FOOT LOCKER, INC.Large Accelerated 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Table of Contents

s

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended:  October 31, 2020

OR

TRANSITION 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

Graphic

(Exact name of registrant as specified in its charter)

New York

13-3513936

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

330 West 34th Street, New York, New York 10001

(Address of principal executive offices, Zip Code)

(212-720-3700)

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

FL

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ No

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

Large accelerated filer þ

Accelerated filer

Non-accelerated filer  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No þ

Number of shares of Common Stock outstanding as of December 4, 2020: 104,211,557

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TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive Income

3

Condensed Consolidated Statements of Changes in Shareholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 4.

Controls and Procedures

32

PART II

OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 6.

Exhibits

34

SIGNATURE

35

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks,” “continues,” “feels,” “forecasts,” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” These statements include statements relating to trends in or expectations relating to the expected effects of our initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, tax rates, business opportunities and expansion, strategic acquisitions or investments, expenses, dividends, share repurchases, and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, investments, borrowing capacity and use of proceeds, repatriation of cash to the U.S., and the effects of the coronavirus pandemic (COVID-19) and recent social unrest on our financial results. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak to our views only as of the date of this filing. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties, many of which are unforeseeable and beyond our control, such as the ongoing uncertainty caused by the COVID-19 pandemic and social unrest. Additional risks and uncertainties that we do not presently know about or that we currently consider to be insignificant may also affect our business operations and financial performance.

Please refer to “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and “Item 1A Risk Factors” included in this Form 10-Q. Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this report or any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Graphic

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, expect per share amounts)

October 31,

November 2,

February 1,

    

2020

    

2019

    

2020

    

(Unaudited)

(Unaudited)

*

ASSETS

 

  

 

  

 

  

 

Current assets:

 

  

 

  

 

  

 

Cash and cash equivalents

$

1,393

$

744

$

907

Merchandise inventories

 

1,193

 

1,304

 

1,208

Other current assets

 

237

 

299

 

271

 

2,823

 

2,347

 

2,386

Property and equipment, net

 

773

 

814

 

824

Operating lease right-of-use assets

2,752

2,956

2,899

Deferred taxes

 

69

 

93

 

81

Goodwill

 

158

 

156

 

156

Other intangible assets, net

 

18

 

21

 

20

Minority investments

340

151

142

Other assets

 

85

 

83

 

81

$

7,018

$

6,621

$

6,589

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Accounts payable

$

514

$

396

$

333

Accrued and other liabilities

 

451

 

333

 

343

Current portion of obligations under finance leases

2

Current portion of operating lease obligations

575

508

518

 

1,542

 

1,237

 

1,194

Long-term debt and obligations under finance leases

 

129

 

122

 

122

Long-term operating lease obligations

2,514

2,719

2,678

Other liabilities

 

181

 

116

 

122

Total liabilities

 

4,366

 

4,194

 

4,116

Shareholders’ equity

 

Common stock and paid-in capital: 104,451,566;

113,204,118; and 104,187,310 shares outstanding, respectively

777

832

764

Retained earnings

2,245

2,310

2,103

Accumulated other comprehensive loss

(365)

(382)

(394)

Less: Treasury stock at cost: 326,727;

8,139,520; and -- shares, respectively

(11)

(333)

Noncontrolling interest

6

Total shareholders' equity

2,652

2,427

2,473

$

7,018

$

6,621

$

6,589

*

The balance sheet at February 1, 2020 has been derived from the previously reported audited consolidated 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 Foot Locker, Inc.’s Annual Report on Form 10-K for the year ended February 1, 2020.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2020 Form 10-Q Page 1

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Graphic

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in millions, expect per share amounts)

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,

    

2020

    

2019

    

2020

    

2019

    

Sales

$

2,106

$

1,932

$

5,359

$

5,784

Cost of sales

 

1,456

 

1,312

 

3,900

 

3,941

Selling, general and administrative expenses

 

424

 

411

 

1,127

 

1,220

Depreciation and amortization

 

44

 

44

 

132

 

134

Impairment and other charges

 

4

 

1

 

58

 

16

Income from operations

 

178

 

164

 

142

 

473

Interest (expense) income, net

 

(2)

 

3

 

(5)

 

9

Other income, net

 

193

 

4

 

197

 

8

Income before income taxes

 

369

 

171

 

334

 

490

Income tax expense

 

104

 

46

 

134

 

133

Net income

$

265

$

125

$

200

$

357

Basic earnings per share

$

2.54

$

1.16

$

1.92

$

3.24

Weighted-average shares outstanding

 

104.4

 

106.9

 

104.4

 

110.0

Diluted earnings per share

$

2.52

$

1.16

$

1.91

$

3.23

Weighted-average shares outstanding, assuming dilution

 

105.3

 

107.2

 

105.1

 

110.5

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2020 Form 10-Q Page 2

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in millions)

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,

    

2020

    

2019

    

2020

    

2019

    

Net income

$

265

$

125

$

200

$

357

Other comprehensive income, net of income tax

 

  

 

  

 

  

 

Foreign currency translation adjustment:

 

  

 

  

 

  

 

  

Translation adjustment arising during the period, net of income tax of $-, $2, $2, and $1, respectively

 

 

5

 

20

 

(16)

Cash flow hedges:

