UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement |
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Soliciting Material Pursuant to § 240.14a-12 |
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Foot Locker, Inc.
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NOTICE OF 2009 ANNUAL MEETING
AND
PROXY STATEMENT
112 West 34th Street NOTICE OF 2009 ANNUAL MEETING OF SHAREHOLDERS
DATE:
May 20, 2009
TIME:
9:00 A.M., local time
PLACE:
Foot Locker, Inc., 112 West 34th Street, New York, New York 10120
RECORD DATE:
Shareholders of record on March 27, 2009 can vote at this meeting.
ITEMS OF BUSINESS:
•
Elect three members to the Board of Directors to serve for three-year terms and one member to serve for a two-year term.
•
Ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2009 fiscal year.
•
Approve an amendment to our By-Laws to reduce the required number of directors.
•
Transact such other business as may properly come before the meeting and at any adjournment or postponement.
PROXY VOTING:
YOUR VOTE IS IMPORTANT TO US. Please vote as soon as possible in one of these ways:
•
Use the toll-free telephone number shown on the Notice of Internet Availability of Proxy Materials for the 2009 Annual Meeting of Foot Locker, Inc. (your “Foot Locker Notice”) or on your proxy card;
•
Visit the web site shown on your Foot Locker Notice or on your proxy card to vote via the Internet;
•
If you received a printed copy of the proxy card, you may mark, sign and return the enclosed proxy card using the postage-paid envelope provided; or
•
Follow the instructions on your proxy materials if your shares are held in the name of your bank, broker, or other holder of record.
Even if you plan to attend the annual meeting, we encourage you to vote in advance using one of these methods. April 9, 2009
New York, New York 10120
GARY M. BAHLER
Secretary
TABLE OF CONTENTS
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2 How does the Board of Directors recommend that I vote on the proposals?
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4 Are shares held in employee plans included on the proxy card?
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5 Persons Owning More than Five Percent of the Company’s Stock
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59 Proposal 2: Ratification of the Appointment of Independent Accountants
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62 Deadlines and Procedures for Nominations and Shareholder Proposals
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112 West 34th Street PROXY STATEMENT We are providing these proxy materials to you for the solicitation of proxies by the Board of Directors of Foot Locker, Inc. for the 2009 Annual Meeting of Shareholders and for any adjournments or postponements of this meeting. We are holding this annual meeting on May 20, 2009 at 9:00 A.M., local time, at
our corporate headquarters located at 112 West 34th Street, New York, New York 10120. In this proxy statement we refer to Foot Locker, Inc. as “Foot Locker,” “the Company,” “we,” “our,” or “us.” Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting The Company’s Proxy Statement and 2008 Annual Report/Form 10-K are available at We are pleased to be using again this year a procedure approved by the Securities and Exchange Commission that allows companies to furnish their proxy materials to shareholders over the Internet instead of mailing full sets of the printed materials. We believe that this procedure will reduce costs, provide
greater flexibility to our shareholders, and lessen the environmental impact of our Annual Meeting. On or about April 9, 2009, we started mailing to most of our shareholders in the United States a Notice of Internet Availability of Proxy Materials (the “Foot Locker Notice”). The Foot Locker Notice contains
instructions on how to access and read our 2009 Proxy Statement and our 2008 Annual Report to Shareholders on the Internet and to vote online. If you received a Foot Locker Notice by mail, you will not receive paper copies of the proxy materials in the mail unless you request them. Instead, the Foot Locker
Notice instructs you on how to access and read the Proxy Statement and Annual Report and how you may submit your proxy over the Internet. If you received a Foot Locker Notice by mail and would like to receive a printed copy of the materials, please follow the instructions on the Foot Locker Notice for
requesting the materials, and we will promptly mail the materials to you. We are mailing to shareholders, or making available to shareholders via the Internet, this Proxy Statement, form of proxy card, and our 2008 Annual Report/Form10-K on or about April 9, 2009. QUESTIONS AND ANSWERS ABOUT THIS ANNUAL MEETING AND VOTING What is included in these proxy materials? The proxy materials include our 2009 Proxy Statement and 2008 Annual Report/Form 10-K. If you received printed copies of these materials by mail, these materials also include the proxy card for this annual meeting. May I obtain an additional copy of the Form 10-K? Our Form 10-K for the 2008 fiscal year ended January 31, 2009 is included with the 2008 Annual Report. You may obtain an additional copy of our 2008 Form 10-K without charge by writing to our Investor Relations Department at Foot Locker, Inc., 112 West 34th Street, New York, New York 10120. It is also
available free of charge through our corporate web site at http://www.footlocker-inc.com/ IR_index.htm.
New York, New York 10120
To Be Held on May 20, 2009
http://materials.proxyvote.com/344849
What constitutes a quorum for the Annual Meeting? We will have a quorum and will be able to conduct the business of the Annual Meeting if the holders of a majority of the shares outstanding are present at the meeting, either in person or by proxy. We will count abstentions and broker non-votes, if any, as present and entitled to vote in determining whether
we have a quorum. What is the record date for this meeting? The record date for this meeting is March 27, 2009. If you were a Foot Locker shareholder on this date, you are entitled to vote on the items of business described in this proxy statement. Do I need a ticket to attend the Annual Meeting? You will need an admission ticket to attend the Annual Meeting. Attendance at the meeting will be limited to shareholders on March 27, 2009 (or their authorized representatives) having an admission ticket or proof of their share ownership, and guests of the Company. If you plan to attend the meeting, please
indicate this when you are voting by telephone or Internet or check the box on your proxy card, and we will promptly mail an admission ticket to you. If your shares are held in the name of a bank, broker, or other holder of record and you plan to attend the meeting, you can obtain an admission ticket in advance by providing proof of your ownership, such as a bank or brokerage account statement, to the Corporate Secretary at Foot Locker, Inc., 112 West 34th
Street, New York, New York 10120. If you do not have an admission ticket, you must show proof of your ownership of the Company’s Common Stock at the registration table at the door. What are shareholders voting on at this meeting? You are being asked to vote on the following items:
•
Proposal 1:
Election of three directors in Class III and one director in Class II;
•
Proposal 2:
Ratification of the appointment of KPMG LLP as our independent registered public accountants for 2009; and
•
Proposal 3:
Approval of an amendment to our By-Laws. How does the Board of Directors recommend that I vote on the proposals? The Board recommends that you vote “FOR” each of the three proposals being voted on at the meeting. Could other matters be voted on at the Annual Meeting? We do not know of any other business that will be presented at the 2009 annual meeting. If any other matters are properly brought before the meeting for consideration, then the persons named as proxies will have the discretion to vote on those matters for you using their best judgment. Who may vote at the Annual Meeting? The only voting securities of Foot Locker are our shares of Common Stock. Only shareholders of record on the books of the Company on March 27, 2009 are entitled to vote at the annual meeting and any adjournments or postponements. Each share is entitled to one vote. There were 154,xxx,xxx shares of
Common Stock outstanding on March 27, 2009. What are the voting requirements to elect directors and to approve the other proposals? Directors must be elected by a plurality of the votes cast by shareholders. (Please see our policy described on Page 7 regarding resignations by directors who do not receive more “for” votes than 2
“withheld” votes.) The other proposals being voted on at this meeting require the favorable vote of a majority of the votes cast by shareholders to be approved. How will the votes be counted? Votes will be counted and certified by representatives of our transfer agent, BNY Mellon Shareowner Services, as inspectors of election. The inspectors of election are independent and are not employees of Foot Locker. We do not count abstentions and broker non-votes, if any, in determining the votes cast for any proposal. Votes withheld for the election of one or more of the nominees for director will not be counted as votes cast for them. Broker non-votes occur when brokers or other entities holding shares for an owner in street name do not receive voting instructions from the owner on non-routine matters and, consequently, have no discretion to vote on those matters. If a proposal is routine under the rules of The New York Stock Exchange,
then the brokers or other entities may vote the shares held by them even though they have not received instructions from the owner. The Company’s Certificate of Incorporation and By-laws do not contain any provisions on the effect of abstentions or broker non-votes. We maintain the confidentiality of our shareholders’ votes. All proxy cards, electronic voting, voting instructions, ballots and voting tabulations identifying shareholders are kept confidential from the Company, except:
•
as necessary to meet any applicable legal requirements, • when a shareholder requests disclosure or writes a comment on a proxy card, • in a contested proxy solicitation, and • to allow independent inspectors of election to tabulate and certify the vote. You may vote using any of the following methods: • Telephone If you are located within the United States or Canada, you can vote your shares by telephone by calling the toll-free telephone number printed on your Notice of Internet Availability of Proxy Materials (“Notice”), on your proxy card, or in the instructions that accompany your proxy materials, as applicable,
and following the recorded instructions. You will need the control number printed on your Notice, on your proxy card, or in the instructions that accompany your proxy materials, as applicable. Telephone voting is available 24 hours a day and will be accessible until 9:00 A.M. on May 20, 2009. The telephone voting
system has easy to follow instructions and allows you to confirm that the system has properly recorded your vote. If you vote by telephone, you do NOT need to return a proxy card or voting instruction form. If you are an owner in street name, please follow the instructions that accompany your proxy materials. • Internet You can also choose to vote your shares by the Internet. You will need the control number printed on your Notice, on your proxy card, or in the instructions that accompany your proxy materials, as applicable. The web site for Internet voting is listed on your Notice, proxy card, or in the instructions that
accompany your proxy materials. Internet voting is available 24 hours a day and will be accessible until 9:00 A.M. on May 20, 2009. As with telephone voting, you will be able to confirm that the system has properly recorded your vote. If you vote via the Internet, you do NOT need to return a proxy card or voting
instruction form. 3
• Mail If you are a holder of record and received printed copies of the materials by mail, you may choose to vote by mail. Simply mark your proxy card, date and sign it, and return it in the postage-paid envelope that we included with your materials. If you hold your shares through a bank or brokerage account, please
complete and mail the voting instruction form in the envelope provided. • Ballot at the Annual Meeting You may also vote by ballot at the Annual Meeting if you decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the meeting. All shares that have been properly voted and not revoked will be voted at the Annual Meeting. If you sign and return a proxy card but do not give voting instructions, the shares represented by that proxy card will be voted as recommended by the Board of Directors. Can I change my mind after voting my shares? You may revoke your proxy at any time before it is used by (i) sending a written notice to the Company at its corporate headquarters, (ii) delivering a valid proxy card with a later date, (iii) providing a later dated vote by telephone or Internet, or (iv) voting by ballot at the Annual Meeting. Are shares held in employee plans included on the proxy card? If you hold shares of Foot Locker Common Stock through the Foot Locker 401(k) Plan or the Foot Locker Puerto Rico 1165(e) Plan, you received a proxy card showing the number of shares allocated to your plan account. Your proxy card will serve as a voting instruction card for the trustees of the plans, who
will vote the shares. The trustees will vote only those shares for which voting instructions have been given. To allow sufficient time for voting by the trustees of these plans, your voting instructions must be received by May 15, 2009. Who pays the cost of this proxy solicitation? We will pay for the cost of the solicitation of proxies, including the preparation, printing and mailing of the proxy materials. Proxies may be solicited, without additional compensation, by our directors, officers, or employees by mail, telephone, fax, in person, or otherwise. We will request banks, brokers and other custodians, nominees and fiduciaries to deliver proxy material to the beneficial owners of Foot Locker’s Common Stock
and obtain their voting instructions, and we will reimburse those firms for their expenses under the rules of the Securities and Exchange Commission and The New York Stock Exchange. In addition, we have retained Innisfree M&A Incorporated to assist us in the solicitation of proxies for a fee of $10,000 plus out-of-
pocket expenses. 4
BENEFICIAL OWNERSHIP OF THE COMPANY’S STOCK Directors and Executive Officers The following table shows the number of shares of Common Stock reported to us as beneficially owned by each of our directors and named executive officers as of March 27, 2009. The table also shows beneficial ownership by all directors, named executive officers, and executive officers as a group on that date,
including shares of Common Stock that they have a right to acquire within 60 days after March 27, 2009 by the exercise of stock options. Matthew D. Serra beneficially owned [1.xx] percent of the total number of outstanding shares of Common Stock as of March 27, 2009. No other director, named executive officer, or executive officer beneficially owned one percent or more of the total number of outstanding shares as of that date. Each person has sole voting and investment power for the number of shares shown unless otherwise noted.
