $US/Sell CAD$ | — | 6 | 0.7588 | |||||||||||
Buy euro/Sell British pound | (1 | ) | 27 | 0.7086 | ||||||||||
$ | (1 | ) | $ | 111 |
47
Interest Rate Risk Management
Interest Rates
2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Jan. 31, 2004 Total | Feb. 1, 2003 Total | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions) | |||||||||||||||||||||||||||||||||
Long-term debt | $ | — | — | — | — | 239 | 196 | $ | 435 | $ | 341 | ||||||||||||||||||||||
Fixed rate | |||||||||||||||||||||||||||||||||
weighted-average interest rate | 5.9 | % | 5.9 | % | 5.9 | % | 5.9 | % | 6.1 | % | 6.3 | % |
Fair Value of Financial Instruments
Business Risk
48
20 Retirement Plans and Other Benefits
Pension and Other Postretirement Plans
Pension Benefits | Postretirement Benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2003 | 2002 | ||||||||||||||||
(in millions) | |||||||||||||||||||
Change in benefit obligation | |||||||||||||||||||
Benefit obligation at beginning of year | $ | 685 | $ | 655 | $ | 30 | $ | 37 | |||||||||||
Service cost | 8 | 8 | — | — | |||||||||||||||
Interest cost | 43 | 44 | 1 | 2 | |||||||||||||||
Plan participants’ contributions | — | — | 5 | 5 | |||||||||||||||
Actuarial (gain) loss | 18 | 43 | 1 | (3 | ) | ||||||||||||||
Foreign currency translation adjustments | 11 | 3 | — | — | |||||||||||||||
Benefits paid | (68 | ) | (68 | ) | (10 | ) | (11 | ) | |||||||||||
Benefit obligation at end of year | $ | 697 | 685 | $ | 27 | 30 | |||||||||||||
Change in plan assets | |||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 380 | $ | 500 | |||||||||||||||
Actual return on plan assets | 101 | (57 | ) | ||||||||||||||||
Employer contribution | 54 | 2 | |||||||||||||||||
Foreign currency translation adjustments | 7 | 3 | |||||||||||||||||
Benefits paid | (68 | ) | (68 | ) | |||||||||||||||
Fair value of plan assets at end of year | $ | 474 | $ | 380 | |||||||||||||||
Funded status | |||||||||||||||||||
Funded status | $ | (223 | ) | $ | (305 | ) | $ | (27 | ) | $ | (30 | ) | |||||||
Unrecognized prior service cost (benefit) | 5 | 5 | (11 | ) | (12 | ) | |||||||||||||
Unrecognized net (gain) loss | 296 | 337 | (80 | ) | (96 | ) | |||||||||||||
Prepaid asset (accrued liability) | $ | 78 | $ | 37 | $ | (118 | ) | $ | (138 | ) | |||||||||
Balance Sheet caption reported in: | |||||||||||||||||||
Intangible assets | $ | 2 | $ | 2 | $ | — | $ | — | |||||||||||
Accrued liabilities | (52 | ) | (53 | ) | (5 | ) | (6 | ) | |||||||||||
Other liabilities | (175 | ) | (237 | ) | (113 | ) | (132 | ) | |||||||||||
Accumulated other comprehensive income, pre-tax | 303 | 325 | — | — | |||||||||||||||
$ | 78 | $ | 37 | $ | (118 | ) | $ | (138 | ) |
49
Pension Benefits | Postretirement Benefits | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2003 | 2002 | ||||||||||||||||
Discount rate | 5.90 | % | 6.50 | % | 5.90 | % | 6.50 | % | |||||||||||
Rate of compensation increase | 3.72 | % | 3.65 | % |
Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||
Service cost | $ | 8 | $ | 8 | $ | 8 | $ | — | $ | — | $ | — | |||||||||||||||
Interest cost | 43 | 44 | 45 | 2 | 2 | 3 | |||||||||||||||||||||
Expected return on plan assets | (46 | ) | (50 | ) | (58 | ) | — | — | — | ||||||||||||||||||
Amortization of prior service cost | — | 1 | 1 | (1 | ) | (1 | ) | (2 | ) | ||||||||||||||||||
Amortization of net (gain) loss | 9 | 3 | — | (16 | ) | (12 | ) | (9 | ) | ||||||||||||||||||
Net benefit expense (income) | $ | 14 | $ | 6 | $ | (4 | ) | $ | (15 | ) | $ | (11 | ) | $ | (8 | ) |
Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||
Discount rate | 6.50 | % | 7.00 | % | 7.44 | % | 6.50 | % | 7.00 | % | 7.50 | % | |||||||||||||||
Rate of compensation increase | 3.72 | % | 3.53 | % | 4.96 | % | |||||||||||||||||||||
Expected long-term rate of return on assets | 8.88 | % | 8.87 | % | 9.93 | % |
50
Plan Assets as of | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | ||||||||||
