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: AugustMay 3, 20132014

 

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 York13-3513936
(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   No ¨

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 ¨

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 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 filerþAccelerated 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 August 30, 2013: 148,495,431

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 May 30, 2014: 144,697,069

 

 
 

 

FOOT LOCKER, INC.

 

TABLE OF CONTENTS

  Page
Part I.Financial Information
Item 1.Financial Statements 
  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 Operations1917
 Item 4.Controls and Procedures2623
Part II.Other Information 
 Item 1.Legal Proceedings2724
 Item 1A.Risk Factors2825
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2825
Item 6.Exhibits25
  Item 6. SignatureExhibits 2826
  Signature 29
Index of Exhibits3027

2

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

FOOT LOCKER, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except shares)

 

 August 3, July 28, February 2,  May 3, May 4, February 1, 
 2013  2012  2013  2014  2013  2014 
 (Unaudited) (Unaudited) *  (Unaudited) (Unaudited) * 
ASSETS                        
            
Current assets                        
Cash and cash equivalents $789  $770  $880  $1,005  $1,057  $858 
Short-term investments  47   50   48   2   48   9 
Merchandise inventories  1,306   1,231   1,167   1,268   1,169   1,220 
Other current assets  243   199   268   243   174   263 
  2,385   2,250   2,363   2,518   2,448   2,350 
Property and equipment, net  552   447   490   598   504   590 
Deferred taxes  265   284   257   245   263   241 
Goodwill  194   143   145   163   144   163 
Other intangibles and other assets  115   110   112 
Other intangible assets, net  65   38   67 
Other assets  80   68   76 
 $3,511  $3,234  $3,367  $3,669  $3,465  $3,487 
LIABILITIES AND SHAREHOLDERS’ EQUITY                        
            
Current liabilities                        
Accounts payable $418  $391  $298  $354  $352  $263 
Accrued expenses and other current liabilities
  309   278   338 
Accrued and other liabilities  355   290   360 
Current portion of capital lease obligations  3   —   —   3   —   3 
  730   669   636   712   642   626 
Long-term debt and obligations under capital leases  138   133   133   135   132   136 
Other liabilities  217   253   221   229   216   229 
  1,085   1,055   990 
Total liabilities  1,076   990   991 
Shareholders’ equity                        
Common stock and paid-in capital: 168,480,940, 165,819,340 and 166,909,151 shares, respectively
  895   819   856 
Common stock and paid-in capital: 170,078,313, 167,899,536, and 169,039,095 shares, respectively  947   877   921 
Retained earnings  2,220   1,920   2,076   2,517   2,184   2,387 
Accumulated other comprehensive loss  (192)  (241)  (171)  (164)  (189)  (186)
Less: Treasury stock at cost: 20,005,809, 14,959,322 and 16,839,222 shares, respectively  (497)  (319)  (384)
Less: Treasury stock at cost: 25,381,244, 17,226,825 and 23,612,273 shares, respectively  (707)  (397)  (626)
Total shareholders’ equity  2,426   2,179   2,377   2,593   2,475   2,496 
 $3,511  $3,234  $3,367  $3,669  $3,465  $3,487 

 

See Accompanying Notes to Condensed Consolidated Financial Statements. 
* The balance sheet at February 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 February 2, 2013.

See Accompanying Notes to Condensed Consolidated Financial Statements.

* The balance sheet at February 1, 2014 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 February 1, 2014.

 

3
 

 

FOOT LOCKER, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in millions, except per share amounts)

 

 Thirteen weeks ended  Twenty-six weeks ended  Thirteen weeks ended 
 August 3, July 28, August 3, July 28,  May 3, May 4, 
 2013  2012  2013  2012  2014  2013 
Sales $1,454  $1,367  $3,092  $2,945  $1,868  $1,638 
                        
Cost of sales  1,001   939   2,078   1,980   1,222   1,077 
Selling, general and administrative expenses  314   306   629   612   355   315 
Depreciation and amortization  31   29   62   58   36   31 
Other charges  2   —   2   — 
Impairment charge  1   — 
Interest expense, net  1   1   2   2   1   1 
Other income  (1)  (1)  (3)  (1)
Other income, net  (1)  (2)
  1,348   1,274   2,770   2,651   1,614   1,422 
                        
Income before income taxes  106   93   322   294   254   216 
Income tax expense  40   34   118   107   92   78 
Net income $66  $59  $204  $187  $162  $138 
                        
Basic earnings per share $0.44  $0.39  $1.36  $1.23 
Basic earnings per share:        
Net income $1.12  $0.92 
Weighted-average common shares outstanding  149.5   151.4   149.9   151.6   145.4   150.4 
                        
Diluted earnings per share $0.44  $0.39  $1.34  $1.21 
Diluted earnings per share:        
Net income $1.10  $0.90 
Weighted-average common shares assuming dilution  151.4   153.9   152.1   154.1   147.6   152.7 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

4
 

 

FOOT LOCKER, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in millions)

 

  Thirteen weeks ended  Twenty-six weeks ended 
  August 3,  July 28,  August 3,  July 28, 
  2013  2012  2013  2012 
Net income $66  $59  $204  $187 
                 
Other comprehensive income (loss), net of income tax                
                 
Foreign currency translation adjustment:                
Translation adjustment arising during the period, net of income tax  (6)  (49)  (27)  (42)
                 
Cash flow hedges:                
Change in fair value of derivatives, net of income tax  1   (1)  —   (1)
                 
Available for sale securities:                
Unrealized gain/(loss)  (1)  1   —   1 
                 
Pension and postretirement adjustments:                
Amortization of net actuarial gain/loss included in net periodic benefit costs, net of income tax expense of $2, $1, $3, and $2 million, respectively  2   2   4   4 
                 
Comprehensive income $62  $12  $181  $149 

  Thirteen weeks ended 
  May 3,  May 4, 
  2014  2013 
Net income $162  $138 
         
Other comprehensive income (loss), net of income tax        
         
Foreign currency translation adjustment:        
Translation adjustment arising during the period, net of income tax  19   (21)
         
Cash flow hedges:        
Change in fair value of derivatives, net of income tax  1   (1)
         
Pension and postretirement adjustments:        
Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $1 million and $1 million, respectively  2   2 
         
Available for sale securities:        
Unrealized gain on available-for-sale securities  —   1 
         
Comprehensive income $184  $119 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

5
 

 

FOOT LOCKER, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)

 Twenty-six weeks ended  Thirteen weeks ended 
 August 3, July 28  May 3, May 4, 
 2013  2012  2014  2013 
From Operating Activities:                
Net income $204  $187  $162  $138 
Adjustments to reconcile net income to net cash provided by operating activities:                
Non-cash impairment charge  1   — 
Depreciation and amortization  62   58   36   31 
Share-based compensation expense  13   10   6   8 
Qualified pension plan contributions  (2)  —   (2)  — 
Excess tax benefits on share-based compensation
  (7)  (6)  (7)  (4)
Change in assets and liabilities:                
Merchandise inventories  (109)  (177)  (40)  (8)
Accounts payable  100   155   89   55 
Other accruals  (28)  (30)
Accrued and other liabilities  3   (46)
Other, net  7   (36)  24   77 
Net cash provided by operating activities  240   161   272   251 
                
From Investing Activities:                
Lease termination gains  2   — 
Capital expenditures  (49)  (50)
Gain from lease terminations  —   2 
Purchases of short-term investments  —   (19)
Sales and maturities of short-term investments  23   7   7   19 
Purchases of short-term investments  (23)  (57)
Capital expenditures  (107)  (87)
Purchase of business, net of cash acquired  (84)  — 
Net cash used in investing activities  (189)  (137)  (42)  (48)
                
From Financing Activities:                
Repayments of long-term debt and obligations under capital leases  (1)  — 
Dividends paid on common stock  (32)  (30)
Issuance of common stock  10   6 
Purchase of treasury shares  (100)  (65)  (70)  — 
Dividends paid  (60)  (55)
Issuance of common stock  15   20 
Treasury stock issued under employee stock purchase plan
  3   5 
Excess tax benefits on share-based compensation  7   7   7   4 
Reduction in long-term debt  —   (2)
Net cash used in financing activities  (135)  (90)  (86)  (20)
                
Effect of exchange rate fluctuations on Cash and Cash Equivalents  (7)  (15)  3   (6)
Net change in Cash and Cash Equivalents  (91)  (81)  147   177 
Cash and Cash Equivalents at beginning of year  880   851   858   880 
Cash and Cash Equivalents at end of interim period $789  $770  $1,005  $1,057 
                
Cash paid during the period:                
Interest $5  $5  $—  $— 
Income taxes $99  $137  $83  $15 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.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 1, 2014January 31, 2015 and of the fiscal year ended February 2, 2013.1, 2014. 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 February 2, 2013,1, 2014, as filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2013.March 31, 2014.