Amount and Nature of Beneficial Ownership
Name
Common Stock
Stock Options
RSUs and
Total Gary M. Bahler
126,766
251,668
—
378,434 Nicholas DiPaolo
21,349
(c)
16,542
6,869
44,760 Alan D. Feldman
22,801
6,314
6,869
35,984 Jarobin Gilbert Jr.
18,433
25,520
6,869
50,822 Ronald J. Halls
115,128
155,000
—
270,128 Robert W. McHugh
135,163
175,666
—
310,829 Matthew M. McKenna
26,352
4,287
6,869
37,508 Richard T. Mina
237,357
(d)
395,171
—
632,972 Laurie J. Petrucci
92,055
146,147
—
238,202 James E. Preston
65,400
25,520
6,869
97,789 David Y. Schwartz
15,979
25,520
21,216
62,715 Matthew D. Serra
700,258
1,197,333
—
1,897,591 Cheryl Nido Turpin
9,668
20,815
24,586
55,069 Dona D. Young
11,060
20,815
35,074
66,949 All 19 directors and executive
1,843,146
3,126,167
115,221
5,084,534
(e) Notes to Beneficial Ownership Table
(a)
This column includes shares held in the Company’s 401(k) Plan, as well as the executives’ unvested shares of restricted stock listed below over which they have sole voting power but no investment power:
Name
Number of Unvested
M. Serra
150,000
R. McHugh
50,000
R. Halls
70,000
G. Bahler
50,000
L. Petrucci
50,000 5
Beneficially Owned
Excluding
Stock Options(a)
Exercisable Within
60 Days After
3/27/2009
Deferred
Stock Units(b)
officers as a group, including
the named executive officers
Shares of Restricted
Stock
(b)
This column includes (i) the number of deferred stock units credited as of March 27, 2009 to the account of the directors who elected to defer all or part of their annual retainer fee and (ii) directors’ unvested restricted stock units (“RSUs”). The deferred stock units and RSUs do not have current voting or
investment power. (c) Includes 150 shares held by his spouse. (d) Information based on the last beneficial ownership report filed by Mr. Mina with the SEC on March 18, 2008. (e) This number represents approximately [x.xx] percent of the shares of Common Stock outstanding at the close of business on March 27, 2009. Persons Owning More Than Five Percent of the Company’s Stock The following table provides information on shareholders who beneficially own more than five percent of our Common Stock according to reports filed with the Securities and Exchange Commission (“SEC”). To the best of our knowledge, there are no other shareholders who beneficially own more than five
percent of a class of the Company’s voting securities.
Name and Address
Amount and
Percent Mackenzie Financial Corporation
12,813,116(a)
8.27
%(a) 180 Queen Street West Toronto, Ontario M5V 3K1 Sasco Capital, Inc.
8,732,892(b)
5.60
%(b) 10 Sasco Hill Road Fairfield, CT 06824 Harris Associates L.P. and
7,575,300(c)
5.43
%(c) Harris Associates Inc. Two North LaSalle Street, Suite 500 Chicago, IL 60602-3790 First Pacific Advisors, LLC,
7,864,416(d)
5.10
%(d) Robert L. Rodriguez, and J. Richard Atwood 11400 West Olympic Blvd., Suite 1200 Los Angeles, CA 90064 Notes to Table on Persons Owning More than Five Percent of the Company’s Stock
(a)
Reflects shares beneficially owned as of December 31, 2008 according to Amendment No. 1 to Schedule 13G filed with the SEC. As reported in this schedule, Mackenzie Financial Corporation, an investment adviser, holds sole voting and dispositive power with respect to 12,813,116 shares. (b) Reflects shares beneficially owned as of December 31, 2008 according to Amendment No. 1 to Schedule 13G filed with the SEC. As reported in this schedule, Sasco Capital, Inc., an investment adviser, holds sole voting power with respect to 3,985,500 shares and sole dispositive power with respect to 8,732,892
shares. (c) Reflects shares beneficially owned as of December 31, 2008, according to Amendment No. 1 to Schedule 13G filed with the SEC by Harris Associates L.P. (“Harris”) and Harris Associates Inc. As reported in this schedule, Harris, an investment adviser, holds sole voting and dispositive power with respect to
7,575,300 shares. (d) Reflects shares beneficially owned as of December 31, 2008, according to Amendment No. 1 to Schedule 13G filed with the SEC on behalf of First Pacific Advisors, LLC (“FPA”), an investment advisor, Robert L. Rodriguez and J. Richard Atwood, Managing Members of FPA. As reported in 6
of Beneficial Owner
Nature of
Beneficial Ownership
of Class
this
schedule, FPA, Mr. Rodriguez and Mr. Atwood hold shared voting power
with respect to 3,628,300 shares and shared dispositive power with
respect to 7,864,416 shares Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires that our directors and executive officers file with the Securities and Exchange Commission reports of ownership and changes in ownership of Foot Locker’s Common Stock. Based on our records and other information, we believe that during the
2008 fiscal year, the directors and executive officers complied with all applicable SEC filing requirements. CORPORATE GOVERNANCE INFORMATION Corporate Governance Guidelines The Board of Directors has adopted Corporate Governance Guidelines. The Board periodically reviews the guidelines and may revise them when appropriate. The Corporate Governance Guidelines are available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/IR_index.htm. You may also obtain a printed copy of the guidelines by writing to the Corporate Secretary at the Company’s headquarters. Policy on Voting for Directors Our Corporate Governance Guidelines provide that if a nominee for director in an uncontested election receives more votes “withheld” from his or her election than votes “for” election (a “Majority Withheld Vote”), then the director must offer his or her resignation for consideration by the Nominating and
Corporate Governance Committee (the “Nominating Committee”). The Nominating Committee will evaluate the resignation, weighing the best interests of the Company and its shareholders, and make a recommendation to the Board of Directors on the action to be taken. For example, the Nominating Committee
may recommend (i) accepting the resignation, (ii) maintaining the director but addressing what the Nominating Committee believes to be the underlying cause of the withheld votes, (iii) resolving that the director will not be re-nominated in the future for election, or (iv) rejecting the resignation. When making its
determination, the Nominating Committee will consider all factors that it deems relevant, including (i) any stated reasons why shareholders withheld votes from the director, (ii) any alternatives for curing the underlying cause of the withheld votes, (iii) the director’s tenure, (iv) the director’s qualifications, (v) the
director’s past and expected future contributions to the Board and to the Company, and (vi) the overall composition of the Board, including whether accepting the resignation would cause the Company to fail to meet any applicable Securities and Exchange Commission or New York Stock Exchange requirements.
We will promptly disclose the Board’s decision on whether or not to accept the director’s resignation, including, if applicable, the reasons for rejecting the offered resignation. The Board of Directors has adopted Stock Ownership Guidelines. These guidelines cover the Board of Directors, the Chief Executive Officer, and Other Principal Officers, as follows:
Board of Directors. Each non-employee director must beneficially own shares of our Common Stock having a value of at least three times the annual retainer fee paid to the non-employee directors. • Chief Executive Officer. The CEO must beneficially own shares of our Common Stock having a value of at least four times his annual base salary. • Other Principal Officers. Other Principal Officers of the Company must beneficially own shares of our Common Stock having a value of at least two times their individual annual base salaries. The category of Other Principal Officers includes all corporate officers at the senior vice president level or higher
and the chief executive officers of our operating divisions. Shares of restricted stock, restricted stock units, and deferred stock units are counted towards beneficial ownership. Stock options are disregarded in calculating beneficial ownership. 7
•
The target date for full compliance with these guidelines is February 2011, which is five years after the effective date of these guidelines. Non-employee directors who are elected to the Board after February 2006, as well as employees who are elected or appointed after this date to positions covered by these
guidelines, must be in compliance within five years after their initial election or appointment. The Board of Directors has adopted charters for the Audit Committee, the Compensation and Management Resources Committee, the Finance and Strategic Planning Committee, the Nominating and Corporate Governance Committee, and the Retirement Plan Committee. Copies of the charters for these
committees are available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/IR_index.htm. You may also obtain printed copies of these charters by writing to the Corporate Secretary at the Company’s headquarters. The Board believes that a significant majority of the members of the Board should be independent, as determined by the Board based on the criteria established by The New York Stock Exchange. Each year, the Nominating Committee reviews any relationships between outside directors and the Company that
may affect independence. Currently, one of the current nine members of the Board of Directors serves as an officer of the Company, and the remaining eight directors are independent under the criteria established by The New York Stock Exchange. James E. Preston has served as lead director since May 30, 2007. As lead director, Mr. Preston presides at executive sessions of the independent and non-management directors, reviews and provides input on the Board meeting agendas, and may perform other duties and responsibilities as the Board may
determine. Executive Sessions of Non-Management Directors The Board of Directors holds regularly scheduled executive sessions of non-management directors. James E. Preston, as the lead director, presides at executive sessions of the independent and non-management directors. Board Members’ Attendance at Annual Meetings Although we do not have a policy on our Board members’ attendance at annual shareholders’ meetings, we encourage each director to attend these important meetings. The annual meeting is normally scheduled on the same day as a Board of Directors’ meeting. In 2008, 9 out of the 10 directors who were then
serving attended the annual shareholders’ meeting. We have an orientation program for new directors that is intended to educate a new director on the Company and the Board’s practices. At the orientation, the newly elected director generally meets with the Company’s Chief Executive Officer, the Chief Financial Officer, the General Counsel and Secretary,
as well as with other senior financial officers of the Company, to review the business operations, financial matters, investor relations, corporate governance policies, and the composition of the Board and its committees. Additionally, he or she has the opportunity to visit our stores at the Company’s New York
headquarters, or elsewhere, with a senior division officer for an introduction to store operations. 8
Payment of Directors Fees in Stock The non-employee directors receive one-half of their annual retainer fees, including committee chair and lead director retainer fees, in shares of the Company’s Common Stock, with the balance payable in cash. Directors may elect to receive up to 100 percent of their fees in stock. The Board has established a policy in its Corporate Governance Guidelines that directors retire from the Board at the annual meeting of shareholders following the director’s 72nd birthday. As part of the Nominating Committee’s regular evaluation of the Company’s directors and the overall needs of the
Board, the Nominating Committee may ask a director to remain on the Board for an additional period of time beyond age 72, or to stand for re-election after reaching age 72. However, a director may not remain on the Board beyond the date of the annual meeting of shareholders following his or her 75th birthday.
As described on Page 58, the Board has waived the retirement policy for one director, James E. Preston, who currently serves as the lead director. Change in a Director’s Principal Employment The Board has established a policy that any director whose principal employment changes is required to advise the Chair of the Nominating and Corporate Governance Committee of this change. If requested, the director will submit a letter of resignation to the Chair of the Committee, and the Committee
would then meet to consider whether to accept or reject the letter of resignation. Communications with the Board of Directors The Board has established a procedure for shareholders and other interested parties to send communications to the non-management members of the Board of Directors. Shareholders and other interested parties who wish to communicate directly with the non-management directors of the Company should
send a letter to: Board of Directors The Secretary will promptly send a copy of the communication to the lead director, who may direct the Secretary to send a copy of the communication to the other non-management directors and may determine whether a meeting of the non-management directors should be called to review the communication. A copy of the Procedures for Communications with the Board of Directors is available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/ IR_index.htm. You may obtain a printed copy of the procedures by writing to the Corporate Secretary at the Company’s headquarters. The Board of Directors and all of its committees have authority to retain outside advisors and consultants that they consider necessary or appropriate in carrying out their respective responsibilities. The independent accountants are retained by the Audit Committee and report directly to the Audit Committee.