Asset Category | |||||||||||
Equity securities | 63 | % | 61 | % | |||||||
Foot Locker, Inc. common stock | 2 | % | 1 | % | |||||||
Debt securities | 33 | % | 36 | % | |||||||
Real estate | 1 | % | 1 | % | |||||||
Other | 1 | % | 1 | % | |||||||
Total | 100 | % | 100 | % |
401(k) Plan
21 Stock Plans
51
Stock Option Plans | Stock Purchase Plan | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2001 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Weighted-average risk free rate of interest | 2.26 | % | 4.17 | % | 4.17 | % | 1.11 | % | 2.59 | % | 3.73 | % | |||||||||||||||
Expected volatility | 37 | % | 42 | % | 48 | % | 31 | % | 35 | % | 40 | % | |||||||||||||||
Weighted-average expected award life | 3.4 | years | 3.5 | years | 4.0 | years | .7 | years | .7 | years | .7 | years | |||||||||||||||
Dividend yield | 1.2 | % | 1.2 | % | — | — | — | — | |||||||||||||||||||
Weighted-average fair value | $ | 2.90 | $ | 5.11 | $ | 5.31 | $ | 14.15 | $ | 4.23 | $ | 4.42 |
52
2003 | 2002 | 2001 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | ||||||||||||||||||||||
(in thousands, except prices per share) | |||||||||||||||||||||||||||
Options outstanding at beginning of year | 7,676 | $ | 15.18 | 7,557 | $ | 14.63 | 7,696 | $ | 14.49 | ||||||||||||||||||
Granted | 1,439 | $ | 10.81 | 1,640 | $ | 15.72 | 2,324 | $ | 12.81 | ||||||||||||||||||
Exercised | 1,830 | $ | 12.50 | 783 | $ | 6.67 | 995 | $ | 7.28 | ||||||||||||||||||
Expired or canceled | 399 | $ | 19.55 | 738 | $ | 19.80 | 1,468 | $ | 15.98 | ||||||||||||||||||
Options outstanding at end of year | 6,886 | $ | 14.73 | 7,676 | $ | 15.18 | 7,557 | $ | 14.63 | ||||||||||||||||||
Options exercisable at end of year | 4,075 | $ | 15.99 | 4,481 | $ | 15.94 | 4,371 | $ | 16.83 | ||||||||||||||||||
Options available for future grant at end of year | 8,780 | 6,739 | 7,389 |
The following table summarizes information about stock options outstanding and exercisable at January 31, 2004:
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | Shares | Weighted- Average Remaining Contractual Life | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | ||||||||||||||||||
(in thousands, except prices per share) | |||||||||||||||||||||||
$ 4.53 to $10.78 | 1,815 | 8.0 | $ | 9.58 | 553 | $ | 8.10 | ||||||||||||||||
$10.90 to $12.99 | 1,891 | 7.0 | 12.28 | 1,476 | 12.13 | ||||||||||||||||||
$13.21 to $16.02 | 1,726 | 7.4 | 15.77 | 711 | 15.67 | ||||||||||||||||||
$16.19 to $28.13 | 1,454 | 4.0 | 23.08 | 1,335 | 23.69 | ||||||||||||||||||
$ 4.53 to $28.13 | 6,886 | 6.7 | $ | 14.73 | 4,075 | $ | 15.99 |
22 Restricted Stock
23 Shareholder Rights Plan
53
24 Legal Proceedings
25 Commitments
26 Shareholder Information and Market Prices (Unaudited)
2003 | 2002 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
High | Low | High | Low | ||||||||||||||||
Common Stock Quarter | |||||||||||||||||||
1st Q | $ | 11.40 | $ | 9.28 | $ | 17.95 | $ | 14.35 | |||||||||||
2nd Q | 15.20 | 10.10 | 16.00 | 9.02 | |||||||||||||||
3rd Q | 18.20 | 13.85 | 11.19 | 8.20 | |||||||||||||||
4th Q | 25.97 | 18.01 | 13.73 | 9.75 |
54
27 Quarterly Results (Unaudited)
1st Q | 2nd Q | 3rd Q | 4th Q | Year | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions, except per share amounts) | |||||||||||||||||||||||
Sales | |||||||||||||||||||||||
2003 | $ | 1,128 | 1,123 | 1,194 | 1,334 | 4,779 | |||||||||||||||||
2002 | 1,090 | 1,085 | 1,120 | 1,214 | 4,509 | ||||||||||||||||||
Gross margin(a) | |||||||||||||||||||||||
2003 | $ | 345 | 331 | 389 | 412 | 1,477 | |||||||||||||||||
2002 | 320 | 312 | 343 | 369 | 1,344 | ||||||||||||||||||
Operating profit(b) | |||||||||||||||||||||||
2003 | $ | 67 | 59 | 102 | 114 | 342 | |||||||||||||||||
2002 | 64 | 55 | 72 | (c) | 78 | (d) | 269 | ||||||||||||||||
Income from continuing operations | |||||||||||||||||||||||
2003 | $ | 39 | 37 | 62 | 71 | 209 | |||||||||||||||||
2002 | �� | 38 | (e) | 33 | 43 | (e) | 48 | 162 | (e) | ||||||||||||||