 

Recent Accounting Pronouncements

 

DuringIn April 2014, the first quarter of 2013, the Company adoptedFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2013-02,(“ASU”) 2014-08,Comprehensive Income (Topic 220): Reporting Discontinued Operations and Disclosures of Amounts Reclassified outDisposals of Accumulated Other Comprehensive IncomeComponents of an Entity(“. The amendments in this update change the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results and when the component or group of components meets the criteria to be classified as held for sale, is disposed by sale or is disposed of by other than by sale. ASU 2013-02”). ASU 2013-02 amended existing guidance by requiring additional disclosure either on the face of the incomestatement or in the notes to the financial statements of significant amounts reclassified out of accumulated other comprehensive income. The provisions of this new guidance were2014-8 is effective prospectively as of thefor fiscal years, and interim reporting periods within those years, beginning of 2013. Accordingly, enhanced footnote disclosure is included inNote 5.after December 15, 2014, with earlier adoption permitted. The adoption of ASU 2013-02 had nothis guidance did not have a significant effect on our consolidated financial position, results of operations or financialposition.cash flows.

 

We performed our annual goodwill impairment assessment during the first quarter of 2013, usingIn May 2014, FASB issued ASU 2014-09,Revenue from Contracts with Customers, issued as a qualitative approach as permitted undernew Topic, Accounting Standards Update No. 2011-08,Testing GoodwillCodification Topic 606. The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for Impairment. In performingthose goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with earlier adoption not permitted. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the assessment, we identified and considered the significancedate of relevant key factors, events, and circumstances that affected the fair value and/or carrying amountsadoption. The adoption of this guidance is not expected to have a significant effect on 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 plannedconsolidated financial performance. Based on theposition, results of the impairment assessment performed, we concluded that it is more likely than not that the fair values of our reporting units substantially exceeded their respective carrying values and there are no reporting units at risk of impairment.operations or cash flows.

 

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 beginning on July 7, 2013, the Company completed its acquisition of 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 value of the net assets acquired. Runners Point Group operates 194 stores in Germany, Austria, and the Netherlands. Additionally, there are 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.

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.Acquisition – (continued)

The following table summarizes the preliminary 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 allocation of the purchase price shown in the table below is preliminary and subject to change based on the finalization of our detailed valuations, including the valuations of trademarks, tradenames, customer lists, and other intangibles.

  (in millions) 
Cash and cash equivalents $3 
Inventory  40 
Other current assets  10 
Property and equipment  20 
Other long-term assets  9 
Accounts payable and other accruals  (34)
Obligations under capital leases  (9)
Other long-term liabilities  (1)
Goodwill (1)   49 
Total purchase price $87 

(1)As of August 3, 2013, the U.S. dollar value of goodwill increased to $50 million.

The Company is assessing the tax deductibility of the goodwill related to the acquisition.

3.Segment Information

 

The Company has determined that its reportable segments are those that are based on its method of internal reporting. As of AugustMay 3, 2013,2014, the Company has two reportable segments, Athletic Stores and Direct-to-Customers. Sales andThe Company evaluates performance based on several factors, of which the primary financial measure is division results for the Company’s reportable segments for the thirteen weeks and twenty-six weeks ended August 3, 2013 and July 28, 2012 are presented below.results. Division profit reflects income before income taxes, corporate expense, non-operating income, and net interest expense, and net non-operating income.expense.

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.

  Thirteen weeks ended  Twenty-six weeks ended 
Sales August 3,  July 28,  August 3,  July 28, 
(in millions) 2013  2012  2013  2012 
Athletic Stores $1,313  $1,248  $2,784  $2,685 
Direct-to-Customers  141   119   308   260 
Total sales $1,454  $1,367  $3,092  $2,945 

 

87
 

 

FOOT LOCKER, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

3.2.Segment Information -– (continued)

 

 
  Thirteen weeks ended  Twenty-six weeks ended 
Operating Results August 3,  July 28,  August 3,  July 28, 
(in millions) 2013  2012  2013  2012 
Athletic Stores (1)  $116  $107  $327  $314 
Direct-to-Customers  10   11   33   29 
Division profit  126   118   360   343 
Less: Corporate expense, net  20   25   39   48 
Operating profit  106   93   321   295 
Other income (2)   1   1   3   1 
Interest expense, net  1   1   2   2 
Income before income taxes $106  $93  $322  $294 

Sales

  Thirteen weeks ended 
  May 3,  May 4, 
(in millions) 2014  2013 
Athletic Stores $1,657  $1,471 
Direct-to-Customers  211   167 
Total sales $1,868  $1,638 

Operating Results

  Thirteen weeks ended 
  May 3,  May 4, 
(in millions) 2014  2013 
Athletic Stores $247  $211 
Direct-to-Customers  28   23 
Division profit  275   234 
Less: Corporate expense, net  21   19 
Operating profit  254   215 
Interest expense, net  1   1 
Other income (1)   1   2 
Income before income taxes $254  $216 

 

(1)Included in the Athletic Stores segment for both the thirteen and twenty-six weeks ended August 3, 2013 is a $2 million charge recorded in connection with the closure of all CCS stores.

(2)Other income includes non-operating items, such as lease termination gains, royalty income, and the changes in fair value, premiums paid and realized gains associated with foreign currency option contracts.

 

During the second quarter of 2013 the Company closed all 22 of its CCS stores. Of these stores, 8 have been converted to other store formats as of August 3, 2013 and 6 will be converted to other store formats by the end of the year. 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.

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 review of goodwill and assets with indefinite lives performed during the first quartersquarter of 2013 and 20122014 did not result in impairment charges. Thecharges as the fair value of each of the reporting units substantially exceedsexceeded its carrying value. During the first quarter of 2014, the Company recorded a non-cash impairment charge of $1 million to fully write-down the remaining value for both periods. of the tradename related to the Company’s stores in the Republic of Ireland, reflecting historical and projected underperformance. No such impairment charges were recorded in the corresponding prior-year period.

In connection with the acquisition of the Runners Point Group during the second quarter of 2013, the Company recorded $18 million of goodwill, which was allocated to the segments based upon their relative fair values. Accordingly, $3 million and $15 million was allocated to the Athletic Stores and Direct-to-Customers segments, respectively.

The following table provides a summary of goodwill by reportable segment.segment:

 

Goodwill as of August 3, 2013 includes $50 million relating to the acquisition of Runners Point Group. Other changes include foreign exchange fluctuations.

  May 3,  May 4,  February 1, 
Goodwill (in millions) 2014  2013  2014 
Athletic Stores $21  $17  $21 
Direct-to-Customers  142   127   142 
  $163  $144  $163 

 

  August 3,  July 28,  February 2, 
Goodwill (in millions) 2013  2012  2013 
Athletic Stores (1)  $67  $16  $18 
Direct-to-Customers  127   127   127 
  $194  $143  $145 
8

 

(1)The entire amount of goodwill related to the acquisition was preliminarily allocated to the Athletic Stores segment and is subject to change based on the finalization of our detailed valuations.

FOOT LOCKER, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4.3.Goodwill and Other Intangible Assets - (continued)

 

The components of finite-lived intangible assets and intangible assets not subject to amortization are as follows:

 

 August 3, 2013 July 28, 2012 February 2, 2013  May 3, 2014 May 4, 2013 February 1, 2014 
 Gross Accum. Net Gross Accum. Net Gross Accum. Net  Gross Accum. Net Gross Accum. Net Gross Accum. Net 
(in millions) value amort. value Value amort. value Value amort. value  value  amort.  Value(1)  value  amort.  value  value  amort.  value 
Amortized intangible assets:                                                                        
Lease acquisition costs $154  $(134) $20  $152  $(131) $21  $158  $(137) $21  $159  $(142) $17  $152  $(131) $21  $155  $(137) $18 
Trademarks  21   (10)  11   21   (9)  12   21   (9)  12   21   (11)  10   21   (10)  11   21   (11)  10 
Favorable leases  4   (4)  —   5   (5)  —   5   (5)  —   8   (4)  4   4   (4)  —   8   (3)  5 
CCS customer relationships  21   (20)  1   21   (16)  5   21   (18)  3 
                                    
Customer relationships  21   (21)  —   21   (19)  2   21   (21)  — 
 $200  $(168) $32  $199  $(161) $38  $205  $(169) $36  $209  $(178) $31  $198  $(164) $34  $205  $(172) $33 
                                                                        
Indefinite life intangible assets:                                                                        
Republic of Ireland trademark          1           1           1 
CCS tradename          3           10           3 
Runners Point Group trademarks          31           —           30 
Other trademarks(2)          3           4           4 
         $4          $11          $4          $34          $4          $34 
Other intangible assets, net         $36          $49          $40          $65          $38          $67 

(1)Includes the effect of foreign currency translation related primarily to the movements of the euro in relation to the U.S. dollar.
(2)The accumulated impairment charge related to other trademarks is $25 million; including $1 million recorded during the thirteen-week period ended May 3, 2014, for the impairment of the tradename related to the Company’s stores in the Republic of Ireland.