In addition, the internal auditors are selected by the Audit Committee and are ultimately accountable to the Audit Committee. Similarly, consultants retained by the Compensation and Management Resources Committee to assist it in the evaluation of senior executives’ compensation report directly to that
committee. The Company has adopted a Code of Business Conduct for directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. A copy of the Code of Business Conduct is available on the corporate governance section of the Company’s 9
c/o Secretary, Foot Locker, Inc.
112 West 34th Street
New York, NY 10120
corporate web site at http://www.footlocker-inc.com/IR_index.htm. You may obtain a printed copy of the Code of Business Conduct by writing to the Corporate Secretary at the Company’s headquarters. Any waivers of the Code of Business Conduct for directors and executive officers must be approved by the Audit Committee. We intend to disclose promptly amendments to the Code of Business Conduct and any waivers of the Code for directors and executive officers on the corporate governance section of
the Company’s corporate website at http://www.footlocker-inc.com/IR_index.htm. The Board of Directors has responsibility for establishing broad corporate policies, reviewing significant developments affecting Foot Locker, and monitoring the general performance of the Company. Our By-laws provide for a Board of Directors consisting of between 9 and 17 directors. The exact number of
directors is determined from time to time by the entire Board. Our Board currently has 9 members. Shareholders are being asked to approve at this annual meeting an amendment to our By-Laws that would reduce the minimum number of directors from 9 to 7 and reduce the maximum number of directors from 17
to 13. Detailed information on this proposal is provided beginning on Page 62. The Board of Directors held five meetings during 2008. All of our current directors attended at least 75 percent of the meetings of the Board and committees on which they served in 2008. A director is considered independent under the rules of the The New York Stock Exchange if he or she has no material or immaterial relationship to the Company that would impair his or her independence. In addition to the independence criteria established by The New York Stock Exchange, the Board of
Directors has adopted categorical standards to assist it in making its independence determinations regarding individual members of the Board. These categorical standards are contained in the Corporate Governance Guidelines, which are posted on the Company’s corporate web site at http://www.footlocker-inc.com/IR_index.htm. The Board of Directors has determined that the following categories of relationships are immaterial for purposes of determining whether a director is independent under the listing standards adopted by The New York Stock Exchange. 10
Categorical Relationship
Description
Investment Relationships with the Company
A director and any family member may own equities or other securities of the Company.
Relationships with Other Business Entities
A director and any family member may be a director, employee (other than an executive officer), or beneficial owner of less than 10 percent of the
shares of a business entity with which the Company does business, provided that the aggregate amount involved in a fiscal year does not exceed the
greater of $1,000,000 or 2 percent of either that entity’s or the Company’s annual consolidated gross revenue.
Relationships with Not-for-Profit Entities
A director and any family member may be a director or employee (other than an executive officer or the equivalent) of a not-for-profit organization
to which the Company (including the Foot Locker Foundation) makes contributions, provided that the aggregate amount of the Company’s
contributions in any fiscal year do not exceed the greater of $1,000,000 or 2 percent of the not-for-profit entity’s total annual receipts. The Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has determined that the following directors are independent under the rules of The New York Stock Exchange because they have no material or immaterial relationship to the Company that would
impair their independence:
Nicholas DiPaolo
James E. Preston
Alan D. Feldman
David Y. Schwartz
Jarobin Gilbert Jr.
Cheryl Nido Turpin
Matthew M. McKenna
Dona D. Young Christopher A. Sinclair served as a director of the Company during 2008 until the end of his term on May 21, 2008. The Board determined, upon the recommendation of the Nominating and Corporate Governance Committee, that Mr. Sinclair was independent under the rules of The New York Stock Exchange
through the end of his term as a director because he had no material or immaterial relationship to the Company that would impair his independence. In making its decisions on independence, the Board of Directors considered the following relationships between the Company and organizations with which the current members of our Board are affiliated:
•
Nicholas DiPaolo, Jarobin Gilbert Jr., Matthew M. McKenna, David Y. Schwartz, and Cheryl Nido Turpin are non-employee directors of companies with which Foot Locker does business. The Board has determined that each of these relationships meets the categorical standard for Relationships with Other
Business Entities and are immaterial for determining independence.
Dona D. Young was a non-employee director during 2008 of a company with which Foot Locker did business. The Board has determined that Mrs. Young’s relationship met the categorical standard for Relationships with Other Business Entities and was immaterial for determining independence. • Matthew M. McKenna is affiliated with a not-for-profit institution to which the Company made payments in 2008. The Board has determined that Mr. McKenna’s relationship meets the 11
•
categorical standard for Relationships with Not-for Profit Entities and is immaterial for determining independence. • The Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has determined that Matthew D. Serra is not independent because Mr. Serra is an executive officer of the Company. The Board of Directors has determined that all members of the Audit Committee, the Compensation and Management Resources Committee and the Nominating and Corporate Governance Committee are independent as defined under the listing standards of The New York Stock Exchange and the director
independence standards adopted by the Board. Committees of the Board of Directors The Board has delegated certain duties to committees, which assist the Board in carrying out its responsibilities. There are six standing committees of the Board. Each director serves on at least two committees. The committee memberships, the number of meetings held during 2008, and the functions of the
committees are described below.
Audit
Compensation
Finance and
Nominating
Retirement
Executive N. DiPaolo*
J. Preston*
D. Schwartz*
J. Gilbert Jr.*
J. Gilbert Jr.*
M. Serra*** J. Gilbert Jr.
A. Feldman
N. DiPaolo
J. Preston
N. DiPaolo
N. DiPaolo M. McKenna
M. McKenna
A. Feldman
D. Schwartz
R. McHugh**
J. Gilbert Jr. D. Schwartz
C. Turpin
M. McKenna
C. Turpin
L. Petrucci**
J. Preston D. Young
D. Young
M. Serra**
D. Schwartz
*
Designates Committee Chair ** Designates Executive Officer of the Company *** Designates Committee Chair and Executive Officer of the Company The committee held nine meetings in 2008. The Audit Committee has a charter, which is available on the corporate governance section of our corporate web site at http://www.footlocker-inc.com/ IR_index.htm. The report of the Audit Committee appears on Page 61. This committee appoints the independent accountants and the internal auditors and is responsible for approving the independent accountants’ and internal auditors’ compensation. This committee also assists the Board in fulfilling its oversight responsibilities in the following areas:
•
accounting policies and practices, • the integrity of the Company’s financial statements, • compliance with legal and regulatory requirements, • the qualifications, independence, and performance of the independent accountants, and • the qualifications and performance of the internal audit function. The Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters. The Board of Directors has determined that the Company has at least one audit committee financial expert, as defined under the rules of the Securities Exchange Act of 1934, serving on the Audit Committee. David Y. Schwartz has been designated as the audit committee financial expert. Mr. Schwartz is
independent under the rules of The New York Stock Exchange and the Securities Exchange Act of 1934. 12
Committee
and
Management
Resources
Committee
Strategic
Planning
Committee
and Corporate
Governance
Committee
Plan
Committee
Committee
Compensation and Management Resources Committee The Compensation and Management Resources Committee (the “Compensation Committee”) held four meetings in 2008. The committee has a charter, which is available on the corporate governance section of the Company’s corporate web site at http://www.footlocker-inc.com/IR_index.htm. The Compensation Committee determines all compensation for the Company’s executive management group, which consists of the executive officers and corporate officers, and determines significant elements of the compensation of the chief executive officers of our operating divisions. Decisions regarding
equity compensation for other employees are also the Compensation Committee’s responsibility. Decisions regarding non-equity compensation of the Company’s other associates are made by the Company’s management. The Compensation Committee also administers Foot Locker’s various compensation plans, including the incentive plans, the equity-based compensation plans, the employees stock purchase plan, and the deferred compensation plan. Committee members are not eligible to participate in any of these plans. This
committee also reviews and makes recommendations to the Board of Directors concerning executive development and succession, including for the position of Chief Executive Officer. The Compensation Committee normally holds two meetings each year to review and approve the executive compensation program, the Chief Executive Officer’s compensation, annual salaries and bonuses for the executive management group and division CEOs, and to grant equity awards. In addition, at
another meeting during the year, the committee reviews directors’ compensation and makes recommendations to the Nominating and Corporate Governance Committee concerning the form and amount of directors’ compensation. Additional meetings of the Compensation Committee may be called during the year
as necessary. The Compensation Committee has retained Mercer as its consultant on executive compensation matters and, with regard to executive and director compensation, Mercer reports directly to the Compensation Committee and provides the Committee with information on general executive compensation trends,
trends in the retail industry, and reports on Foot Locker’s executive compensation program. Mercer also advises the committee on non-employee director compensation matters, including payment levels and trends. In preparing its material for the committee, Mercer consults with the Company’s Chairman of the
Board and Chief Executive Officer, Senior Vice President—Human Resources, Senior Vice President and General Counsel, and Vice President—Human Resources. The Senior Vice President-Human Resources, working with the Chairman of the Board and Chief Executive Officer, prepares compensation
recommendations to the committee, covering all elements of compensation for all corporate officers and heads of the Company’s operating divisions, other than the Chief Executive Officer himself, which are forwarded to the Chair of the Compensation Committee for his review. The Chair of the Compensation
Committee also discusses these recommendations with the Chief Executive Officer. Based on input from the Chair of the Committee, the Senior Vice President-Human Resources then finalizes the compensation recommendations to review with the full committee. Separately, the Company retains Mercer for
outsourcing services related to the administration of our U.S. and Canadian pension plans. Compensation Committee meeting agendas are developed by the committee chair in consultation with the Chief Executive Officer and the Corporate Secretary. Committee members may suggest agenda items by communicating with one of these individuals. Agendas and related materials are circulated to
Committee members prior to meetings. The committee chair regularly reports on the committee’s meetings to the full Board. The Company’s CEO, Senior Vice President and General Counsel, Senior Vice President—Human Resources, Vice President—Human Resources, and Vice President and Associate General
Counsel generally attend all meetings of the committee. Mercer also attends meetings at which the Committee reviews the executive compensation program and non-employee director compensation. The Compensation Committee has the authority to delegate authority and responsibilities as it considers appropriate. The committee has delegated to the Committee Chair the authority to approve stock option grants between meetings of the committee. This authority is limited to executives who are not
subject to Section 16 of the Securities Exchange Act of 1934 and is further limited to individual option awards of 25,000 shares or less. 13
The Company’s Corporate Human Resources Department and the Corporate Secretary’s staff support the Compensation Committee in performing its duties. Compensation Committee Interlocks and Insider Participation Alan D. Feldman, Matthew M. McKenna, James E. Preston, Christopher A. Sinclair and Cheryl Nido Turpin served on the Compensation and Management Resources Committee during 2008. Mr. Sinclair’s term as a director ended at the 2008 annual shareholders’ meeting. None of the committee members was
an officer or employee of the Company or any of its subsidiaries, and there were no interlocks with other companies within the meaning of the SEC’s proxy rules. The Executive Committee did not meet in 2008. Except for certain matters reserved to the Board, this committee has all of the powers of the Board in the management of the business of the Company during intervals between Board meetings. Finance and Strategic Planning Committee The Finance and Strategic Planning Committee held four meetings in 2008. This committee reviews the overall strategic and financial plans of the Company, including capital expenditure plans, proposed debt or equity issues of the Company, and the Company’s capital structure. The committee also considers
and makes recommendations to the Board of Directors concerning dividend payments and share repurchases, and reviews acquisition and divestiture proposals. Nominating and Corporate Governance Committee The Nominating and Corporate Governance Committee held four meetings in 2008. This committee has responsibility for overseeing corporate governance matters affecting the Company, including developing and recommending criteria and policies relating to service and tenure of directors. The committee is
responsible for collecting the names of potential nominees to the Board, reviewing the background and qualifications of potential candidates for Board membership, and making recommendations to the Board for the nomination and election of directors. The committee also reviews membership on the Board
committees and makes recommendations on committee members and chairs. In addition, the committee reviews recommendations from the Compensation and Management Resources Committee and makes recommendations to the Board concerning the form and amount of directors’ compensation. The Nominating and Corporate Governance Committee may establish criteria for candidates for Board membership. These criteria may include area of expertise, diversity of experience, independence, commitment to representing the long-term interests of the Company’s stakeholders, and other relevant
factors, taking into consideration the needs of the Board and the Company and the mix of expertise and experience among current directors. From time to time the committee may retain the services of a third party search firm to identify potential director candidates. The committee will consider nominees to the Board of Directors recommended by shareholders that comply with the provisions of the Company’s By-Laws and relevant law, regulation, and stock exchange rules. The procedures for shareholders to follow to propose a potential director candidate are described
on Page 63. After a potential nominee is identified, the Committee Chair will review his or her biographical information and discuss with the other members of the committee whether to request additional information about the individual or to schedule a meeting with the potential candidate. The committee’s screening
process for director candidates is the same regardless of the source who identified the potential candidate. The committee’s determination on whether to proceed with a formal evaluation of a potential candidate is based on the person’s experience and qualifications, as well as the current composition of the Board
and its anticipated future needs. 14
The Retirement Plan Committee held four meetings in 2008. This committee is responsible for supervising the investment of the assets of the Company’s United States retirement plans and appointing, reviewing the performance of and, if appropriate, replacing, the trustee of the Company’s pension trust and
the investment manager responsible for managing the funds of the trust. The committee also has certain administrative responsibilities for our United States retirement plans. Policies and Procedures We individually inquire of each of our directors and executive officers about any transactions in which Foot Locker and any of these related persons or their immediate family members are participants. We also make inquiries within the Company’s records for information on any of these kinds of transactions.