Net income | |||||||||||||||||||||||
2003 | $ | 38 | 36 | 62 | 71 | 207 | |||||||||||||||||
2002 | 20 | (e) | 31 | 45 | (e) | 57 | 153 | (e) | |||||||||||||||
Basic earnings per share: | |||||||||||||||||||||||
2003 | |||||||||||||||||||||||
Income from continuing operations | $ | 0.28 | 0.26 | 0.43 | 0.50 | 1.47 | |||||||||||||||||
Loss from discontinued operations | — | (0.01 | ) | — | — | (0.01 | ) | ||||||||||||||||
Cumulative effect of accounting change(f) | (0.01 | ) | — | — | — | — | |||||||||||||||||
Net income | 0.27 | 0.25 | 0.43 | 0.50 | 1.46 | ||||||||||||||||||
2002 | |||||||||||||||||||||||
Income from continuing operations | $ | 0.27 | (e) | 0.23 | 0.30 | (e) | 0.35 | 1.15 | (e) | ||||||||||||||
Income (loss) from discontinued operations | (0.13 | ) | (0.01 | ) | 0.02 | 0.06 | (0.06 | ) | |||||||||||||||
Net income | 0.14 | (e) | 0.22 | 0.32 | (e) | 0.41 | 1.09 | (e) | |||||||||||||||
Diluted earnings per share: | |||||||||||||||||||||||
2003 | |||||||||||||||||||||||
Income from continuing operations | $ | 0.27 | 0.25 | 0.41 | 0.47 | 1.40 | |||||||||||||||||
Loss from discontinued operations | — | (0.01 | ) | — | — | (0.01 | ) | ||||||||||||||||
Cumulative effect of accounting change(f) | (0.01 | ) | — | — | — | — | |||||||||||||||||
Net income | 0.26 | 0.24 | 0.41 | 0.47 | 1.39 | ||||||||||||||||||
2002 | |||||||||||||||||||||||
Income from continuing operations | $ | 0.26 | (e) | 0.22 | 0.29 | (e) | 0.33 | 1.10 | (e) | ||||||||||||||
Income (loss) from discontinued operations | (0.12 | ) | (0.01 | ) | 0.02 | 0.06 | (0.05 | ) | |||||||||||||||
Net income | 0.14 | (e) | 0.21 | 0.31 | (e) | 0.39 | 1.05 | (e) |
(a) | Gross margin represents sales less cost of sales. |
(b) | Operating profit represents income from continuing operations before income taxes, interest expense, net and non-operating income. |
(c) | Includes asset impairment charge of $1 million. |
(d) | Includes asset impairment charge of $6 million. |
(e) | As more fully described in note 2, in applying EITF 90-16 to the first quarter of 2002, the $18 million Northern charge recorded within discontinued operations would have been classified as continuing operations. Similarly, the $1 million benefit recorded in the third quarter of 2002 would have been classified as continuing operations. Income from continuing operations for the first and third quarters would have been $20 million and $44 million, respectively. Diluted earnings per share would have been $0.14 and $0.30 for the first and third quarters, respectively. Reported net income for the first quarter and third quarters would have remained unchanged. After achieving divestiture accounting for Northern in the fourth quarter of 2002, these amounts would have been reclassified to reflect the results as shown above and as originally reported by the Company. As such, the Company has not amended these prior filings. |
(f) | Cumulative effect of accounting change became further diluted during the second quarter, and therefore is not shown in the year-to-date amount. |
55
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions, except per share amounts) | | |||||||||||||||||||||
Summary of Continuing Operations | |||||||||||||||||||||||
Sales | $ | 4,779 | 4,509 | 4,379 | 4,356 | 4,263 | |||||||||||||||||
Gross margin | 1,477 | 1,344 | 1,308 | 1,309 | 1,164 | (1) | |||||||||||||||||
Selling, general and administrative expenses | 987 | 928 | 923 | 975 | 985 | ||||||||||||||||||
Restructuring charges (income) | 1 | (2 | ) | 34 | 1 | 85 | |||||||||||||||||
Depreciation and amortization | 147 | 149 | 154 | 151 | 169 | ||||||||||||||||||
Interest expense, net | 18 | 26 | 24 | 22 | 51 | ||||||||||||||||||
Other income | — | (3 | ) | (2 | ) | (16 | ) | (223 | ) | ||||||||||||||
Income from continuing operations | 209 | 162 | 111 | (4) | 107 | (4) | 59 | (4) | |||||||||||||||
Cumulative effect of accounting change(2) | (1 | ) | — | — | (1 | ) | 8 | ||||||||||||||||