 

For the twenty-six weekthirteen-week period ended AugustMay 3, 2013,2014, activity included amortization of $6$2 million, $1 million related to the impairment charge noted above, partially offset by leasean increase of $1 million related to foreign exchange fluctuations. The change from the prior year primarily reflects the acquisition additions of $2 million. The lease acquisition additions recorded during the period are being amortized over a weighted-average of 10 years.Runners Point Group.

 

 Thirteen weeks ended  Twenty-six weeks ended  Thirteen weeks ended 
 August 3,  July 28,  August 3,  July 28,  May 3, May 4, 
(in millions) 2013  2012  2013  2012  2014  2013 
Amortization expense $3  $3  $6  $7  $2  $3 

 

Future expected amortization expense for finite life intangible assets is estimated as follows:

 

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

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss comprised the following:

  August 3,  July 28,  February 2, 
(in millions) 2013  2012  2013 
Foreign currency translation adjustments $55  $21  $82 
Cash flow hedges  3   (2)  3 
Unrecognized pension cost and postretirement benefit  (249)  (259)  (255)
Unrealized loss on available-for-sale security  (1)  (1)  (1)
  $(192) $(241) $(171)

The changes in accumulated other comprehensive loss for the twenty-six week period ended August 3, 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  (27)  —   2   —   (25)
Amounts reclassified from accumulated other comprehensive income  —   —   4   —   4 
Other comprehensive income (loss)  (27)  —   6   —   (21)
                     
Balance as of August 3, 2013 $55  $3  $(249) $(1) $(192)

Reclassifications from accumulated other comprehensive loss for the twenty-six week period ended August 3, 2013 were as follows:

(in millions)   
Amortization of actuarial (gain) loss:    
Pension amortization of actuarial loss $8 
Postretirement amortization of actuarial gain  (1)
Net periodic benefit cost (see Note 9)  7 
Income tax expense  3 
Net of tax $4 
  (in millions) 
Remainder of 2014 $4 
2015  5 
2016  4 
2017  4 
2018  3 
2019  3 

 

119
 

 

FOOT LOCKER, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

6.4.Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss comprised the following:

  May 3,  May 4,  February 1, 
(in millions) 2014  2013  2014 
Foreign currency translation adjustments $76  $61  $57 
Cash flow hedges  (1)  2   (2)
Unrecognized pension cost and postretirement benefit  (238)  (252)  (240)
Unrealized loss on available-for-sale security  (1)  —   (1)
  $(164) $(189) $(186)

The changes in accumulated other comprehensive loss for the thirteen weeks ended May 3, 2014 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 1, 2014 $57   (2)  (240)  (1) $(186)
Other comprehensive income before reclassification  19   1   —   —   20 
Amounts reclassified from accumulated other comprehensive income  —   —   2   —   2 
Other comprehensive income  19   1   2   —   22 
Balance as of May 3, 2014 $76   (1)  (238)  (1) $(164)

Reclassifications from accumulated other comprehensive loss for the thirteen weeks ended May 3, 2014 were as follows:

(in millions)   
Amortization of actuarial (gain) loss:    
Pension benefits -  amortization of actuarial loss $4 
Postretirement benefits -  amortization of actuarial gain  (1)
Net periodic benefit cost (seeNote 8)  3 
Income tax expense  1 
Net of tax $2 

5.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 policypractice 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 7,6,Fair Value Measurements.

10

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.Financial Instruments – (continued)

 

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.

 

The primary currencies to which the Company is exposed are the euro, British pound, Canadian dollar, and Australian dollar. For option and 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 related 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 cash 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. The net change in the fair value of the foreign exchange derivative financial instruments designated as cash flow hedges of the purchase of inventory resulted inwas a loss of $1 million gain and a $1 million loss for the thirteen weeks ended AugustMay 3, 2014 and May 4, 2013, and was not significant for the twenty-six weeks ended August 3, 2013. The net change resulted in a gain of $1 million for both the thirteen weeks and twenty-six weeks ended July 28, 2012. respectively.

The notional value of the contracts outstanding at AugustMay 3, 20132014 was $57$55 million and these contracts extend through January 2015.

Derivative Holdings Designated as Non-Hedges

The Company enters into foreign exchange forward contracts that are not designated as hedges in order to manage the costs of foreign-currency denominated merchandise purchases and intercompany transactions. Changes in the fair value of these foreign exchange forward contracts are recorded in earnings immediately within selling, general and administrative expenses. The net change in fair value resulted in expense for the thirteen weeks ended May 3, 2014 of $1 million. The net change in fair value was not significant for the prior-year period. The notional value of the contracts outstanding at May 3, 2014 was $37 million and these contracts extend through July 2014.

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. Changes in the fair value of these foreign currency option contracts, which are not designated as hedges,non-hedges, are recorded in earnings immediately within other income. The realized gains, premiums paid, and changes in the fair market value recorded were not significant for any of the periods presented. There were no options outstanding at August 3, 2013.

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6.Financial Instruments - (continued)

The Company also enters into foreign exchange forward contracts to hedge foreign-currency denominated merchandise purchases and intercompany transactions that are not designated as hedges. The net change in fair value was not significant for any of the periods presented. The notional value of the contracts outstanding at AugustMay 3, 20132014 was $32$27 million and these contracts extend through December 2013.July 2014.

11

FOOT LOCKER, INC.

 

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 August 3, 2013 was $1 million and these contracts extend through November 2013.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.Financial Instruments – (continued)

 

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 August 3,  July 28, February 2,  Balance Sheet May 3, May 4, February 1, 
(in millions) Caption 2013  2012  2013  Caption 2014  2013  2014 
Hedging Instruments:                          
Foreign exchange forward contracts Current assets $3  $—  $4  Current assets $—  $2  $— 
Foreign exchange forward contracts Current liabilities $—  $2  $—  Current liabilities $1  $—  $2 
            
Non-Hedging Instruments:                          
Foreign exchange forward contracts Current assets $1  $—  $2  Current assets $—  $1  $— 
Foreign exchange forward contracts Current liabilities $—  $1  $—  Current liabilities $1  $—  $— 

 

7.6.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.

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

13

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.Fair Value Measurements – (continued)

 

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 August 3, 2013  At July 28, 2012  At February 2, 2013  At May 3, 2014  At May 4, 2013  At February 1, 2014 
(in millions) Level 1  Level 2  Level 3  Level 1  Level 2  Level 3  Level 1  Level 2  Level 3  Level 1  Level 2  Level 3  Level 1  Level 2  Level 3  Level 1  Level 2  Level 3 
Assets                                                                        
Short-term investments $—  $47  $—  $—  $50  $—  $—  $48  $—  $—  $2  $—  $—  $48  $—  $—  $9  $— 
Auction rate security  —   6   —   —   6   —   —   6   —   —   6   —   —   6   —   —   6   — 
Foreign exchange forward contracts  —   4   —   —   —   —   —   6   —   —   —   —   —   3   —   —   —   — 
Total Assets $—  $57  $—  $—  $56  $—  $—  $60  $—  $—  $8  $—  $—  $57  $—  $—  $15  $— 
                                                                        
Liabilities                                                                        
Foreign exchange forward contracts  —   —   —   —   3   —   —   —   —   —   2   —   —   —   —   —   2   — 
Total Liabilities $—  $—  $—  $—  $3  $—  $—  $—  $—  $—  $2  $—  $—  $—  $—  $—  $2  $— 

 

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 August 3, 2013, the Company held $53 million of available-for-sale securities, which was comprised of $47 million of short-term investments and a $6 million auction rate security, which is included in other assets.

12

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6.Fair Value Measurements – (continued)

 

Short-term investments represent corporate bonds with maturity dates within one year from the purchase date. These securities are valued using model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets and therefore are classified as Level 2 instruments.

 

The fair value of the auction rate security is determined by 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.