Once we gather the information, we then review all relationships and transactions in which Foot Locker and any of our directors, executive officers or their immediate family members are participants to determine, based on the facts and circumstances, whether the Company or the related persons have a direct or
indirect material interest. The General Counsel’s office coordinates the related party review process. The Nominating and Corporate Governance Committee reviews any reported transactions involving directors and their immediate families in making its recommendation to the Board of Directors on the
independence of the directors. Related Person Transactions Foot Locker and its subsidiaries have had transactions in the normal course of business with various other organizations, including certain organizations whose directors or officers are also directors of Foot Locker. However, the amounts involved in these transactions have not been material in relation to our
business, and it is believed that these amounts have not been material in relation to the businesses of the other organizations. In addition, it is believed that these transactions have been on terms no less favorable to the Company than if they had been entered into with disinterested parties. It is anticipated that
transactions with such other organizations will continue in the future. Mr. Serra’s son-in-law is employed as a buyer in the Company’s Foot Locker division, and the Company provided compensation and benefits to him in 2008 of approximately $161,000. DIRECTORS’ COMPENSATION AND BENEFITS Non-employee directors are paid an annual retainer fee and meeting fees for attendance at each Board and committee meeting. The lead director and the committee chairs are paid an additional retainer fee for service in these capacities. We do not pay additional compensation to any director who is also an
employee of the Company for service on the Board or any committee. The following table summarizes the fees paid to the non-employee directors. 15
Summary of Directors’ Compensation Annual Retainer
$100,000
The annual retainer is payable 50 percent in cash and 50 percent in shares of our Common Stock. Directors may elect to receive up to 100 percent of their annual retainer, including committee chair retainer, in stock.
We calculate the number of shares paid to the directors for their annual retainer by dividing their retainer fee by the closing price of a share of our stock on the last business day preceding the July 1 payment date. Committee Chair Retainers
$20,000: Audit Committee $10,000: Compensation and Management Resources Committee
$10,000: Finance and Strategic Planning Committee
$10,000: Nominating and Corporate Governance Committee
$10,000: Retirement Plan Committee
N/A: Executive Committee
The committee chair retainers are paid in the same form as the annual retainer. Lead Director
$50,000 payable in the same form as the annual retainer. Meeting Fees
$1,500 for attendance at each Board and committee meeting. Restricted Stock Units
In fiscal 2008, the directors received a grant of 3,704 restricted stock units (“RSUs”). The number of RSUs granted was calculated by dividing $50,000 by the closing price of a share of our stock on the date of grant. The RSUs vested in February 2009, which was
one year following the date of grant. Each RSU represented the right to receive one share of the Company’s common stock on the vesting date.
In fiscal 2009, the directors received a grant of 6,869 RSUs, calculated in the same manner as the 2008 grant. The RSUs granted in 2009 will vest one year following the date of grant in February 2010. Deferral Election Non-employee directors may elect to receive all or a portion of the cash component of their annual retainer fee, including committee chair retainers, in the form of deferred stock units or to have these amounts placed in an interest account. Directors may also elect to receive all or part of the stock component
of their annual retainer fee in the form of deferred stock units. The interest account is a hypothetical investment account bearing interest at the rate of 120 percent of the applicable federal long-term rate, compounded annually, and set as of the first day of each plan year. A stock unit is an accounting equivalent of
one share of the Company’s Common Stock. Miscellaneous Directors and their immediate families are eligible to receive the same discount on purchases of merchandise from our stores, catalogs and Internet sites that is available to Company employees. The Company reimburses non-employee directors for their reasonable expenses in attending meetings of the Board
and committees, including their transportation expenses to and from meetings, hotel accommodations, and meals. Fiscal 2008 Director Compensation The amounts paid to each non-employee director for fiscal 2008, including amounts deferred under the Company’s stock plans, and the options granted to each director are reported in the tables below. 16
(a)
(b)
(c)
(d)
(e)
(f)
Name
Fees Earned
Stock
Option
Change in
Total N. DiPaolo
93,003
110,001
89
—
203,093 A. Feldman
15,002
150,002
89
—
165,093 J. Gilbert Jr
94,503
110,001
89
5,987
210,580 M. McKenna
30,002
150,002
89
—
180,093 J. Preston
99,509
129,995
89
—
229,593 D. Schwartz
81,833
110,598
(3)
89
—
192,520 C. Sinclair (4)
18,344
22,908
89
—
41,341 C. Turpin.
43,583
128,229
(5)
89
—
171,901 D. Young
28,167
165,145
(3)
89
—
193,401 Notes to Director Compensation Table
(1)
Column (c) reflects the following three items:
The fiscal 2008 compensation expense recognized by the Company for the portion of the annual retainer fees and committee chair retainer fees paid in shares of the Company’s common stock or deferred by the director, as shown in the table below. In 2008, we made the annual stock payment to each director
on July 1. Under the terms of the 2007 Stock Incentive Plan, the stock payment was valued at the closing price of a share of the Company’s common stock on June 30, which was $12.45. The 2008 expense is equal to the number of shares received or deferred by the director multiplied by $12.45, the grant date
fair value of the payment under FAS 123R. Directors who deferred the stock portion of their annual retainer were credited with deferred stock units on the annual payment date valued at $12.45 per unit.
Stock Portion of Retainer Fee
Name
Number of
Number of
Expense N. DiPaolo
4,819
—
59,997 A. Feldman
8,032
—
99,998 J. Gilbert Jr.
4,819
—
59,997 M. McKenna
8,032
—
99,998 J. Preston
6,425
—
79,991 D. Schwartz
—
4,250.3349
52,917 C. Sinclair
1,840
—
22,908 C. Turpin
—
4,016.0643
50,000 D. Young
—
8,032.1285
100,000
•
The fiscal 2008 compensation expense shown in the table below for (i) dividend equivalents credited to three directors during the year on the quarterly dividend payment dates, valued at the fair market value of the Company’s common stock on the dividend payment dates, and (ii) stock units credited to one
director during the year on the cash retainer payment date, valued at the fair market value on the payment date. The total number of deferred stock units credited to directors’ accounts in fiscal 2008, as well as the total number of units held at the end of fiscal 2008, is reported in the following table:
17
or Paid in Cash
($)
Awards
($)(1)
Awards
($)(2)
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
•
Shares
Deferred
Stock Units
($)
Deferred Stock Units
Director
04/01/08
05/02/08
07/01/08
08/01/08
10/01/08
10/31/08
01/30/09
Total # of
Total # of D. Schwartz
—
106.9983
—
136.8905
—
142.7894
286.5488
4,923.5619
14,346.5436 C. Turpin
510.2014
136.0564
500.8013
165.2479
386.9969
176.3392
353.8764
6,245.5835
17,717.4140 D. Young
—
213.9966
—
269.1267
—
280.7238
563.3548
9,359.3304
28,205.2949
•
The fiscal 2008 compensation expense recognized for financial statement reporting purposes for the fair value of the restricted stock units (“RSUs”) granted to the nonemployee directors in 2008. The number of RSUs granted was calculated by dividing $50,000 by $13.50, which was the closing price of a share
of our stock on the date of grant. The RSUs vested in February 2009. As provided under the SEC’s rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions, please refer to Note [25] to the
Company’s financial statements in our 2008 Form 10-K. The grant date fair value was calculated under FAS 123R. The RSUs granted to Mr. Sinclair in 2008 were forfeited in connection with the expiration of his term as a director prior to the vesting date of the award. The following table provides
information on the aggregate number of RSUs granted in 2008 and the number of RSUs outstanding at the end of the 2008 fiscal year:
Restricted Stock Units
Name
Number of RSUs
Number of RSUs N. DiPaolo
3,704
3,704 A. Feldman
3,704
3,704 J. Gilbert Jr.
3,704
3,704 M. McKenna
3,704
3,704 J. Preston
3,704
3,704 D. Schwartz
3,704
3,704 C. Sinclair
3,704
- 0 - C. Turpin
3,704
3,704 D. Young
3,704
3,704
(2)
No stock options were granted to the nonemployee directors in 2008. The amounts shown in this column represent the residual expense for the stock options granted to the nonemployee directors in 2007, which vested in February 2008. The table below provides information on the number of stock options
outstanding at the end of the 2008 fiscal year:
Name
Number of Stock Options N. DiPaolo
16,542 A. Feldman
6,314 J. Gilbert Jr.
25,520 M. McKenna
4,287 J. Preston
25,520 D. Schwartz
25,520 C. Sinclair
8,336 C. Turpin
20,815 D. Young
20,815
(3)
Stock payment deferred in the form of stock units issued under Foot Locker’s stock plan. (4) Term as a director ended on May 21, 2008. (5) Stock payment and portion of cash payment for fiscal 2008 services deferred under Foot Locker’s stock plan. 18
FMV:
$12.25
FMV:
$13.21
FMV:
$12.48
FMV:
$15.10
FMV:
$16.15
FMV:
$14.62
FMV:
$7.36
Units
Credited in
2008
Units
Held at
01/31/09
Granted in 2008
Outstanding on
1/31/2009
Outstanding on 1/31/2009
Directors’ Retirement Plan The Directors’ Retirement Plan was frozen as of December 31, 1995. Consequently, only Jarobin Gilbert Jr. and James E. Preston are entitled to receive a benefit under this plan when their service as directors ends because they had completed at least five years of service as directors on December 31, 1995.