Basic earnings per share from continuing operations | 1.47 | 1.15 | 0.79 | (4) | 0.78 | (4) | 0.43 | (4) | |||||||||||||||
Basic earnings per share from cumulative effect of accounting change | — | — | — | (0.01 | ) | 0.06 | |||||||||||||||||
Diluted earnings per share from continuing operations | 1.40 | 1.10 | 0.77 | (4) | 0.77 | (4) | 0.43 | (4) | |||||||||||||||
Diluted earnings per share from cumulative effect of accounting change | — | — | — | (0.01 | ) | 0.06 | |||||||||||||||||
Common stock dividends declared | 0.15 | 0.03 | — | — | — | ||||||||||||||||||
Weighted-average common shares outstanding (in millions) | 141.6 | 140.7 | 139.4 | 137.9 | 137.2 | ||||||||||||||||||
Weighted-average common shares outstanding assuming dilution (in millions) | 152.9 | 150.8 | 146.9 | 139.1 | 138.2 | ||||||||||||||||||
Financial Condition | |||||||||||||||||||||||
Cash and cash equivalents | $ | 448 | 357 | 215 | 109 | 162 | |||||||||||||||||
Merchandise inventories | 920 | 835 | 793 | 730 | 697 | ||||||||||||||||||
Property and equipment, net | 644 | 636 | 637 | 684 | 754 | ||||||||||||||||||
Total assets | 2,689 | 2,486 | 2,300 | 2,278 | 2,525 | ||||||||||||||||||
Short-term debt | — | — | — | — | 71 | ||||||||||||||||||
Long-term debt and obligations under capital leases | 335 | 357 | 399 | 313 | 418 | ||||||||||||||||||
Total shareholders’ equity | 1,375 | 1,110 | 992 | 1,013 | 1,139 | ||||||||||||||||||
Financial Ratios | |||||||||||||||||||||||
Return on equity (ROE) | 16.8 | % | 15.4 | 11.1 | 10.0 | 5.4 | |||||||||||||||||
Operating profit margin | 7.2 | % | 6.0 | 4.5 | 4.2 | (1.8 | ) | ||||||||||||||||
Income from continuing operations as a percentage of sales | 4.4 | % | 3.6 | 2.5 | (4) | 2.5 | (4) | 1.4 | (4) | ||||||||||||||
Net debt capitalization percent(3) | 53.3 | % | 58.6 | 61.1 | 60.9 | 61.2 | |||||||||||||||||
Net debt capitalization percent (without present value of operating leases)(3) | — | — | 15.6 | 16.8 | 22.3 | ||||||||||||||||||
Current ratio | 2.8 | 2.2 | 2.0 | 1.5 | 1.5 | ||||||||||||||||||
Other Data | |||||||||||||||||||||||
Capital expenditures | $ | 144 | 150 | 116 | 94 | 152 | |||||||||||||||||
Number of stores at year end | 3,610 | 3,625 | 3,590 | 3,752 | 3,953 | ||||||||||||||||||
Total selling square footage at year end (in millions) | 7.92 | 8.04 | 7.94 | 8.09 | 8.40 | ||||||||||||||||||
Total gross square footage at year end (in millions) | 13.14 | 13.22 | 13.14 | 13.32 | 13.35 |
(1) | Includes a restructuring charge of $11 million related to inventory markdowns. |
(2) | 2003 relates to adoption of SFAS No. 143 “Accounting for Asset Retirement Obligations” (see note 1). 2000 reflects change in method of accounting for layaway sales. 1999 reflects change in method for calculating the market-related value of pension plan assets. |
(3) | Represents total debt, net of cash and cash equivalents and excludes the effect of an interest rate swap of $1 million that reduced long-term debt at January 31, 2004. |
(4) | As more fully described in note 2, applying the provisions of EITF 90-16, income from continuing operations for 2001, 2000 and 1999 would have been reclassified to include the results of the Northern Group. Accordingly, income from continuing operations would have been $91 million, $57 million and $17 million, respectively. As such basic earnings per share would have been $0.65, $0.42 and $0.13 for fiscal 2001, 2000 and 1999, respectively. Diluted earnings per share would have been $0.64, $0.41 and $0.13 for fiscal 2001, 2000 and 1999, respectively. However, upon achieving divestiture accounting in the fourth quarter of 2002, the results would have been reclassified to reflect the results as shown above and as originally reported by the Company. |
56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Company
(a) | Directors of the Company |
(b) | Executive Officers of the Company |