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

 

Fair Value of Financial Instruments

The carrying value and estimated fair value of long-term debt and obligations under capital leases were as follows:

 

  August 3,  July 28,  February 2, 
(in millions) 2013  2012  2013 
Carrying value (1)  $141  $133  $133 
Fair value (1)  $165  $143  $152 
  May 3,  May 4,  February 1, 
(in millions) 2014  2013  2014 
Carrying value(1) $138  $132  $139 
Fair value(1) $163  $151  $159 

 

(1)In connection with the acquisition of the Runners Point Group in the second quarter of 2013, the Company recognized capital leases.lease obligations. These were existing agreements primarily related to the financing of certain store fixtures. Accordingly, $9As of May 3, 2014 and February 1, 2014, $7 million isand $8 million, respectively, are included in the total above; $3 million is classified as short-term and $6 million is classified as long-term.amounts above.  

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.Fair Value Measurements – (continued)

 

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.

 

8.7.Earnings Per Share

 

The Company accounts for and discloses net earnings per share using the treasury stock method. The Company’s basicBasic 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 restrictedRestricted 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.

 

The Company’scomputation of basic and diluted weighted-average number of common shares outstanding wasearnings per share is as follows:

 

 Thirteen weeks ended  Twenty-six weeks ended  Thirteen weeks ended 
 August 3, July 28, August 3, July 28,  May 3, May 4, 
(in millions) 2013  2012  2013  2012  2014  2013 
Weighted-average common shares outstanding  149.5   151.4   149.9   151.6   145.4   150.4 
Effect of Dilution:                        
Stock options and awards  1.9   2.5   2.2   2.5   2.2   2.3 
Weighted-average common shares assuming dilution  151.4   153.9   152.1   154.1   147.6   152.7 

13

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.Earnings Per Share – (continued)

 

Options to purchase 1.20.3 million and 0.90.5 million shares of common stock were not included in the computation for the thirteen weeks ended AugustMay 3, 20132014 and July 28, 2012, respectively. Options to purchase 0.8 million and 0.7 million shares of common stock were not included in the computation for the twenty-six weeks ended August 3,May 4, 2013, and July 28, 2012, 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 have been antidilutive. As of August 3, 2013, contingentlyContingently issuable shares of 0.4 million and 0.5 million have not been included as the vesting conditions have not been satisfied.

15

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSsatisfied as of May 3, 2014 and May 4, 2013, respectively.

 

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

 

 Pension Benefits  Postretirement Benefits 
 Thirteen weeks Twenty-six weeks Thirteen weeks Twenty-six weeks  Pension Postretirement 
 ended  ended  ended  ended  Benefits  Benefits 
 August 3, July 28, August 3, July 28, August 3, July 28, August 3, July 28,  May 3, May 4, May 3, May 4, 
(in millions) 2013  2012  2013  2012  2013  2012  2013  2012  2014  2013  2014  2013 
Service cost $3  $4  $7  $7  $—  $—  $—  $—  $4  $4  $—  $— 
Interest cost  7   7   13   14   —   —   —   —   7   6   —   — 
Expected return on plan assets  (10)  (10)  (20)  (20)  —   —   —   —   (10)  (10)  —   — 
Amortization of net loss (gain)  4   4   8   8   —   (1)  (1)  (2)  4   4   (1)  (1)
Net benefit expense (income) $4  $5  $8  $9  $—  $(1) $(1) $(2) $5  $4  $(1) $(1)

 

During the secondfirst quarter of 2013,2014, the Company made a $2 million contribution to the Canadian qualified plan. No pension contributions to the U.S. qualified plan were made during the twenty-six weeks ended August 3, 2013 and July 28, 2012. The Company continually evaluates the amount and timing of any future contributions. Additional contributions will depend on the plan asset performance and other factors.

 

10.9.Share-Based Compensation

 

Total compensation expense related to the Company’s share-based compensation plans was $5$6 million and $8 million for the thirteen weeks ended AugustMay 3, 2013, $4 million for the thirteen weeks ended July 28, 2012,2014 and was $13 million and $10 million for the twenty-six weeks ended August 3,May 4, 2013, and July 28, 2012, respectively. The associated tax benefits recognized for the thirteen weeks ended AugustMay 3, 2014 and May 4, 2013 and July 28, 2012 were $3$2 million and $1 million, respectively. The associated tax benefit recognized was $4 million for the twenty-six weeks ended August 3, 2013 and $3 million for the twenty-six weeks ended July 28, 2012. Tax deductions in excess of the cumulative compensation cost recognized for share-based compensation arrangements were $7 million and $4 million for both the twenty-sixthirteen weeks ended AugustMay 3, 2014 and May 4, 2013, and July 28, 2012respectively, and are classified as a financing activityactivities within the Condensed Consolidated Statements of Cash Flows.

Valuation Model and Assumptions

 

The Company uses a Black-Scholes option-pricing model to estimate the fair value of share-based awards. The Black-Scholes option-pricing model incorporates various and highly subjective assumptions, including expected term and expected volatility.

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
Twenty-six weeks ended		  Stock Purchase Plan
Twenty-six weeks ended		 
  August 3,  July 28,  August 3,  July 28, 
  2013  2012  2013  2012 
Weighted-average risk free rate of interest  1.02%  1.50%  0.17%  0.21%
Expected volatility  42%  43%  40%  37%
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%  2.6%
Weighted-average fair value $10.99  $10.13  $5.79  $5.52 
14

 

The information in the following table covers options granted under the Company’s stock option plans for the twenty-six weeks ended August 3, 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  (780)      18.69 
     Expired or cancelled  (42)      29.20 
     Options outstanding at August 3, 2013  6,239   6.74  $22.67 
Options exercisable at August 3, 2013  4,037   5.54  $18.62 
Options available for future grant at August 3, 2013  3,313         

  Thirteen weeks ended  Twenty-six weeks ended 
  August 3,  July 28,  August 3,  July 28, 
Intrinsic value of stock options (in millions) 2013  2012  2013  2012 
Exercised $8  $4  $13  $15 
Outstanding         $91  $94 
Outstanding and exercisable         $75  $68 

The cash received from option exercises for the thirteen and twenty-six weeks ended August 3, 2013 was $9 million and $15 million, respectively. The cash received from option exercises for the thirteen and twenty-six weeks ended July 28, 2012 was $6 million and $20 million, respectively. The total tax benefit realized from option exercises was $2 million and $4 million for the thirteen and twenty-six weeks ended August 3, 2013, respectively, and was $1 million and $5 million for the corresponding prior-year periods.

FOOT LOCKER, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

10.9.Share-Based Compensation-Compensation – (continued)

 

The following table summarizes information about stock options outstanding and exercisable at August 3, 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   1,799   6.09  $12.60   1,799  $12.60 
$15.74  $23.42   1,664   6.51 ��$19.75   1,210  $20.08 
$23.63  $30.92   1,628   5.68  $28.60   1,021  $27.37 
$31.79  $36.59   1,148   9.61  $34.26   7  $34.17 
$9.85  $36.59   6,239   6.74  $22.67   4,037  $18.62 

Changes in the Company’s nonvested options for the twenty-six weeks ended August 3, 2013 are summarized as follows:

(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  (1,224)  20.97 
Expired or cancelled  (42)  29.20 
Nonvested at August 3, 2013  2,202  $30.10 

  Stock Option Plans  Stock Purchase Plan 
  May 3,  May 4,  May 3,  May 4, 
  2014  2013  2014  2013 
Weighted-average risk free rate of interest  2.12%  1.02%  0.17%  0.22%
Expected volatility  39%  42%  25%  40%
Weighted-average expected award life  6.1 years   6.0 years   1.0 year   1.0 year 
Dividend yield  2.0%  2.3%  2.3%  2.4%
Weighted-average fair value $14.91  $10.98  $5.79  $6.66 

 

Compensation expense related to the Company’s stock option and stock purchase plans was $3 million and $6 million for both the thirteen and twenty-six weeks ended AugustMay 3, 2013, respectively,2014 and was $2 million and $5 million for the thirteen and twenty-six weeks ended July 28, 2012, respectively.May 4, 2013. As of AugustMay 3, 2013,2014, there was $13$16 million of total unrecognized compensation cost, related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.351.50 years.