Messrs. Gilbert and Preston will receive an annual retirement benefit of $24,000 for a period of 10 years after they leave the Board or until their death, if sooner. Directors and Officers Indemnification and Insurance We have purchased directors and officers liability and corporation reimbursement insurance from a group of insurers comprising ACE American Insurance Co., Zurich American Insurance Co., St. Paul Mercury Insurance, RLI Insurance Co., Federal Insurance Co., Axis Insurance Co., Navigators Insurance
Co., XL Bermuda Ltd., and Valiant Insurance Co. These policies insure the Company and all of the Company’s wholly owned subsidiaries. They also insure all of the directors and officers of the Company and the covered subsidiaries. The policies were written for a term of 12 months, from October 12, 2008 until
October 12, 2009. The total annual premium for these policies, including fees, is $1,471,250. Directors and officers of the Company, as well as all other employees with fiduciary responsibilities under the Employee Retirement Income Security Act of 1974, as amended, are insured under policies issued by a group of
insurers comprising Arch Insurance Co., St. Paul Mercury Insurance Co., Continental Casualty Co. and RLI Insurance Co., which have a total premium, including fees, of $455,052 for the 12-month period ending October 12, 2009. The Company has entered into indemnification agreements with its directors and officers, as approved by shareholders at the 1987 annual meeting. Richard Mina, a former executive officer of the Company, requested indemnification with regard to an investigation being conducted by the Company. In February
2009, the Board of Directors authorized the indemnification of Mr. Mina for this investigation, subject to the provisions of the indemnification agreement. To date, the Company has paid fees and expenses of $27,199 for indemnification of Mr. Mina. Compensation Discussion and Analysis This is a discussion and analysis of our compensation program as it applies to the executive officers named in the Summary Compensation Table on Page 32. Summary While we reported a net loss on a GAAP basis of $79 million for 2008, our income from continuing operations, before non-cash impairment charges and store closing expenses, was $106 million, a 71 percent improvement over the comparable income from continuing operations in 2007. (Income from continuing
operations before non-cash impairment charges and store closing expenses is a non-GAAP financial measure. Our fourth quarter earnings release, issued March 4, 2009 and available on our website www.footlocker-inc.com, contains a schedule reconciling these amounts with our GAAP income.) This performance resulted in the payment of annual bonuses to the named executive officers discussed below. We also took certain other actions with regard to 2008 compensation for our named executive officers.
•
We increased the annual base salary of one of the named executive officers (Mr. Halls) by $100,000—$50,000 at the time of annual salary reviews and an additional $50,000 later in the year when he assumed additional responsibilities. The base salaries of the other named executive officers remained unchanged
from 2007. • We paid an annual bonus to Matthew D. Serra, our Chief Executive Officer, of $1,728,300, or 115 percent of his base salary, compared to a target pay-out of 125 percent of base salary. We paid annual bonuses for 2008 to the senior vice presidents of 72 percent of base salary, compared to a target pay-out of
75 percent of base salary. These pay-outs were made at a level slightly 19
below target bonus, and were the result of the Company’s pre-tax income and return-on-invested-capital performance in 2008 compared to performance targets established by the Compensation and Management Resources Committee for that year. • We paid an annual bonus to Mr. Halls of $312,700, or [44] percent of base salary, compared to a target of 75 percent of base salary. This pay-out was made at a level between threshold and target bonus, and was the result of the divisional profit of the divisions for which Mr. Halls had responsibility in 2008
compared to performance targets established by the Compensation Committee. Mr. Mina’s employment with the Company terminated prior to the end of 2008, and he was therefore not eligible to receive an annual bonus payment. • As the Company did not achieve the performance targets established by the Compensation Committee in 2006 under the Long-Term Incentive Compensation Plan for the 2006-2008 performance period, we did not pay long-term bonuses to any of our named executive officers. • For 2008, as we did in 2007, we provided for an increased target pay-out under the annual bonus plan for all of the named executive officers, other than the Chief Executive Officer, of 75 percent of base salary. The Chief Executive Officer’s target pay-out remained 125 percent of base salary. • We made stock option awards to five of the named executive officers—100,000 shares to the Chief Executive Officer; and 25,000 shares to each of the President—International and the three senior vice presidents. These options were priced at fair market value on the date of grant ($11.66 per share). With regard
to all of the executive officers other than Mr. Serra, these options vest in three equal installments on the first, second, and third anniversary of the grant date, subject to continued employment with us through each date. The options granted to Mr. Serra vest in two equal installments on the first anniversary of
the grant date and on January 30, 2010, the final day of the term of his current employment contract, provided he continues to be employed by us on that date. In light of the 2007 performance of the U.S. retail store operations, for which he had responsibility, we did not make a stock option grant to Mr. Mina
in 2008. • We made restricted stock awards to five of the named executive officers—50,000 shares to the Chief Executive Officer; 20,000 shares to the President—International; and 10,000 shares to each of the senior vice presidents. With regard to all of the named executive officers other than Mr. Serra, the restrictions on
these shares lapse if the executive continues to be employed by us for three years from the date of grant. The restrictions on Mr. Serra’s shares lapse on January 30, 2010, the final day of the term of his current employment contract, provided he continues to be employed by us on that date. We did not make a
restricted stock grant to Mr. Mina in 2008. Objectives of our compensation program The objectives of our compensation program are to attract, motivate, and retain talented retail industry executives in order to maintain and enhance the Company’s performance and its return to shareholders. The Compensation and Management Resources Committee, currently composed of four independent
directors, oversees the compensation program. What is our compensation program designed to reward and not reward? We have designed our compensation program to align the financial interests of our executives, including the named executive officers, with those of our shareholders. For that reason, it is designed to reward the overall effort and contribution of our executives as measured by the Company’s performance in
relation to targets established by the Compensation Committee, more than individual performance. Key concepts underlying our program are:
•
Executive compensation should be balanced between annual and long-term compensation and between cash and equity-based compensation (stock options and restricted stock). • The compensation program should align the interests of executives with those of the Company’s shareholders by rewarding both efforts to increase the Company’s share price and the achievement of performance factors that contribute to the company’s long-term health and growth (even if not immediately
translated into increases in share price). 20
• A substantial portion of the compensation of our executives, whether paid out currently or on a long-term basis, should be dependent on the Company’s performance. • More-senior executives should have a greater portion of their compensation at risk, whether through performance-based bonus programs or through stock price appreciation. Elements of compensation The elements of compensation for the named executive officers are:
•
base salary • performance-based annual cash bonus • performance-based long-term bonus, payable in cash or stock • long-term equity-based compensation consisting of stock options and restricted stock • retirement and other benefits • perquisites Why do we pay each element of compensation and how do we determine the amount for each element of compensation, or the formula that determines the amount? We establish benchmarks for base salary and total compensation for each named executive officer based upon a study conducted by Mercer, a nationally recognized compensation consultant that, for executive compensation purposes, reports directly to our Compensation Committee. These benchmarks are
based upon compensation for comparable positions at national retail companies with annual sales of $1 billion to $11 billion. The Compensation Committee, with the advice of Mercer, has determined that these companies are the appropriate peer group for executive compensation purposes based upon the nature
of their business, their revenues, and the pool from which they recruit their executives. The 18 companies included in the study that the Compensation Committee reviewed in setting 2008 compensation for the named executive officers were:
Abercrombie & Fitch
Ross Stores Inc.
AnnTaylor Stores Corp.
American Eagle Outfitters Inc.
Brown Shoe Company, Inc.
Borders Group Inc.
Collective Brands Inc.
Charming Shoppes
Dillards Inc.
Dick’s Sporting Goods Inc.
Family Dollar Stores
Finish Line Inc.
Genesco Inc.
Limited Brands Inc.
RadioShack Corp.
Saks Inc.
Talbots Inc.
Timberland Co. Two companies that were included in the peer group in 2007—Claires Stores Inc. and Dollar General Corp.—ceased to be publicly traded companies and were not included in the peer group in 2008. No companies were added to the peer group. The upper dollar limit of revenues of peer group companies was increased
from $10 billion to $11 billion as the revenues of peer company Limited Brands Inc. had risen above the $10 billion level. The goal of the Compensation Committee is for the total compensation of each named executive officer to approximate the 75th percentile of comparable peer group compensation if the Company achieves its performance targets, with an opportunity to exceed that for outstanding performance, and with
compensation falling closer to the median if the Company does not achieve its performance targets. The Compensation Committee established this goal based upon the Company’s size in relation to the other companies in the peer group and the relative complexity of our business, which includes multiple retail
divisions, a direct-to-customer business, and a significant international business with operations in 21 countries. 21
Base Salaries We pay base salaries to provide our named executive officers with current, regular compensation that is appropriate to their position, experience, and responsibilities. We benchmark base salaries for each named executive officer, other than the Chief Executive Officer, at approximately the 75th percentile of
the peer companies included in the annual Mercer study, and the base salaries of the named executive officers, other than the Chief Executive Officer, approximate this benchmark. The Compensation Committee has benchmarked the Chief Executive Officer’s base salary at the 90th percentile of the peer
companies in light of his experience, length of service, and other opportunities that are available to him in the retail sector. We pay higher base salaries to those named executive officers with greater overall responsibility. Performance-Based Annual Cash Bonus We pay performance-based annual cash bonuses to our named executive officers under the Annual Incentive Compensation Plan (“Annual Bonus Plan”) in order to provide incentive for them to work toward the Company’s achievement of annual performance goals established by the Compensation
Committee. Target payments under the Annual Bonus Plan for named executive officers were set for 2008 as follows:
Target
Annual Bonus Range
Chief Executive Officer
125% of Base Salary
31.25% to 200% of Base Salary Other Named Executive Officers
75% of Base Salary
18.75% to 131.25% of Base Salary If the Company does not achieve threshold performance then no annual bonus is paid. Executives who do not receive a “meets expectations” rating or higher in their annual performance review are normally ineligible to receive an annual bonus payment for that year. In 2007, the Compensation Committee increased the target payment under the Annual Bonus Plan for the named executive officers other than the Chief Executive Officer to 75 percent of base salary from 50 percent after having reviewed the likely status of pay-outs under the Company’s incentive plans,
including the Long-Term Plan, for 2007 and considering the need to provide appropriate financial incentive to the Company’s senior executive group. This also resulted in an increase in both threshold and maximum payment levels for this group. For the same reasons, the Compensation Committee continued to set
the target payment under the Annual Bonus Plan at 75 percent of base salary for these named executive officers in 2008. The Chief Executive Officer’s payment levels have remained unchanged in each of those years. The Compensation Committee expects to review the appropriate target payment under the
Annual Bonus Plan each year. Our Annual Bonus Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or more performance measures from a list of nine factors that have been approved by our shareholders. For 2008, for the named executive officers other than Mr. Halls, the
Compensation Committee established a performance target under the Annual Bonus Plan based upon the Company’s achievement of prescribed levels of pre-tax income and return-on-invested-capital. Seventy percent of a participant’s award is based upon the pre-tax income target and 30 percent on the return-on-
invested-capital target. All bonus targets and calculations are based on the results of continuing operations. The Annual Bonus Plan targets for 2008 were as follows:
Threshold
Target
Maximum Pre-tax income
$141.4 million
$157.1 million
$188.5 million Return-on-invested-capital
4.6%
4.8%
5.3% For example, if the Company had achieved pre-tax income of $157.1 million and return-on-invested-capital of 4.8 percent in 2008, the Chief Executive Officer would have received an annual bonus of 125 22
percent of his base salary. Bonus pay-outs are calculated on the basis of straight-line interpolation between the threshold, target, and maximum points. In 2008, the Company achieved pre-tax income from continuing operations slightly below the target level, and return-on-invested capital from continuing operations slightly below the maximum level, as follows:
Actual
Target
Maximum Pre-tax income
$150.6 million
$157.1 million
$188.5 million Return-on-invested-capital
5.2%
4.8%