(c) | Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is set forth under the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated herein by reference. |
(d) | Information on our audit committee financials experts is contained in the Proxy Statement under the section captioned “Committees of the Board of Directors” and is incorporated herein by reference. |
(e) | Information about the Code of Business Conduct governing our employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Board of Directors, is set forth under the heading “Code of Business Conduct” under the Corporate Governance section of the Proxy Statement and is incorporated herein by reference. |
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
57
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) | (1) (a)(2) Financial Statements |
58
SIGNATURES
Matthew D. Serra Chairman of the Board, President and Chief Executive Officer |
Matthew D. Serra Chairman of the Board, President and Chief Executive Officer | Bruce L. Hartman Executive Vice President and Chief Financial Officer | |||||||||
/s/ ROBERT W. MCHUGH Robert W. McHugh Vice President and Chief Accounting Officer | ||||||||||
/s/ J. CARTER BACOT J. Carter Bacot Lead Director | /s/ JAMES E. PRESTON James E. Preston Director | |||||||||
/s/ PURDY CRAWFORD Purdy Crawford Director | /s/ DAVID Y. SCHWARTZ David Y. Schwartz Director | |||||||||
/s/ NICHOLAS DIPAOLO Nicholas DiPaolo Director | /s/ CHRISTOPHER A. SINCLAIR Christopher A. Sinclair Director | |||||||||
/s/ PHILIP H. GEIER JR. Philip H. Geier Jr. Director | /s/ CHERYL N. TURPIN Cheryl N. Turpin Director | |||||||||
/s/ JAROBIN GILBERT JR. Jarobin Gilbert Jr. Director | /s/ DONA D. YOUNG Dona D. Young Director |
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FOOT LOCKER, INC
INDEX OF EXHIBITS REQUIRED
BY ITEM 15 OF FORM 10-K
AND FURNISHED IN ACCORDANCE
WITH ITEM 601 OF REGULATION S-K
Exhibit No. in Item 601 of Regulation S-K | Description | |||||
---|---|---|---|---|---|---|
3(i)(a) | Certificate of Incorporation of the Registrant, as filed by the Department of State of the State of New York on April 7, 1989 (incorporated herein by reference to Exhibit 3(i)(a) to the Quarterly Report on Form 10-Q for the quarterly period ended July 26, 1997, filed by the Registrant with the SEC on September 4, 1997 (the “July 26, 1997 Form 10-Q”)). | |||||
3(i)(b) | Certificates of Amendment of the Certificate of Incorporation of the Registrant, as filed by the Department of State of the State of New York on (a) July 20, 1989, (b) July 24, 1990, (c) July 9, 1997 (incorporated herein by reference to Exhibit 3(i)(b) to the July 26, 1997 Form 10-Q), (d) June 11, 1998 (incorporated herein by reference to Exhibit 4.2(a) of the Registration Statement on Form S-8 (Registration No. 333-62425), and (e) November 1, 2001 (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-8 (Registration No. 333-74688) previously filed by the Registrant with the SEC). | |||||
3(ii) | By-laws of the Registrant, as amended (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended May 5, 2001 (the “May 5, 2001 Form 10-Q”), filed by the Registrant with the SEC on June 13, 2001). | |||||
4.1 | The rights of holders of the Registrant’s equity securities are defined in the Registrant’s Certificate of Incorporation, as amended (incorporated herein by reference to (a) Exhibits 3(i)(a) and 3(i)(b) to the July 26, 1997 Form 10-Q, Exhibit 4.2(a) to the Registration Statement on Form S-8 (Registration No. 333-62425) previously filed by the Registrant with the SEC, and Exhibit 4.2 to the Registration Statement on Form S-8 (Registration No. 333-74688) previously filed by the Registrant with the SEC). | |||||
4.2 | Amendment No. 4 to the Rights Agreement dated as of November 19, 2003 (incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed by the Registrant with the SEC on November 20, 2003). | |||||