 

  

 

  

 

  

 

  

Change in fair value of derivatives, net of income tax expense of $-, $-, $1, and $- respectively

 

 

(5)

 

3

 

(2)

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 $-, $-, $2 and $-, respectively

 

2

 

2

 

6

6

Comprehensive income

$

267

$

127

$

229

$

345

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2020 Form 10-Q Page 3

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(amounts in millions, share amounts in thousands)

    

Additional Paid-In

    

    

    

    

Accumulated

    

    

Capital &

Other

Total

Common Stock

Treasury Stock

Retained

Comprehensive

Noncontrolling

Shareholders'

Thirteen weeks ended

Shares

Amount

Shares

Amount

Earnings

Loss

interest

Equity

Balance at August 1, 2020

 

104,392

$

774

 

$

$

1,996

$

(367)

$

$

2,403

Restricted stock issued

 

53

Issued under director and stock plans

 

7

1

1

Share-based compensation expense

 

2

2

Shares of common stock used to satisfy tax withholding obligations

 

(19)

(1)

(1)

Share repurchases

 

(308)

(10)

(10)

Net income

 

265

265

Cash dividends declared on common stock ($0.15 per share)

 

(16)

(16)

Noncontrolling interest acquired

6

6

Pension and postretirement adjustments, net of tax

 

2

2

Balance at October 31, 2020

 

104,452

$

777

 

(327)

$

(11)

$

2,245

$

(365)

$

6

$

2,652

Thirty-nine weeks ended

Balance at February 1, 2020

 

104,188

$

764

 

$

$

2,103

$

(394)

$

$

2,473

Restricted stock issued

 

120

Issued under director and stock plans

 

144

4

4

Share-based compensation expense

 

9

9

Shares of common stock used to satisfy tax withholding obligations

 

(42)

(1)

(1)

Share repurchases

 

(308)

(10)

(10)

Reissued ­- ESPP

 

23

Net income

 

200

200

Cash dividends declared on common stock ($0.55 per share)

 

(58)

(58)

Noncontrolling interest acquired

6

6

Translation adjustment, net of tax

 

20

20

Change in cash flow hedges, net of tax

 

3

3

Pension and postretirement adjustments, net of tax

 

6

6

Balance at October 31, 2020

 

104,452

$

777

 

(327)

$

(11)

$

2,245

$

(365)

$

6

$

2,652

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2020 Form 10-Q Page 4

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(amounts in millions, share amounts in thousands)

    

Additional Paid-In

    

    

    

    

Accumulated

    

    

Capital &

Other

Total

Common Stock

Treasury Stock

Retained

Comprehensive

Noncontrolling

Shareholders'

Thirteen weeks ended

Shares

Amount

Shares

Amount

Earnings

Loss

interest

Equity

Balance at August 3, 2019

 

113,200

$

825

 

(3,579)

$

(155)

$

2,226

$

(384)

$

$

2,512

Issued under director and stock plans

 

4

1

1

Share-based compensation expense

 

6

6

Share repurchases

 

(4,561)

(178)

(178)

Net income

 

125

125

Cash dividends declared on common stock ($0.38 per share)

 

(41)

(41)

Translation adjustment, net of tax

 

5

5

Change in cash flow hedges, net of tax

 

(5)

(5)

Pension and postretirement adjustments, net of tax

 

2

2

Balance at November 2, 2019

 

113,204

$

832

 

(8,140)

$

(333)

$

2,310

$

(382)

$

$

2,427

Thirty-nine weeks ended

Balance at February 2, 2019

 

112,933

$

809

 

(711)

$

(37)

$

2,104

$

(370)

$

$

2,506

Restricted stock issued

 

88

Issued under director and stock plans

 

183

4

4

Share-based compensation expense

 

19

19

Shares of common stock used to satisfy tax withholding obligations

 

(32)

(2)

(2)

Share repurchases

 

(7,493)

(300)

(300)

Reissued ­- ESPP

 

96

6

6

Retirement of treasury stock

 

Net income

 

357

357

Cash dividends declared on common stock ($1.14 per share)

 

(125)

(125)

Translation adjustment, net of tax

 

(16)

(16)

Change in cash flow hedges, net of tax

 

(2)

(2)

Pension and postretirement adjustments, net of tax

6

6

Cumulative effect of the adoption of Topic 842

 

(26)

(26)

Balance at November 2, 2019

 

113,204

$

832

 

(8,140)

$

(333)

$

2,310

$

(382)

$

$

2,427

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2020 Form 10-Q Page 5

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)

Thirty-nine weeks ended

October 31,

November 2,

    

2020

    

2019

From operating activities:

 

  

 

  

Net income

$

200

$

357

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Non-cash gains

 

(190)

 

(4)

Non-cash impairment and other charges

32

Depreciation and amortization

 

132

 

134

Deferred income taxes

 

73

 

(5)

Share-based compensation expense

 

9

 

19

Qualified pension plan contributions

 

 

(55)

Change in assets and liabilities:

 

 

Merchandise inventories

 

13

 

(42)

Accounts payable

 

177

 

12

Accrued and other liabilities

 

122

 

(36)

Other, net

 

104

 

17

Net cash provided by operating activities

 

672

 

397

From investing activities:

 

  

 

  

Capital expenditures

 

(116)