5.3% This resulted in annual bonus payments to Messrs. Serra, McHugh and Bahler, and Ms. Petrucci at a level slightly below target. Mr. Halls’s target under the Annual Bonus Plan for 2008 was based upon the achievement by the operating divisions for which he had responsibility at the beginning of the year of a prescribed level of division profit. (Mr. Halls’s responsibilities were expanded during the course of 2008; however, his annual
bonus for 2008 was based only on the results of the divisions for which he had responsibility for the entire year. Beginning in 2009, Mr. Halls’s performance target under the Annual Bonus Plan will be the same as that for all other named executive officers.) As Mr. Mina was not employed by us on the bonus payment date, he was ineligible to receive an annual bonus payment. Division profit is a non-GAAP financial measure. It reflects income from continuing operations before income taxes, corporate expense, non-operating income, and net interest expense. A reconciliation of division profit to income from continuing operations is contained in the segment information footnote to
our financial statements. One of the performance measures we use in determining annual bonuses, return-on-invested-capital (“ROIC”), is also a non-GAAP financial measure. For purposes of calculating the annual bonus, we define ROIC as follows: ROIC
=
Operating Profit after Taxes
Average Invested Capital
Operating Profit after Taxes (Numerator)= Average Invested Capital (Denominator)= Pre-tax income Average total assets +/- interest expense/income - average cash, cash equivalents, and short-term investments + implied interest portion of operating lease payments - average year-end inventory +/- Unusual/non-recurring items + 13-month average inventory = Earnings before interest and taxes (EBIT) + average estimated asset base of capitalized operating leases - Estimated income tax expense = Average Invested Capital = Operating Profit after Taxes Certain items used in the calculation of ROIC, such as the implied interest portion of operating lease payments, certain unusual or non-recurring items, average estimated asset base of capitalized operating leases, and 13-month average inventory, while calculated from the financial records of the Company, cannot
be calculated from our audited financial statements. Prior to the Compensation Committee determining whether bonus targets have been achieved, the Company’s independent registered public accounting firm, at the request, and for the restricted use, of the Compensation Committee, reviews the bonus
calculations. 23
The
performance targets established by the Compensation Committee are based upon
the business plan and budget reviewed and approved each year by the Finance
and Strategic Planning Committee and the Board of Directors. In the case
of Mr. Halls’s bonus target for 2008, the target slightly exceeded the
combined divisional profits contained in the annual business plan and budget
for the businesses for which he had responsibility. We believe that these
targets are reasonably demanding, and that bonus pay-outs are correlated
to Company performance, as evidenced by our pay-out history over the past
five years. During that time, we have paid an annual bonus to corporate officers
between threshold and target twice, between target and maximum once, and
we have paid no annual bonus twice. Performance-Based Long-Term Bonus We pay performance-based long-term bonuses to our named executive officers under our Long-Term Incentive Compensation Plan (“Long-Term Plan”) in order to provide incentive for them to work toward the Company’s achievement of performance goals established by the Compensation Committee for
each three-year performance period. While bonuses under the Long-Term Plan may be paid in either cash or stock, in recent years, we have made these payments in cash. For many years, target payments under the Long-Term Plan for senior corporate officers have been at the following levels: Target
Range of Payments 90% of Initial Base Salary
22.5% to 180% of Initial Base Salary If the Company does not achieve threshold performance, as was the case for the 2006-2008 performance period, then no long-term bonus is paid. Pay-out levels are based on an executive’s rate of base salary payable in the first year of the three-year performance period. For example, if an executive’s base salary is set at $500,000 at the time executive salaries are reviewed in the first year of the performance period, that executive’s target pay-out under the
Long-Term Plan would be $450,000. In addition, we adjust on a pro rata basis, the rate of base salary on which pay-out levels are based for salary increases during the performance period related to promotions. Our Long-Term Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or both of consolidated net income or return-on-invested-capital, factors approved by our shareholders. In 2008, the Committee established a performance target for the 2008-2010
performance period under the long-term plan based upon return-on-invested capital. Off of the planned invested capital base, the Company must achieve 80 percent of target after-tax income before a threshold-level bonus is paid, and the maximum pay-out level is reached if after-tax income reaches 120 percent of
target. It should be noted that the actual invested capital base will also fluctuate, and the final pay-out for the performance period will also depend upon the invested capital base achieved during the period. Return-on-invested-capital is calculated using the same methodology as is used for the Annual Bonus Plan,
as described on Page 23, except that, in addition, long-term bonus expense is excluded from the operating profit calculation. These
performance targets are based upon the business plan and budget for the three-year
period reviewed and approved by the Finance and Strategic Planning Committee
and the Board of Directors. We believe that these targets are reasonably
demanding, and that bonus pay-outs are correlated to Company performance,
as evidenced by our pay-out history over the last five years. During that
time, we have paid long-term bonuses between threshold and target once, between
target and maximum twice, and there has been no pay-out twice. In 2006, the Compensation Committee established the following return-on-invested-capital target for the 2006-2008 performance period under the Long-Term Plan:
Threshold
Target
Maximum Three-year average return-on-invested-capital
8.9
%
10.5
%
12.1
% 24
As the Company did not achieve the threshold level of return-on-invested capital for the performance period, we did not pay long-term bonuses to the participants in the Long-Term Plan, including the named executive officers, for the 2006-2008 performance period. We do not have a formal policy with regard to the adjustment or recovery of bonus payments if it is determined, at a future date, that the relevant performance measures upon which the payments are based are restated or adjusted. We have not had this situation arise, and if it were to arise, we would expect to
make an evaluation at that time based upon the circumstances and the role of each individual executive in the events that gave rise to the restatement or adjustment. In preparing our financial statements for 2008, we discovered an error in the calculation of income tax expense for 2007, which resulted in a restatement of our results for 2007, pursuant to Staff Accounting Bulletin 108, that decreased our 2007 net income by approximately $6 million. As we did not pay the
named executive officers annual bonuses for 2007 or long-term bonuses for the 2005-2007 performance period, this misstatement of 2007 income did not affect the amount of any bonuses paid to the named executive officers. Items Disregarded for Annual and Long-Term Bonus Calculations Under normal circumstances, the Compensation Committee has no discretion to increase annual or long-term bonus payments, which are formula-driven based upon Company performance, and our program for the named executive officers does not provide for discretionary adjustments based upon individual
performance. The Compensation Committee has not adjusted, either upward or downward, any of the annual or long-term bonus payments to the named executive officers shown in the summary compensation table from pay-outs calculated based upon the applicable formula. The Committee has limited authority
when determining bonus payments, consistent with Section 162(m) of the Internal Revenue Code, to disregard certain events that it determines to be unusual or non-recurring. When establishing the targets, the Committee normally specifies certain items that it considers to be unusual or non-recurring, and these
events, if they occur, are automatically excluded when calculating payments. For example, in recent years targets have excluded the effect of acquisitions or dispositions, any non-cash impairment charges, and changes in accounting and tax rules. In 2008, in addition to disregarding tax regulatory changes, results of the CCS business acquired during the year, and results of disposed operations, we excluded the following items in calculation of annual bonus pay-outs:
Item
Pre-Tax Amount
After-Tax Amount Goodwill and other intangible asset
impairments
$
169
$
123 Impairment of Northern Group note
15
15 Impairment of money market fund
investment
3
3 Impairment of U.S. store long-lived
assets
67
41 Long-Term Equity-Based Awards A. Stock Options We make stock option awards to our named executive officers in order to more closely align the interests of our named executive officers with those of our shareholders. Equity-based awards are the responsibility of the Compensation Committee, which is composed entirely of independent directors. Stock option awards of the same size are normally made each year to named executive officers holding comparable positions, with larger awards being made to those with greater responsibility. The Compensation Committee awards stock options with exercise prices equal to the fair market value of our stock
on the date of grant. Under the 2007 Stock Incentive Plan, fair market value is defined as the 25
(in millions)
(in millions)
closing price on the grant date. The Compensation Committee has not granted options with an exercise price of less than the fair market value on the grant date. Options normally vest at the rate of one-third of the total grant per year over the first three years of the ten-year option term, subject to accelerated
vesting in certain circumstances. The Compensation Committee does not normally consider an executive’s gains from prior stock awards in making new awards. B. Restricted Stock Awards We make restricted stock awards to our named executive officers in order to more closely align the interests of our named executive officers with those of our shareholders, to provide our executives with an opportunity to increase their equity ownership, and to ensure the retention of key executives. In recent years, the Compensation Committee has made annual grants of restricted stock to the Company’s Chief Executive Officer. In 2008, the Committee also made restricted stock awards to four of the other named executive officers. In making these grants, the Committee considers an executive’s past
performance, an executive’s expected ability to contribute to the Company’s performance in the future, retention, and the desire to provide equity-based compensation through both stock options and restricted stock. When making restricted stock awards for retention purposes, the Compensation Committee
considers an executive’s prior awards and their vesting schedule. The restrictions on restricted stock normally lapse a specified period following the grant date (normally three years). The holders of restricted stock receive dividends on their restricted shares at the time the dividends are paid. C. Stock Ownership Guidelines We have adopted stock ownership guidelines for our directors and senior executives, including the named executive officers. The target date for compliance with these guidelines is February 2011. The guidelines require that the Chief Executive Officer own shares having a value at least equal to four times his
base salary and that the other named executive officers own shares having a value at least equal to two times base salary. In determining whether an executive meets the guidelines, we consider owned shares and restricted stock, but we do not consider stock options. As of the end of 2007, all of the named executive
officers met these stock ownership guidelines. In light of the decline in our share price in 2008, however, all of the named executive officers subject to the guidelines at year-end had fallen below the prescribed ownership level. When the guidelines were adopted in 2006, executives were given five years, until
February 2011, to meet the ownership levels. We do not permit our executive officers to take short or long positions in our shares; however, we do not otherwise have a formal policy with regard to executive officers hedging their economic interest in company stock or options. To our knowledge, none of the named executive officers hedged their position
in our shares or options during 2008, although some of the named executive officers may hold their shares in accounts that permit margin loans to the executive. Retirement and Other Benefits A. Retirement Plan and Excess Cash Balance Plan All United States-based associates of the Company who meet the eligibility requirements are participants in the Foot Locker Retirement Plan. The Retirement Plan and the method of calculating benefits payable under it are described on Page 54. All of the named executive officers are participants in the
Retirement Plan. The Internal Revenue Code limits the amount of compensation that may be taken into consideration in determining an individual’s retirement benefits. Therefore, those participants in the Retirement Plan, including the named executive officers, whose compensation exceeds the Internal Revenue
Service limits are also participants in the Excess Cash Balance Plan, described on Page 54, which pays the difference between the amount a participant receives from the Retirement Plan and the amount the participant would have received were it not for the Internal Revenue Service limits. 26
B. 401(k) Plan The Company maintains a 401(k) Plan for its eligible U.S. associates, and all of the named executive officers participate in it. The Plan permits participants to contribute the lesser of 40 percent of eligible compensation or the limit prescribed by the Internal Revenue Service to the 401(k) Plan on a before-tax
basis. The Company will match 25 percent of the first 4 percent of pay that is contributed to the 401(k) Plan, and the Summary Compensation Table on Page 32 includes, in All Other Compensation, the amount of the company-match for each of the named executive officers. The Company match is made in shares
of Company stock, valued on the last trading day of the plan year. C. Supplemental Executive Retirement Plan The Company maintains a Supplemental Executive Retirement Plan, described on Page 55, for certain senior officers of the Company and other key employees, including the named executive officers. The Supplemental Plan is an unfunded plan administered by the Compensation Committee, which sets an