4.3 | Indenture dated as of October 10, 1991 (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 33-43334) previously filed by the Registrant with the SEC). | |||||
4.4 | Form of 8 1/2% Debentures due 2022 (incorporated herein by reference to Exhibit 4 to the Registrant’s Form 8-K dated January 16, 1992). | |||||
4.5 | Indenture dated as of June 8, 2001 (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed by the Registrant with the SEC). | |||||
4.6 | Form of 5.50% Convertible Subordinated Note (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed by the Registrant with the SEC). | |||||
4.7 | Registration Rights Agreement dated as of June 8, 2001 (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed by the Registrant with the SEC). |
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Exhibit No. in Item 601 of Regulation S-K | Description | |||||
---|---|---|---|---|---|---|
4.8 | Distribution Agreement dated July 13, 1995 and Forms of Fixed Rate and Floating Rate Notes (incorporated herein by reference to Exhibits 1, 4.1 and 4.2, respectively, to the Registrant’s Form 8-K dated July 13, 1995). | |||||
10.1 | 1986 Foot Locker Stock Option Plan (incorporated herein by reference to Exhibit 10(b) to the Registrant’s Annual Report on Form 10-K for the year ended January 28, 1995, filed by the Registrant with the SEC on April 24, 1995 (the “1994 Form 10-K”)). | |||||
10.2 | Amendment to the 1986 Foot Locker Stock Option Plan (incorporated herein by reference to Exhibit 10(a) to the Registrant’s Annual Report on Form 10-K for the year ended January 27, 1996, filed by the Registrant with the SEC on April 26, 1996 (the “1995 Form 10-K”)). | |||||
10.3 | Foot Locker 1995 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10(p) to the 1994 Form 10-K). | |||||
10.4 | Foot Locker 1998 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended January 31, 1998, filed by the Registrant with the SEC on April 21, 1998 (the “1997 Form 10-K”)). | |||||
10.5 | Amendment to the Foot Locker 1998 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended July 29, 2000, filed by the Registrant with the SEC on September 7, 2000 (the “July 29, 2000 Form 10-Q”)). | |||||
10.6 | Executive Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10(d) to the Registration Statement on Form 8-B filed by the Registrant with the SEC on August 7, 1989 (Registration No. 1-10299) (the “8-B Registration Statement”)). | |||||
10.7 | Amendment to the Executive Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10(c)(i) to the 1994 Form 10-K ). | |||||
10.8 | Amendment to the Executive Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10(d)(ii) to the 1995 Form 10-K). | |||||
10.9 | Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10(e) to the 1995 Form 10-K). | |||||
10.10 | Long-Term Incentive Compensation Plan, as amended and restated (incorporated herein by reference to Exhibit 10(f) to the 1995 Form 10-K). | |||||
10.11 | Annual Incentive Compensation Plan, as amended (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended August 2, 2003 filed by the Registrant with the SEC on September 15, 2003 (the August 2, 2003 Form 10-Q”)). |
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Exhibit No. in Item 601 of Regulation S-K | Description | |||||
---|---|---|---|---|---|---|
10.12 | Form of indemnification agreement, as amended (incorporated herein by reference to Exhibit 10(g) to the 8-B Registration Statement). | |||||
10.13 | Amendment to form of indemnification agreement (incorporated herein by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarterly period ended May 5, 2001 filed by the Registrant with the SEC on June 13, 2001 (the “May 5, 2001 Form 10-Q”)). | |||||
10.14 | Foot Locker Voluntary Deferred Compensation Plan (incorporated herein by reference to Exhibit 10(i) to the 1995 Form 10-K). | |||||
10.15 | Foot Locker Directors Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the July 29, 2000 Form 10-Q). | |||||