 

The information in the following table covers options granted under the Company’s stock option plans for the thirteen weeks ended May 3, 2014:

(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  5,668      $22.66 
Granted  762       45.08 
Exercised  (469)      21.27 
Expired or cancelled  (7)      27.97 
Options outstanding at May 3, 2014  5,954   6.96  $25.63 
Options exercisable at May 3, 2014  4,037   5.94  $19.80 
Options available for future grant at May 3, 2014  1,719         

The total intrinsic value of options exercised (the difference between the market price of the Company’s common stock on the exercise date and the price paid by the optionee to exercise the option) is presented below:

  Thirteen weeks ended 
  May 3,  May 4, 
  2014  2013 
Exercised $11  $5 

The aggregate intrinsic value for stock options outstanding and for stock options exercisable (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) is presented below:

  Thirteen weeks ended 
  May 3,  May 4, 
  2014  2013 
Outstanding $128  $86 
Outstanding and exercisable $110  $74 

15

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.Share-Based Compensation – (continued)

The cash received from option exercises for the thirteen weeks ended May 3, 2014 and May 4, 2013 was $10 million and $6 million, respectively. The total tax benefit realized from stock option exercises was $4 million and $2 million for the thirteen weeks ended May 3, 2014 and May 4, 2013, respectively.

The following table summarizes information about stock options outstanding and exercisable at May 3, 2014:

  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 prices per share and contractual life) 
$ 9.85   to  $15.10  1,526   5.38  $12.46   1,526  $12.46 
$18.01  to  $23.92  1,546   5.69  $19.93   1,542  $19.93 
$24.04  to  $34.24  2,083   7.95  $32.22   966  $31.12 
$34.27  to  $45.08  799   9.86  $44.62   3  $35.27 
   5,954   6.96  $25.63   4,037  $19.80 

Changes in the Company’s nonvested options for the thirteen weeks ended May 3, 2014 are summarized as follows:

(in thousands, except price per share) Number of
Shares		  Weighted-
Average Grant
Date Fair Value
per Share		 
Nonvested at the beginning of the year  2,173  $30.10 
Granted  762   45.08 
Vested  (1,011)  26.60 
Expired or cancelled  (7)  27.97 
Nonvested at May 3, 2014  1,917  $37.91 

Restricted Stock and Units

Restricted shares of the Company’s common stock and restricted stock units may be awarded to certain officers and key employees of the Company. The Company also issuesAwards made to executives outside of the United States and to nonemployee directors are made in the form of restricted stock units to its non-employee directors.units. 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 AugustMay 3, 2013, 1,008,5422014, 793,011 restricted stock units 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 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 vestsvest 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. No dividends are paid on restricted stock units.

16

FOOT LOCKER, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

10.9.Share-Based Compensation-Compensation – (continued)

 

Restricted shareCompensation expense is recognized using the fair market value at the date of grant and unit activity foris amortized over the twenty-six weeks ended August 3, 2013 and July 28, 2012 is summarized as follows:

  Number of Shares and Units 
(in thousands) August 3, 2013  July 28, 2012 
Outstanding at beginning of period  1,564   2,068 
Granted  440   264 
Vested  (639)  (482)
Cancelled or forfeited  (12)  — 
Outstanding at end of period  1,353   1,850 
Aggregate value (in millions) $36  $33 
Weighted-average remaining contractual life  1.33 years   1.20 years 

The weighted-average grant-date fair value per share was $34.59 and $30.75 forvesting period, provided the twenty-six weeks ended August 3, 2013 and July 28, 2012, respectively. The total value of awards for which restrictions lapsed duringrecipient continues to be employed by the twenty-six weeks ended August 3, 2013 and July 28, 2012 was $9 million and $5 million, respectively. As of August 3, 2013, there was $16 million of total unrecognized compensation cost related to nonvested restricted awards.Company. The Company recorded compensation expense related to restricted stock awards, net of forfeitures, of $2 million for both the thirteen weeks ended August 3, 2013 and July 28, 2012, and $7$3 million and $5 million for the twenty-sixthirteen week periods ended May 3, 2014 and May 4, 2013, respectively. As of May 3, 2014, there was $18 million of total unrecognized compensation cost related to nonvested restricted awards.

Restricted shares and units activity for the thirteen weeks ended AugustMay 3, 2014 and May 4, 2013 and July 28, 2012, respectively.is summarized as follows:

 

  Number of Shares and Units 
(in thousands) May 3, 2014  May 4, 2013 
Outstanding at beginning of period  1,369   1,564 
Granted  298   326 
Vested  (462)  (460)
Cancelled or forfeited  (28)  (12)
Outstanding at end of period  1,177   1,418 
Aggregate value (in millions) $42  $35 
Weighted-average remaining contractual life  1.54 years   1.34 years 

The weighted-average grant-date fair value per share was $45.03 and $34.24 for the thirteen weeks ended May 3, 2014 and May 4, 2013, respectively. The total value of awards for which restrictions lapsed during the thirteen weeks ended May 3, 2014 and May 4, 2013 was $9 million and $6 million, 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 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,sites, and catalogs. Eastbay, one of the affiliates, is among the largest direct marketers in the United States. The Direct-to-Customers segment operates the websites for eastbay.com, final-score.com,eastbayteamservices.com, eastbayteamsales.com, ccs.com, as well aswebsites aligned with the brand names of its store banners (footlocker.com, ladyfootlocker.com, kidsfootlocker.com, champssports.com, footaction.com, and champssports.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,sidestep-shoes.com, and sp24.com.

 

STORE COUNT

 

At AugustMay 3, 2013,2014, the Company operated 3,4953,464 stores as compared with 3,3353,473 and 3,3543,321 stores at February 2,1, 2014 and May 4, 2013, and July 28, 2012, respectively. Store count as of AugustDuring the thirteen weeks ended May 3, 2013 includes 194 Runners Point Group stores under the Runners Point, Sidestep, and Run2 banners. Excluding the acquired locations,2014, the Company opened 4927 stores, remodeled or relocated 15349 stores and closed 83 stores during the twenty-six weeks ended August 3, 2013. As previously announced, the Company closed all of its 22 CCS stores, included in the total store closures above, during the second quarter of 2013.36 stores.

A total of 6974 franchised stores were operating at AugustMay 3, 2013,2014, as compared with 4273 and 3745 stores at February 2,1, 2014 and May 4, 2013, and July 28, 2012, respectively. Included in the most recent number of franchised stores are 24 franchised Runners Point Group stores operating in Germany and Switzerland. Royalty incomeRevenue 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.

17

 

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 and have been open for more than one year. The computation of comparable-store sales also includes the sales of the Direct-to-Customers segment. Stores opened or closed during the period are not included in the comparable-store base; however, stores closed temporarily for relocation or remodeling are included. Computations exclude the effect of foreign currency fluctuations.

 

Sales from acquired businesses that include inventory are included in the computation of comparable-store sales after 15 months of operations. Accordingly, sales of Runners Point Group have been excluded from the computation of comparable-store sales. Runners Point Group sales will be included in the computation beginning in October 2014.

 

The following table summarizes results by segment:

 

  Thirteen weeks ended  Twenty-six weeks ended 
Sales August 3,  July 28,  August 3,  July 28, 
(in millions) 2013  2012  2013  2012 
Athletic Stores $1,313  $1,248  $2,784  $2,685 
Direct-to-Customers  141   119   308   260 
Total sales $1,454  $1,367  $3,092  $2,945 

Sales

 

  Thirteen weeks ended  Twenty-six weeks ended 
Operating Results August 3,  July 28,  August 3,  July 28, 
(in millions) 2013  2012  2013  2012 
Athletic Stores (1)  $116  $107  $327  $314 
Direct-to-Customers  10   11   33   29 
Division profit  126   118   360   343 
Less: Corporate expense, net  20   25   39   48 
Operating profit  106   93   321   295 
Other income (2)   1   1   3   1 
Interest expense, net  1   1   2   2 
Income before income taxes $106  $93  $322  $294 
  Thirteen weeks ended 
  May 3,  May 4, 
(in millions) 2014  2013 
Athletic Stores $1,657  $1,471 
Direct-to-Customers  211   167 
Total sales $1,868  $1,638 

Operating Results

  Thirteen weeks ended 
  May 3,  May 4, 
(in millions) 2014  2013 
Athletic Stores $247  $211 
Direct-to-Customers  28   23 
Division profit  275   234 
Less: Corporate expense, net  21   19 
Operating profit  254   215 
Interest expense, net  1   1 
Other income (1)   1   2 
Income before income taxes $254  $216 

 

(1)

Included in the Athletic Stores segment for both the thirteen and twenty-six weeks ended August 3, 2013 is a $2 million charge recorded in connection with the closure of all CCS stores.

(2)Other income includes non-operating items, such as lease termination gains, royalty income, and the changes in fair value, premiums paid and realized gains associated with foreign currency option contracts.

 

Sales increased by $87$230 million, or 6.414.0 percent, to $1,454$1,868 million for the thirteen weeks ended AugustMay 3, 20132014, from $1,367$1,638 million for the thirteen weeks ended July 28, 2012. For the twenty-six weeks ended August 3, 2013, sales of $3,092 million increased 5.0 percent from sales of $2,945 million for the twenty-six week period ended July 28, 2012. The total increase reflects the shift caused by the 53rd week in 2012 as well as the addition of the Runners Point Group since the date of acquisition.