annual target incentive award for each participant consisting of a percentage of salary and annual bonus based on the Company’s performance against target. Contributions may range from 4 percent to 12 percent of salary and annual bonus, depending on the Company’s performance against the established target,
with an 8 percent contribution being made for target performance. The target established by the Compensation Committee under the Supplemental Plan is normally the same as the target performance under the annual bonus plan. Participant accounts accrue simple interest at the rate of 6 percent annually. The
Supplemental Plan also provides for the continuation of medical insurance benefits to vested participants following their retirement. Based upon the Company’s performance in 2008, a credit of 7.65 percent of 2008 base salary and annual bonus was made to the Supplemental Plan for each of the named executive officers. As of the end of 2008, the account balances of the named executive officers ranged from $122,306 for Mr. McHugh to
$2,639,252 for Mr. Serra. Under the terms of the Supplemental Plan, executives are vested in their account balances based upon a combination of age and service. Of the named executive officers, Messrs. Serra, and Bahler are currently vested, and Mr. Mina was vested at the time of the termination of his
employment. The Retirement Plan takes into account only base salary and annual bonus in determining pension benefits. Credits to our Supplemental Executive Retirement Plan are based only on base salary and annual bonus. Therefore, stock awards have no effect on the calculation of pension payments. Perquisites We provide the named executive officers with certain perquisites, which the Compensation Committee believes are reasonable and consistent with its overall objective of attracting and retaining talented retail industry executives. The Company provides the named executive officers with an automobile
allowance, financial planning, medical expense reimbursement, annual physical, supplemental long-term disability insurance, and life insurance. In addition, the Company provides Mr. Serra with a driver and reimburses Mr. Halls for a limited amount of travel expenses of his spouse when she accompanies him on
business trips. Given Mr. Halls’s responsibility for our international businesses and the amount of time he spends traveling outside the United States on Company business, we consider this to be a reasonable perquisite uniquely applicable to his situation and responsibilities. We generally do not gross up executives for the income tax liability they incur due to the perquisites they receive. Given Mr. Halls’s extensive international travel obligations, as an exception to our general policy, through the end of 2008, we grossed up Mr. Halls for his income tax liability related to spousal
travel. We have discontinued this as of the beginning of 2009. How does each element of compensation fit into our overall compensation objectives? How does each element affect our decisions regarding other elements? As stated at the beginning of this discussion and analysis, the objectives of our compensation program are to attract, motivate, and retain talented retail industry executives in order to maintain and enhance the Company’s performance and its return to shareholders. 27
•
Base salaries fit into these compensation objectives by attracting and retaining talented retail company executives by paying them base salaries commensurate with their position, experience and responsibilities. • The performance-based annual and long-term cash bonus plans are designed to reward executives for enhancing the company’s performance through the achievement of performance targets. • Long-term equity-based awards (stock options and restricted stock) are designed to reward executives for increasing our return to our shareholders through increases in our stock price, and restricted stock awards may, in addition, serve to help retain key executives. Base salaries of named executive officers rarely change materially from year-to-year unless there has been a change in responsibility or other special factors apply. As discussed above, the Compensation Committee continued for 2008 the increased annual bonus target payment for the named executive officers
other than Mr. Serra. Long-term bonus target payments, as a percentage of base salary, have been consistent based upon position during the prior three-year period. Mr. Serra’s target bonus payments were the subject of negotiation between him and the Company and are specified in his employment agreement. In
determining total compensation, stock options are valued by the Committee’s outside compensation consultant using the Black-Scholes model. Restricted stock awards are valued based upon the share price at the time of grant. Compensation Plans and Risk We believe that our compensation program encourages our named executive officers to take energetic action to improve the Company’s performance without encouraging them to take undue risk. The cash incentive elements of the program—annual bonus and long-term bonus—are paid based upon performance as
compared to the Company’s annual and three-year business plans, which are prepared each year by the Company’s management and reviewed and approved by the Finance and Strategic Planning Committee and the Board of Directors. While in some years these business plans have proven to be aggressive—as shown
in hindsight when the plans are not achieved and bonuses are not paid—our history suggests that, on balance, they are reasonably achievable under normal business conditions. This encourages management to manage the business well without pressuring them to take undue risks in order to obtain a bonus payment. Our equity-based compensation for the named executive officers is designed with a similar goal in mind. Equity grants are relatively modest in relation to overall compensation. Stock options normally vest ratably over a three-year period and have a 10-year term, reducing the risk that an executive will take
short-term action to inflate the price of the Company’s stock for a brief period. Restricted stock awards normally vest after three years of continued service, and do not depend upon achieving a pre-set performance goal. In addition, there are certain other factors related to our compensation programs for the named executive officers that we believe help reduce the likelihood that compensation opportunity will encourage our executives to take undue risk:
•
As the bonus targets are based on the business plan, any significant deviation from the plan undertaken by management during the course of the year must be reviewed and approved by the Board of Directors. • As a retail company, we believe that one of the larger risks we run is to encourage management to achieve profit without taking into account the capital used, particularly working capital invested in inventory. We have therefore designed our bonus plans for senior management, including the named executive
officers, to take into account return-on-invested-capital as well as pre-tax profit in determining whether a bonus will be paid. • We have designed our plans so that executives who receive a “Not Meeting Expectations” or “Unsatisfactory” rating under the company’s annual performance appraisal process are not eligible to receive a bonus payment. This helps prevent an individual executive from taking any action inconsistent with the
business plan or otherwise exposing the company to undue risk. 28
• Finally, cash incentive payments and equity grants are not outsized in relation to base salary. At target, the Chief Executive Officer has the opportunity to earn 125 percent of his base salary in annual bonus and 90 percent of his base salary in long-term bonus. Comparable percentages for the other named
executive officers are 75 percent and 90 percent. Compensation Committee Procedure The Compensation Committee normally holds two scheduled meetings for the purpose of considering executive compensation. In 2008, as discussed below, the Committee held three meetings for this purpose. At the first meeting, held in February, the Committee reviewed a report from its outside compensation consultant on the Company’s executive compensation program, general executive compensation trends, trends in the retail industry, and specific background information on each senior management position. Based upon the material reviewed and the discussion of the Committee at this meeting, our Sr. Vice President—Human Resources, working with our Chairman of the Board and Chief Executive Officer, then prepared compensation recommendations to the Committee, covering all elements of compensation, for
all corporate officers and heads of our operating divisions, other than the Chief Executive Officer himself, which were forwarded to the Chair of the Compensation Committee for his review. There were also discussions between the Chairman of the Board and Chief Executive Officer and the Chair of the
Compensation Committee with regard to these proposals. Based upon input from the Chair of the Compensation Committee, the Human Resources Department then finalized these recommendations and prepared material for review by the Compensation Committee. The Compensation Committee then held a second regularly scheduled meeting in March to consider these recommendations and set compensation for the Company’s executives. At this meeting, the Committee reviewed a tally sheet that set out all elements of proposed compensation for each of the Company’s
senior executives, including the named executive officers, in order to assist in its evaluation of the compensation proposals for 2008. At this meeting the Committee also discussed among themselves (with the Sr. Vice President, General Counsel and Secretary also present) compensation for the Chairman of the Board and Chief Executive Officer for 2008, and decided to make the stock option and restricted stock awards to him shown in the
table on Page 34. Except in the case of promotions or other unusual circumstances, the Compensation Committee considers stock awards only at this meeting, which is normally held within a few weeks following the issuance of the Company’s full-year earnings release for the prior year. It is also at this meeting that the
Compensation Committee determined whether performance targets under the Annual Bonus Plan for the prior year and under the Long-Term Incentive Compensation Plan that ended in the prior year had been achieved, determined the amount of annual and long-term bonus pay-outs, adjusted base salaries for
the upcoming year, and established targets under the Annual and Long-Term Plans for the upcoming year and three-year performance period. In 2008, the Committee made all stock option and restricted stock awards to the named executive officers at its regularly scheduled meeting in March. The Compensation Committee has delegated authority to its Chair to approve stock option awards of up to 25,000 shares to any single individual other than a
corporate officer. The Chair generally uses this authority to approve stock option grants made during the course of the year in connection with promotions or new hires. In 2008, the Chair used this authority to approve grants of options to three executives, none of whom was a named executive officer, to purchase a
total of 22,000 shares. Those options are priced at fair market value on the date the Chair signs the approval. Neither the Compensation Committee nor its Chair has delegated authority to management to make stock option or restricted stock awards. In 2008, the Compensation Committee held a third meeting, in the fall, attended by its outside compensation consultant, to discuss possible changes to the executive compensation program to take effect in 2009. [After consideration, the Committee decided not to make any changes to the program.] 29
The Compensation Committee directly retains Mercer as its consultant on executive compensation matters. In addition to advising the Committee, other consultants and employees within Mercer provide U.S. and Canadian pension administration services to the Company, and in 2008 fees paid to Mercer for
advising the Committee represented approximately 15 percent of total fees paid by the Company to Mercer. In preparing its material for the Compensation Committee, Mercer consults with the Company’s Chairman of the Board and Chief Executive Officer, Sr. Vice President—Human Resources, Sr. Vice President
and General Counsel, and Vice President—Human Resources. Executive Employment Agreements As more fully described on Pages 39 to 42, we have employment agreements with each of our named executive officers. In 2008, we entered into a new agreement with Mr. Serra, our Chief Executive Officer, solely to make changes to comply with Internal Revenue Code Section 409A. In 2008, we also entered
into new agreements with the other named executive officers in order to make changes required to comply with Internal Revenue Code Section 409A and Section 162(m), to make certain provisions consistent in our executive employment agreements, and to make other changes. Our employment agreements with the named executive officers provide for severance payments to the executive if we terminate the executive’s employment without cause or if we give the executive good reason to terminate employment. These payments to the named executive officers, calculated as if
termination of employment occurred at the end of our last fiscal year, are set out in the tables on Pages 43 to 53. The named executive officers other than Mr. Serra, whose arrangements are discussed in the next paragraph, receive an enhanced severance payment if the executive’s employment is terminated without cause or if the executive terminates employment for good reason within two years following a change-in-
control. For an executive to receive the enhanced severance payment, two events must occur: first, employment must be terminated for one of the specified reasons, and second, this termination must occur within two years following a change-in-control. We believe that these provisions, which we have had in place
for a number of years, provide appropriate protection to our executives, comparable to that available at peer companies, and, with regard to the enhanced severance following a change-in-control, protect us from losing key executives during a period when a change-in-control may be threatened or pending. Mr. Serra’s employment agreement also provides for an enhanced severance payment if his employment is terminated without cause or if he terminates his employment for good reason within two years following a change-in-control. In addition, his agreement provides that, following a change-in-control, there
is a 30-day period during which Mr. Serra may elect to terminate his employment and receive this enhanced severance payment. We believe that this payment mechanism, which has been in Mr. Serra’s employment agreement since he became our Chief Executive Officer, is comparable to that provided to many