10.16 | Trust Agreement dated as of November 12, 1987 (“Trust Agreement”), between F.W. Woolworth Co. and The Bank of New York, as amended and assumed by the Registrant (incorporated herein by reference to Exhibit 10(j) to the 8-B Registration Statement). | |||||
10.17 | Amendment to Trust Agreement made as of April 11, 2001 (incorporated herein by reference to Exhibit 10.4 to May 5, 2001 Form 10-Q). | |||||
10.18 | Foot Locker Directors’ Retirement Plan, as amended (incorporated herein by reference to Exhibit 10(k) to the 8-B Registration Statement). | |||||
10.19 | Amendments to the Foot Locker Directors’ Retirement Plan (incorporated herein by reference to Exhibit 10(c) to the Registrant’s Quarterly Report on Form 10-Q for the period ended October 28, 1995, filed by the Registrant with the SEC on December 11, 1995 (the “October 28, 1995 Form 10-Q”)). | |||||
10.20 | Employment Agreement with Matthew D. Serra dated as of January 21, 2003 (incorporated herein by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the year ended February 1, 2003 filed by the Registrant with the SEC on May 19, 2003 (the “2002 Form 10-K”)). | |||||
10.21 | Restricted Stock Agreement with Matthew D. Serra dated as of March 4, 2001 (incorporated herein by reference to Exhibit 10.3 to the May 5, 2001 Form 10-Q). | |||||
10.22 | Restricted Stock Agreement with Matthew D. Serra dated as of February 2, 2003 (incorporated herein by reference to Exhibit 10.22 to the 2002 Form 10-K). | |||||
10.23 | Restricted Stock Agreement with Matthew D. Serra dated as of September 11, 2003 (incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the period ended November 1, 2003 filed by the Registrant with the SEC on December 15, 2003). | |||||
10.24 | Foot Locker Executive Severance Pay Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended October 31, 1998 (the “October 31, 1998 Form 10-Q”)). | |||||
10.25 | Form of Senior Executive Employment Agreement (incorporated herein by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the year ended January 29, 2000 filed by the Registrant with the SEC on April 21, 2000 (the “1999 Form 10-K”)). |
62
Exhibit No. in Item 601 of Regulation S-K | Description | |||||
---|---|---|---|---|---|---|
10.26 | Form of Executive Employment Agreement (incorporated herein by reference to Exhibit 10.24 to the 1999 Form 10-K). | |||||
10.27 | Foot Locker, Inc. Directors’ Stock Plan (incorporated herein by reference to Exhibit 10(b) to the Registrant’s October 28, 1995 Form 10-Q). | |||||
10.28 | Foot Locker, Inc. Excess Cash Balance Plan (incorporated herein by reference to Exhibit 10(c) to the 1995 Form 10-K). | |||||
10.29 | Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.30 to the 1998 Form 10-K). | |||||
10.30 | Fourth Amended and Restated Credit Agreement dated as of April 9, 1997, amended and restated as of July 30, 2003 (incorporated herein by reference to Exhibit 10.1 to the August 2, 2003 Form 10-Q). | |||||
10.31 | Letter of Credit Agreement dated as of March 19, 1999 (incorporated herein by reference to Exhibit 10.35 to the 1998 10-K). | |||||
10.32 | Foot Locker 2002 Directors Stock Plan (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended August 3, 2002 filed by the Registrant with the SEC on September 12, 2002 (the “August 3, 2002 Form 10-Q”)). | |||||
10.33 | Foot Locker 2003 Stock Option and Award Plan (incorporated herein by reference to Exhibit 10.2 to the August 2, 2003 Form 10-Q). | |||||
12 | Computation of Ratio of Earnings to Fixed Charges. | |||||
18 | Letter on Change in Accounting Principle (incorporated herein by reference to Exhibit 18 to the 1999 Form 10-K). | |||||
21 | Subsidiaries of the Registrant. | |||||
23 | Consent of Independent Auditors. | |||||
31.1 | Certification of Chief Executive Officer Pursuant to 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
31.2 | Certification of Chief Financial Officer Pursuant to 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
63