May 4, 2013. Excluding the effect of foreign currency fluctuations and sales of Runners Point Group, total sales for the thirteen week and twenty-six week periodsthirteen-week period increased 5.98.0 percent, and 4.9 percent, respectively, as compared with the corresponding prior-year periods.period. Comparable-store sales increased by 1.8 percent and 3.5 percent for the thirteen weeks and twenty-six weeks ended August 3, 2013, respectively.

Gross margin, as a percentage of sales, decreased to 31.27.6 percent for the thirteen weeks ended AugustMay 3, 2013, as compared with 31.3 percent in the corresponding prior-year period. As a percentage of sales, the cost of merchandise for the thirteen weeks ended August 3, 2013 increased by 20 basis points as compared with the prior year period, primarily reflecting a decrease in the initial markup rate. This increase was partially offset by an improvement of 10 basis points from leveraging of occupancy and buying costs.2014.

GROSS MARGIN

 

Gross margin, as a percentage of sales, remained unchanged at 32.8increased to 34.6 percent for the twenty-sixthirteen weeks ended AugustMay 3, 20132014 as compared with 34.2 percent in the corresponding prior-year period. Occupancy and July 28, 2012.buyers compensation expense rate decreased by 70 basis points reflecting improved leverage of fixed costs. This improvement was partially offset by an increase of 30 basis points in the cost of merchandise rate as a percent of sales. The higher cost of merchandise was primarily due to lower initial markups driven by vendor mix offset, in part, by a lower markdown rate. Vendor allowances were not significant for any of the periods presented.

18

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses (“SG&A”) of $355 million increased by $40 million or 12.7 percent, for the thirteen weeks ended May 3, 2014 as compared with the corresponding prior-year period. SG&A, as a percentage of sales, decreased to 19.0 percent for the thirteen weeks ended May 3, 2014, as compared with 19.2 percent in the corresponding prior-year period. This improvement reflected continued expense management, primarily on store wages. Excluding Runners Point Group the SG&A rate would have improved by another 40 basis points. Excluding the effect of foreign currency fluctuations, SG&A increased by $37 million for the thirteen weeks ended May 3, 2014, as compared with the corresponding prior-year period.

 

Segment AnalysisDEPRECIATION AND AMORTIZATION

 

Depreciation and amortization increased by $5 million in the first quarter of 2014 to $36 million as compared with $31 million for the first quarter of 2013, reflecting the addition of the Runners Point Group and increased capital spending on store improvements and technology. The effect of foreign currency fluctuations was not significant.

INTEREST EXPENSE

  Thirteen weeks ended 
  May 3,  May 4, 
(in millions) 2014  2013 
Interest expense $3  $3 
Interest income  (2)  (2)
Interest expense, net $1  $1 

Interest expense and interest income were unchanged as compared with the prior year.

INCOME TAXES

For the thirteen weeks ended May 3, 2014, the Company recorded an income tax provision of $92 million, which represented an effective tax rate of 36.1 percent, compared to the prior-year income tax provision of $78 million, which also represented an effective tax rate of 36.1 percent. 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’s 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. The effective tax rate included tax benefits of $1 million and $2 million from reserve releases due to the settlements of tax examinations during the thirteen weeks ended May 3, 2014 and May 4, 2013 respectively.

Excluding these nonrecurring benefits, the effective tax rate for the thirteen weeks ended May 3, 2014 decreased as compared with the corresponding prior-year period, due primarily to the effect of full implementation of international tax planning initiatives.

The Company currently expects its full year tax rate to approximate 36.5 percent, excluding the effect of any additional nonrecurring items that may occur. The actual tax rates will depend primarily on the level and mix of income earned in the United States as compared with its international operations. 

NET INCOME

The Company achieved a record level of earnings, reporting net income of $162 million, or $1.10 per diluted share, for the thirteen weeks ended May 3, 2014, which increased by $0.20 per diluted share from $138 million, or $0.90 per share last year. The improved performance represents a 16.5 percent flow-through of increased sales to pre-tax income, reflecting leveraging of fixed costs, and controlling operating expenses.

19

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. In the first quarter of 2014, the Company recorded approximately $2 million, or $0.01 per diluted share, for costs associated with the integration of Runners Point Group as a well as an impairment charge to fully write-down the remaining value of the tradename related to the Company’s stores in the Republic of Ireland. In the first quarter of 2013, the Company recorded approximately $1 million, or $0.01 per diluted share, for costs associated with the acquisition of Runners Point Group.

Accordingly, the Company has excluded these costs to arrive at its non-GAAP results. The non-GAAP financial measure is provided in addition to, and not as an alternative to, the Company’s reported results prepared in accordance with GAAP.

Presented below are GAAP and non-GAAP results for the thirteen-weeks ended May 3, 2014 and May 4, 2013, respectively.

  Thirteen weeks ended 
  May 3,  May 4, 
(in millions) 2014  2013 
Net income, as reported $162  $138 
After-tax adjustments to arrive at non-GAAP:        
Runners Point Group acquisition and integration costs  1   1 
Tradename impairment  1   — 
Net income, non-GAAP $164  $139 
         
Diluted EPS, as reported $1.10  $0.90 
After-tax adjustments to arrive at non-GAAP:        
Runners Point Group acquisition and integration costs  —   0.01 
Tradename impairment  0.01   — 
Diluted EPS, non-GAAP $1.11  $0.91 

SEGMENT ANALYSIS

Athletic Stores

 

Athletic Stores segment sales increased by 5.212.6 percent to $1,313 million and 3.7 percent to $2,784$1,657 million for the thirteen and twenty-six weeks ended AugustMay 3, 2013, respectively,2014, as compared with the corresponding prior-year periods.period of $1,471 million. The Athletic Stores segment includes $81 million of sales related to the Runners Point Group stores; this business was acquired in July 2013. Excluding the effect of foreign currency fluctuations, Athletic Stores segment sales from athletic stores increased 4.7 percent and 3.612.0 percent for the thirteen and twenty-six weeks ended AugustMay 3, 2013, respectively,2014, as compared with the corresponding prior-year periods.period. Comparable-store sales increased by 0.56.4 percent and 2.2 percent for the thirteen and twenty-six weeks ended August 3, 2013, respectively. Sales in the U.S., Australia, New Zealand, and Europe increased, while sales in Canada were essentially flat. Sales in the U.S. for the thirteen weeks and twenty-six weeks ended August 3, 2013, were primarily driven by Kids Foot Locker, which posted strong comparable-store gains. The children’s footwear category was a key driver across multiple banners, as basketball styles performed very well.

Foot Locker Europe also posted a strong comparable-store gain for the thirteen weeks ended AugustMay 3, 2013 and a low single-digit comparable-store increase for2014.

All divisions within the twenty-six weeks ended August 3, 2013. These increases were primarily related to salessegment, with the exception of men’s basketball and running styles. In addition,Lady Foot Locker Europe’s results include $20 millionand Foot Locker Canada, experienced comparable-store sales gains, led by Kids Foot Locker and domestic Foot Locker. Basketball and children’s footwear continued to be the biggest driver of sales increases. Sales of basketball footwear and apparel was driven by Jordan and key marquee player styles, while the children’s business grew as the Company continues to successfully invest in sales forthis area across multiple banners. The segment also experienced strong gains in the athletic stores relatedrunning category in Foot Locker Europe, which benefitted from a strong product assortment from multiple vendors. Overall, the segment continues to Runners Point Group, representingbenefit from the one monthcontinued expansion of activity since the acquisition.shop-in-shop partnerships with our various vendors.

20

 

Lady Foot Locker continued to experienceexperienced a comparable-stores sales declines,decline and overall lower sales primarily due a lower store count. During the first quarter of 2014, 18 underperforming Lady Foot Locker stores were closed. Store count for this format, as management continues to close underperforming storescompared with the corresponding prior-year period, decreased by 41. Overall, sales of women’s footwear, apparel, and redefineaccessories declined in the product offerings.first quarter. Test locations focused on the female customer, including SIX:02 stores, continue to be evaluated and various initiatives are being implemented in an effort to improve future performance.before a roll-out strategy is determined.

 

Athletic Stores division profit increased 17.1 percent for the thirteen weeks ended AugustMay 3, 2013 increased to $116 million, or 8.8 percent,2014, as compared with the corresponding prior-year period. Division profit, as a percentage of sales, as compared with division profit of $107 million, or 8.6was 14.9 percent as a percentage of sales, for the thirteen weeks ended July 28, 2012. For the twenty-six weeks ended AugustMay 3, 2013 division profit increased to $327 million, or 11.7 percent, as a percentage of sales,2014 as compared with division profit of $314 million, or 11.714.3 percent as a percentage of sales, for the corresponding prior-year period. These increases were mainly attributableThis primarily reflects improved sales and an improved gross margin rate driven by improved leverage of fixed occupancy expenses. Included in the results of the Athletic Stores segment for the thirteen weeks ended May 3, 2014 is a $1 million impairment charge related to higher sales combined with continued expense control, specifically wagesour tradename for our stores operating in the Republic of Ireland, reflecting historical and marketing expenses.projected underperformance.

Direct-to-Customers

 

Direct-to-Customers sales increased by 18.526.3 percent to $211 million for both the thirteen and twenty-six weeks ended AugustMay 3, 20132014, as compared with the corresponding prior-year periods. On a comparable week basis, dueperiod of $167 million. Comparable sales increased by 17.2 percent for the thirteen weeks ended May 3, 2014. Direct-to-Customers sales include $12 million related to the shift caused bye-commerce division of Runners Point Group, which was acquired in the 53rd week in 2012,second quarter of 2013. Excluding these sales, increased 18.1 percent. These increases were primarily the result of the continued strong sales performance of the Company’s store-banner websites coupled with continued growth in Eastbay’s sales. Sales at each of the store-banner websites increased significantly, increasing collectively over 40 percent. The segment was led by basketball, casual, and Eastbay.running styles which all posted strong comparable sales gains during the period.

 

Direct-to-Customers division profit decreased 9.1 percent to $10 million, and increased 13.8 percent to $33 million, for the thirteen and twenty-six weeks ended AugustMay 3, 2013, respectively,2014 increased by $5 million to $28 million as compared with the corresponding prior-year periods.period. Division profit, as a percentage of sales, decreased to 7.1was 13.3 percent and 10.7 percent for the thirteen and twenty-six weeks ended August 3, 2013, respectively, as compared with 9.2 percent and 11.2 percent, respectively, in the corresponding prior-year periods. The decrease in division profit for the thirteen weeks ended AugustMay 3, 2013 is2014 as compared with 13.8 percent for the corresponding prior-year period. The decrease primarily driven byreflects a lower gross margin rate reflecting increased advertising and publicity expense,promotional activity as Eastbay launched a new marketing campaign late inwell as the second quartereffect of 2013 to increaseincluding the exposuree-commerce business of our recent acquisition. While the e-commerce business of the brand. The continued strong sales performance droveRunners Point Group is profitable, the profit increase formargin rate was lower and, therefore, negatively affected the twenty-six weeks ended August 3, 2013 and more than offset the additional advertising and publicity expense of the second quarter.division profit rate.

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. CorporateThe allocation of corporate expense to the operating divisions is adjusted annually based upon an internal study; accordingly, the allocation increased by $1 million during the first quarter of 2014, thus reducing corporate expense. Excluding this change, corporate expense for the thirteen weeks ended AugustMay 3, 2013 decreased2014 increased by $5 million to $20$3 million from the corresponding prior-year period. Corporate expense forThis was primarily related to a $2 million increase in legal reserves recorded during the twenty-six weeks ended August 3, 2013 decreased by $9 million to $39 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 ofquarter. Included in corporate expense the allocation of such expenses to the operating divisions was increased thereby reducing corporate expense. This decrease was partially offset by $3 million and $4 million for the thirteen and twenty-six weeks ended August 3, 2013, respectively, of costs incurred related to the Company’s acquisition and integration of Runners Point Group.

Selling, General and Administrative

SG&A of $314 million increased by $8 million, or 2.6 percent, for the thirteen weeks ended August 3, 2013 as compared with the corresponding prior-year period. SG&A, as a percentage of sales, decreased to 21.6 percent for the thirteen weeks ended August 3, 2013, as compared with 22.4 percent in the corresponding prior-year period. For the twenty-six weeks ended August 3, 2013, SG&A increased by $17 million, or 2.8 percent, as compared with the corresponding prior-year period. SG&A, as a percentage of sales, decreased to 20.3 percent for the twenty-six weeks ended August 3, 2013, as compared with 20.8 percent in the corresponding prior-year period. The improvement as a percentage of sales was driven by effective expense management, specifically store wages and marketing. Excluding the effect of foreign currency fluctuations, SG&A increased by $6 million and $16 million for the thirteen and twenty-six weeks ended August 3, 2013, respectively, as compared with the corresponding prior-year periods. Included in SG&A for the thirteen and twenty-six weeks ended August 3, 2013, is $3 million and $4 million, respectively, ofare costs related to the Company’s acquisition and integration of Runners Point Group as noted above in the discussion of corporate expense. Additionally, SG&A increased partially due to the inclusion of Runners Point Group.

Depreciation and Amortization

Depreciation and amortization increased by $2 million for the thirteen weeks ended August 3, 2013 to $31 million, as compared with the corresponding prior-year period of $29 million. For the twenty-six weeks ended August 3, 2013, depreciation and amortization increased by $4 million to $62 million as compared with $58 million for the twenty-six weeks ended July 28, 2012. This increase reflects increased capital spending on store improvements and technology. The effects of foreign currency fluctuations and the acquisition of Runners Point Group were 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. Of these stores, 8 have been converted to other store formats as of August 3, 2013 and 6 will be converted to other store formats by the end of the year. 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  Twenty-six weeks ended 
  August 3,  July 28,  August 3,  July 28, 
(in millions) 2013  2012  2013  2012 
Interest expense $2  $2  $5  $5 
Interest income  (1)  (1)  (3)  (3)
Interest expense, net $1  $1  $2  $2 

Income Taxes

The Company recorded income tax provisions of $40 million and $118 million, which represent effective tax rates of 37.7 percent and 36.6 percent for the thirteen weeks and twenty-six weeks ended August 3, 2013, respectively. For the thirteen weeks and twenty-six weeks ended July 28, 2012, the Company recorded income tax provisions of $34 million and $107 million, which represented effective tax rates of 36.7 percent and 36.5 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 its 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 thirteen weeks ended August 3, 2013 is an additional state tax provision of $1 million. The changes in the tax reserves for the thirteen weeks ended July 28, 2012 were not significant. Included in the twenty-six weeks ended August 3, 2013 and July 28, 2012 are tax benefits of $2 million and $3 million, respectively, from reserve releases due to settlements of federal, state, and foreign tax examinations.

For the thirteen weeks ended August 3, 2013, in connection with the purchase of Runners Point Group, the Company recorded a discrete item of $1 million representing non-deductible acquisition costs. The effective tax rate for the thirteen weeks ended July 28, 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.both periods presented.

Excluding the reserve activity and other discrete items, the effective tax rate for the thirteen and twenty-six weeks ended August 3, 2013 decreased as compared with the corresponding prior-year period, due primarily to the effect of certain recently implemented tax planning initiatives.

Subsequent to the second quarter, in August 2013, the Company released reserves of approximately $3 million due to the settlement of a foreign audit. The Company currently expects its third quarter and full year tax rate to approximate 37 percent, excluding the effect of the foreign audit settlement and 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 and twenty-six weeks ended August 3, 2013, net income increased by $7 million, or 11.9 percent, and $17 million, or 9.1 percent, respectively, as compared with the corresponding prior-year periods.

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  Twenty-six weeks ended 
  August 3,  July 28,  August 3,  July 28, 
(in millions) 2013  2012  2013  2012 
Net income, as reported $66  $59  $204  $187 
After-tax adjustments to arrive at non-GAAP:                
Runners Point Group acquisition and integration costs  2   —   3   — 
CCS store closure costs  1   —   1   — 
Canadian tax rate change  —   (1)  —   (1)
Net income, non-GAAP $69  $58  $208  $186 
                 
Diluted EPS, as reported $0.44  $0.39  $1.34  $1.21 
Adjustments to arrive at non-GAAP:                
Runners Point Group acquisition and integration costs  0.01   —   0.02   — 
CCS store closure costs  0.01   —   0.01   — 
Canadian tax rate change  —   (0.01)  —   (0.01)
Diluted EPS, non-GAAP $0.46  $0.38  $1.37  $1.20 

In 2009, the Company excluded from its non-GAAP results the effect of a Canadian provincial tax rate change. During the thirteen weeks ended July 28, 2012, the Company recorded a benefit of $1 million, or $0.01 per diluted per share, to reflect the repeal of the last two stages of certain Canadian provincial tax rate changes. This benefit was excluded from the non-GAAP results, consistent with the prior year’s presentation.

The non-GAAP financial measure is provided in addition to, and not as an alternative to, the Company’s reported results prepared in accordance with GAAP.

 

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, share repurchases, and interest payments; and fund other cash requirements to support the development of its short-term and long-term operating strategies. The Company generally finances real estate with operating leases. Management believes its cash, cash equivalents and future cash flow from operations and the Company’s current revolving credit facility will be adequate to fund these requirements.

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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. SuchShare repurchases and retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.As of May 3, 2014, approximately $301 million remains on the Company’s current $600 million share repurchase program.

 

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 effects of currency fluctuations, as well as other factors listed under the heading “Disclosure Regarding Forward-Looking Statements,” could affect the ability of the Company to continue to fund its needs from business operations.

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Operating Activities

Net cash provided by operating activities was $240$272 million and $161$251 million for the twenty-sixthirteen weeks ended AugustMay 3, 20132014 and July 28, 2012,May 4, 2013, respectively. These amounts reflect net income adjusted for non-cash items, non-cash impairment charges, and seasonal working capital changes. The improvement reflects the Company’s earning strength, partially offset by a $68 million increase in operating cash flow is primarily the result of strong sales during the first two quarters, and improved working capital management. Additionally, cash paid for income taxes declined $38 million to $99 million forduring the twenty-sixthirteen weeks ended AugustMay 3, 2013.2014. The increase, to $83 million, reflected a change in the timing of the required payments.

Investing Activities

 

Net cash used in investing activities was $189$42 million and $137$48 million for the twenty-sixthirteen weeks ended AugustMay 3, 2014 and May 4, 2013, and July 28, 2012. During the twenty-six weeks ended August 3, 2013, the Company completed its purchase of Runners Point Group for $84respectively. The current year reflects $49 million net of cash acquired. In addition, the Company spent $107 million onin capital expenditures as compared with $87partially offset by $7 million infor the corresponding prior-year period, primarily reflecting the Company’s initiative to modernize its existing stores.sales and maturities of short-term investments. The Company’s current full-yearfull year forecast for capital expenditures is $216$219 million, of which $171includes $179 million relatesrelated to the modernizationsremodeling or relocation of existing stores and 62 new store openings, and $45as well as $40 million for the development of information systems, websites, and infrastructure.

 

Financing Activities

 

Net cash used in financing activities was $135$86 million and $90$20 million for the twenty-sixthirteen weeks ended AugustMay 3, 2014 and May 4, 2013, and July 28, 2012, respectively.The Company purchased 2,826,073 shares of its common stock at a cost of $100 million. This compares to 2,120,261 shares repurchased for $65 million in the corresponding prior-year period.The Company declared and paid dividends during the first two quarters of 2014 and 2013 and 2012 of $60$32 million and $55$30 million, respectively. This represents a quarterly raterates of $0.20$0.22 and $0.18$0.20 per share for 2014 and 2013, and 2012, respectively. TheDuring the first quarter of 2014, the Company repurchased 1,530,253 shares of its common stock for $70 million. Additionally, the Company received proceeds from the issuance of common stock in connection with employee stock programs of $18$10 million and $25$6 million for the twenty-sixthirteen weeks endedAugust May 3, 20132014 and July 28, 2012,May 4, 2013, respectively. In connection with stock option exercises and share-based compensation programs, the Company recorded excess tax benefits of $7 million and $4 million as a financing activity during bothfor the twenty-six week periodsthirteen weeks endedAugust May 3, 2014 and May 4, 2013, and July 28, 2012.respectively.

 

Recent Accounting PronouncementsRECENT ACCOUNTING PRONOUNCEMENTS

 

DuringIn April 2014, the first quarter of 2013, the Company adoptedFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2013-02,(“ASU”) 2014-08,Comprehensive Income (Topic 220): Reporting Discontinued Operations and Disclosures of Amounts Reclassified outDisposals of Accumulated Other Comprehensive IncomeComponents of an Entity(“. The amendments in this update change the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results and when the component or group of components meets the criteria to be classified as held for sale, is disposed by sale or is disposed of by other than by sale. ASU 2013-02”). ASU 2013-02 amended existing guidance by requiring additional disclosure either on the face of the incomestatement or in the notes to the financial statements of significant amounts reclassified out of accumulated other comprehensive income. The provisions of this new guidance were2014-8 is effective prospectively as of thefor fiscal years, and interim reporting periods within those years, beginning of 2013. Accordingly, enhanced footnote disclosure is included inNote 5.after December 15, 2014 with earlier adoption permitted. The adoption of ASU 2013-02 had nothis guidance did not have a significant effect on our consolidated financial position, results of operations or financialposition.cash flows.

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We performed our annual goodwill impairment assessment during the first quarter of 2013, usingIn May 2014, FASB issued ASU 2014-09,Revenue from Contracts with Customers, issued as a qualitative approach as permitted undernew Topic, Accounting Standards Update No. 2011-08,Testing GoodwillCodification Topic 606. The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for Impairment. In performingthose goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with earlier adoption not permitted. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the assessment, we identified and considered the significancedate of relevant key factors, events, and circumstances that affected the fair value and/or carrying amountsadoption. The adoption of this guidance is not expected to have a significant effect on 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 plannedconsolidated financial performance. Based on theposition, results of the impairment assessment performed, we concluded that it is more likely than not that the fair values of our reporting units substantially exceeded their respective carrying values and there are no reporting units at risk of impairment.operations or cash flows.

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.

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 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 will allocate 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.1, 2014.

 

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 20122013 Annual Report on Form 10-K, as well as Part II, Item 1A “Risk Factors” below.10-K. 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 AugustMay 3, 20132014 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.

 

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During the quarter ended AugustMay 3, 2013,2014, 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 employment-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.

 

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 approximately 5,027 have opted in.

 

The Company is a 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, andMcGlothin v. Foot Locker filed in the state of California, all of these actions were consolidated by the United States Judicial Panel on Multidistrict Litigation withPereiraunder the captionIn re Foot Locker, Inc. Fair Labor Standards Act and Wage and Hour Litigation.The consolidatedcases are in the discovery 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 has had and continues tomay in the future have discussions with plaintiffs’ counsel 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. InGhattas,the court has preliminarily approved 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 asserted claims for: (a) breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA); (b) violation of the statutory provisions governing the content of the Summary Plan Description; (c) violation of the notice provision of Section 204(h) of ERISA; and (d) violation of ERISA’s age discrimination provisions. In September 2009, the 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. BecauseSecond Circuit, which issued a Summary Order on February 13, 2014 that affirmed the judgment of the inherent uncertainties of such mattersDistrict Court in part, and the current status of this case, the Company is currently unable to make an estimate of loss or range of loss for this case.vacated and remanded in part.

 

Management does not believe that the outcome of any such legal proceedings pending against the Company or its consolidated subsidiaries, includingIn re Foot Locker, Inc. Fair Labor Standards Act and Wage and Hour Litigation,Hill, Cortes, Kissinger, Ghattas,McGlothin,and Osberg,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. Litigation is inherently unpredictable, and judgments could be rendered or settlements entered that could adversely affect the Company’s operating results or cash flows in a particular period.

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Item 1A. Risk Factors

 

There were no material changes to the risk factors disclosed in the 20122013 Annual Report on Form 10-K,except for the addition of the risk factor set forth below.10-K.

 

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.

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 AugustMay 3, 2013.2014.

 

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)		 
May 5, 2013 through June 1, 2013  85,988  $33.90   —  $600,000,000 
June 2, 2013 through July 6, 2013  2,371,000(3) $35.38   2,371,000  $516,102,667 
July 7, 2013 through August 3, 2013  455,073(3) $35.38   455,073  $500,000,000 
   2,912,061  $35.34   2,826,073     
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)

 
February 2, 2014 through March 1, 2014  573  $39.40   —  $370,576,339 
March 2, 2014 through April 5, 2014  1,068,670  $46.28   830,525  $332,035,847 
April 6, 2014 through May 3, 2014  699,728  $44.95   699,728  $300,580,984 
   1,768,971  $45.75   1,530,253     

 

(1)These columns also reflect shares acquired in satisfaction of the tax withholding obligation of holders of restricted stock and 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 20, 2013, the Company’s Board of Directors approved a new 3-year, $600 million share repurchase program extending through January 2016.

 

(3)On May 31, 2013, the Company paid $100 million under an Accelerated Share Repurchase (“ASR”) agreement and received an initial delivery of 2,371,000 shares. The transaction was completed by the end of the second quarter with the Company receiving 455,073 additional shares to settle the agreement. The price paid per share was calculated with reference to the average stock price of the Company’s common stock over the term of the ASR agreement.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: SeptemberJune 11, 20132014(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.  
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.

 

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