chief executive officers of public companies and benefits us, if a potential change-in-control were to arise, by allowing him to focus fully on the best interests of our Company and shareholders while a change-in-control is pending without being distracted by concerns about his personal situation. All of the named executive officers have agreed in their employment contracts not to compete with the Company for two years following the termination of employment and not to hire Company employees during that same period. This restriction does not apply following a change-in-control. None of the named executive officers, other than Mr. Serra, is entitled to a gross-up payment upon a change-in-control. As noted above, Mr. Serra’s employment agreement has not been materially modified and the gross-up provision included in Mr. Serra’s employment agreement has remained unchanged. Accounting and Tax Considerations While we review both the accounting and tax effects of various components of compensation, these effects are not a significant factor in the Compensation Committee’s allocation of compensation among the different components. In general, it is our position that compensation paid to executive officers 30
should be fully deductible for U.S. tax purposes, and we have structured our bonus and option programs so that payments made under them are deductible. In certain instances, however, we believe that it is in the Company’s best interests, and that of its shareholders, to have the flexibility to pay compensation that
is not deductible under the limitations of Section 162(m) of the Internal Revenue Code in order to provide a compensation package consistent with our program and objectives. The portion of Mr. Serra’s base salary that exceeds $1,000,000, the value of restricted stock awards made to him, and potentially a portion
of the value of restricted stock awards made to one or more of the other named executive officers, are not expected to be deductible. The Compensation and Management Resources Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on that review and discussion, has recommended to the Board of Directors that
the Compensation Discussion and Analysis be included in this proxy statement. James E. Preston, Chair 31
Alan D. Feldman
Matthew M. McKenna
Cheryl Nido Turpin
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Name and Principal Position(1)
Year
Salary
Bonus
Stock
Option
Non-Equity
Change
All Other
Total Matthew Serra
2008
1,500,000
—
1,129,402
341,212
1,728,339
417,593
245,964
5,362,510 Chairman, President
2007
1,500,000
—
1,613,477
444,589
—
227,515
75,717
3,861,298 and CEO
2006
1,500,000
—
1,637,369
679,752
1,547,582
225,627
82,573
5,672,903 Robert McHugh
2008
525,000
—
523,656
85,832
376,464
82,615
300,653
1,894,220 Senior VP and CFO
2007
518,750
—
517,331
116,289
—
34,348
20,211
1,206,929
2006
500,000
—
480,033
146,012
272,839
34,550
23,447
1,456,881 Ronald Halls
2008
704,167
—
627,928
167,251
312,675
102,678
533,847
2,448,546 President and CEO–
2007
650,000
—
537,128
278,443
—
50,217
292,142
1,807,930 Foot Locker, Inc.–
2006
528,409
250,000
215,406
226,254
141,252
47,111
29,119
1,437,551 International Gary Bahler
2008
524,975
—
344,856
95,441
376,446
147,421
327,999
1,817,138 Senior VP, General
2007
524,975
—
302,531
138,485
—
92,659
36,080
1,094,730 Counsel and
2006
517,400
—
270,925
177,051
380,724
86,081
32,604
1,464,785 Secretary Laurie Petrucci
2008
468,573
—
344,656
95,441
336,002
84,802
319,743
1,649,217 Senior VP–Human
2007
468,573
—
302,531
138,485
—
43,853
37,368
990,810 Resources
2006
461,942
—
270,925
177,051
340,156
42,390
26,821
1,319,285 Former Executive Officer Richard Mina
2008
656,250
—
595,767
108,879
—
225,918
1,924,861
3,511,675 Former President &
2007
868,750
—
1,140,060
251,060
—
137,457
49,370
2,446,697 CEO–Foot Locker,
2006
837,500
—
1,342,247
365,167
609,418
127,945
49,453
3,331,730 Inc.–USA Notes to Summary Compensation Table
(1)
Ronald Halls has served as President and Chief Executive Officer of Foot Locker, Inc.—International since October 9, 2006. Previously, he was President and Chief Executive Officer of the Company’s Champs Sports division. Richard Mina served as President and Chief Executive Officer of Foot Locker, Inc.—USA from February 2003 until September 30, 2008. (2) Guaranteed retention bonus paid to executive for 2006. (3) The amounts in this column represent the compensation expense recognized for financial statement reporting purposes for the designated fiscal years for the restricted stock awards granted in those years, as well as in prior years, in accordance with FAS 123R. As provided under the SEC’s rules, the amounts
shown exclude the impact of estimated forfeitures related to service-based vesting conditions and include expected dividend payments at the same rate as paid on our shares of Common Stock. For more information on the valuation of the restricted stock awards, please refer to Notes [25], 23, and 22,
respectively, of the Company’s financial statements in our Forms 10-K filed with the SEC for 2008, 2007 and 2006. The amounts shown in the table reflect the Company’s accounting expense for these awards and do not necessarily reflect the actual value that may be recognized by the named executives. A total
of 90,000 shares of unvested restricted stock granted in 2006 and 2007 to Mr. Mina were forfeited in 2008 in connection with the termination of his employment. (4) The amounts in this column represent the compensation expense recognized for financial statement reporting purposes for the designated fiscal years for the stock options granted to each of the named executives in those fiscal years, as well as in prior fiscal years, in accordance with FAS 123R. As provided
under the SEC’s rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions with respect to the grants covered in this table, please refer to Notes [25], 23 and 22, respectively, of the Company’s financial
statements in our Forms 10-K filed with the SEC for 2008, 2007 and 2006. Please also refer to the Grants of Plan-Based Awards Table on Page XX for information on the 32
($)
($)(2)
Awards
($)(3)
Awards
($)(4)
Incentive Plan
Compensation($)(5)
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)(6)
Compensation($)(7)
($)
options granted in 2008. The amounts shown in the table reflect the Company’s accounting expense for these awards and do not necessarily reflect the actual value that may be recognized by the named executives. (5) For 2008, this column includes payments made under the Annual Incentive Compensation Plan (the “Annual Bonus Plan”). For 2006, the amounts include payments made under the Annual Bonus Plan and the Long-Term Incentive Compensation Plan for the 2004-2006 Performance Period. (6) Amounts shown in column (h) represent the annual change in pension value during each of our last thee fiscal years for each of the executives. Please see Page XX for more information on 2008 pension benefits. (7) This column includes perquisites, and the amounts attributable to the executives for 2008 are shown in the table below. We valued these perquisites at the incremental cost to the Company of providing the personal benefits to the executives, which represents the actual cost attributable to providing these
personal benefits. Please note:
•
The amount shown in the table for Mr. Serra’s auto allowance includes the incremental cost to the Company of providing him with the personal use of a driver, who is a full time employee of the Company and who also performs other regular duties for the Company. • The amount shown below in the table under Tax Gross-Ups represents the tax gross up amounts paid to Mr. Halls related to his wife’s travel expenses. Beginning in 2009, we no longer provide a tax gross up to Mr. Halls for this benefit. • The amounts shown in the table under the 401(k) Match column represent the dollar value of the Company’s matching contribution under the Foot Locker 401(k) Plan made to the named executive’s account in shares of Common Stock. The shares of stock for the 2008 matching contribution were valued at
$7.34 per share. • The amounts shown for each individual under the column Accrual for Post-Termination Medical reflect the amounts accrued in 2008 for the actuarial present value of the future cost of providing this benefit to these individuals. • The amounts shown in this column for Mr. Mina include the perquisites attributable to him for 2008 prior to the termination of his employment. In addition, this column includes post-termination medical benefits and unpaid severance and other benefits in connection with the termination of his employment,
assuming that Mr. Mina would be entitled to such benefits. No post-termination benefits have been paid to him as of [ , 2009]. Additional information on termination payments for Mr. Mina is provided on Page XX under the heading Potential Payments upon Termination or Change in Control.
Name
Auto
Financial
Medical
Supp. LTD
Accrual
Spousal
Tax
Universal
Emp.
401(k)
Total M. Serra
61,540
—
13,605
—
164,597
—
—
—
3,922
2,300
245,964 R. McHugh
9,393
—
5,394
—
283,566
—
—
—
—
2,300
300,653 R. Halls
30,084
—
3,412
—
261,898
123,736
112,417
—
—
2,300
533,847 G. Bahler
15,210
7,500
3,786
5,565
291,020
—
—
2,618
—
2,300
327,999 L. Petrucci
22,500
9,168
4,366
—
279,104
—
—
2,305
—
2,300
319,743
Name
Auto
Vacation
Executive
Medical
Supp. LTD
Universal
Accrual
Accrued
Total Former Executive Officer R. Mina
28,191
16,827
855
5,000
2,641
3,526
348,372
1,519,449
1,924,861 The following Grants of Plan-Based Awards Table shows the awards made to the named executive officers in 2008 under the Annual Bonus Plan and the Long-Term Bonus Plan, as well as the restricted stock and stock option awards under the Company’s stock option and award plans. 33
Allowance
Planning
Expense
Reimbursement
and Executive
Physical
Insurance
Premiums
for Post-
Termination
Medical
Travel
Reimbursement
Gross-Up
on
Spousal
Travel
Expense
Life
Insurance
Premium
Agreement
Legal Fees
Match
Allowance
Payout
Physical
Expense
Reimbursement
Insurance
Premiums
Life
Insurance
Premium
for Post-
Termination
Medical
Severance
Benefits
(a)
(b)
Estimated Future Payouts
Estimated Future Payouts
(i)
(j)
(k)
(l)
(c)
(d)
(e)
(f)
(g)
(h)
Name
Grant
Threshold
Target
Maximum
Threshold
Target
Maximum
All
All
Exercise
Grant M. Serra
03/26/08(1)
468,750
1,875,000
3,000,000
03/26/08(2)
337,500
1,350,000
2,700,000
03/26/08(3)
50,000
583,000
03/26/08(4)
100,000
11.66
241,430 R. McHugh
03/26/08(1)
98,438
393,750
689,063
03/26/08(2)
118,125
472,500
945,000
03/26/08(3)
10,000
116,600
03/26/08(4)
25,000
11.66
61,828 R. Halls
03/26/08(1)
131,250
525,000
918,750
03/26/08(2)
157,500
630,000
1,260,000
03/26/08(3)
20,000
233,200
03/26/08(4)
25,000
11.66
61,828 G. Bahler
03/26/08(1)
98,438
393,750
689,063
03/26/08(2)
118,125
472,500
945,000
03/26/08(3)
10,000
116,600
03/26/08(4)
25,000
11.66
61,828 L. Petrucci
03/26/08(1)
87,863
351,450
615,038
03/26/08(2)
105,435
421,740
843,480
03/26/08(3)
10,000
116,600
03/26/08(4)
25,000
11.66
61,828
Former Executive Officer R. Mina
03/26/08(1)
164,063
656,250
1,148,438
03/26/08(2)
196,875
787,500
1,575,000 Notes to Grants of Plan-Based Awards Table
(1)
Annual Bonus Awards Amounts shown reflect the payment levels at threshold, target, and maximum performance for the 2008 fiscal year under the Company’s Annual Bonus Plan and reflect the potential amounts that would be paid at the end of the period if the applicable performance goals were achieved. The estimated bonus
payouts under the Annual Bonus Plan are based on a percentage of the executive’s base salary. For Mr. Serra, the threshold, target, and maximum amounts represent 31.25 percent, 125 percent, and 200 percent, respectively, of his annual base salary. For the other named executive officers shown in the table, the
threshold, target, and maximum amounts represent 18.75 percent, 75 percent, and 131.25 percent, respectively, of each executive’s annual base salary. Although Mr. Mina participated in the Annual Bonus Plan in 2008, he was not eligible to receive a payment under the plan because his employment terminated
prior to the completion of the plan year. (2) Long-Term Bonus Awards Amounts shown reflect the estimated payment levels at threshold, target, and maximum performance for the three-year performance period of 2008-2010 under the Company’s Long-Term Bonus Plan and reflect the potential amounts that would be paid at the end of the performance period if the applicable
performance goals are achieved. For each executive, the amounts shown under threshold, target, and maximum represent 22.5 percent, 90 percent, and 180 percent, respectively, of each executive’s annual base salary as of May 1 in the first year of the performance period. No amounts are paid to the executives
under the Long-Term Bonus Plan unless the performance goals for the three-year performance period are achieved. Although Mr. Mina participated in the Long-Term Bonus Plan, his award for the 2008-2010 performance period was cancelled upon the termination of his employment. 34
Under Non-Equity Incentive
Plan Awards
Under Equity Incentive
Plan Awards
Date
($)
($)
($)
(#)
(#)
(#)
Other
Stock
Awards:
Number of
Shares
of Stock
or Units
(#)
Other
Option
Awards:
Number of
Securities
Under-
lying
Options
(#)
or Base
Price of
Option
Awards
($/Sh)
Date
Fair
Value of
Stock
and
Option
Awards(5)
(3)
Restricted Stock Awards Amounts shown in the table under column (i) represent the number of shares of restricted stock awarded to the executive on the grant date. The restricted stock awards were granted under the 2007 Stock Incentive Plan. The shares of restricted stock granted to Mr. Serra in 2008 will vest on January 30, 2010 and
the shares awarded on this date to the other executives will vest on March 26, 2011, provided that the executives remain employed by the Company from the date of grant through the applicable vesting dates of the awards. The executives have the right to receive all regular cash dividends payable after the date
of grant to all record holders of our Common Stock. The grant date fair value of the restricted stock awards shown in column (l) includes expected dividend payments on the shares. Mr. Mina forfeited 90,000 shares of unvested restricted stock in connection with the termination of his employment in October
2008. (4) Stock Option Grants The amounts in column (j) reflect the number of stock options granted in 2008 under the Company’s stock option and award plans. The stock options were granted under the 2007 Stock Incentive Plan. The exercise price reflected in column (k) is equal to the closing price of a share of the Company’s Common
Stock on the grant date. In general, no portion of any stock option may be exercised until the first anniversary of its date of grant. The options granted in 2008 become exercisable in three installments, beginning on the first annual anniversary of the date of grant. Vested options may be exercised for ten years following the date of grant, unless the option is cancelled or exercised sooner than this. If the executive retires, becomes disabled, or dies while employed by the Company or one of its subsidiaries, all unexercised options that are then exercisable, plus those options
that would have become exercisable on the next anniversary of the grant date, will remain (or become) exercisable as of that date. Moreover, upon the occurrence of a Change in Control, all outstanding options will become immediately exercisable as of that date. In general, options may remain exercisable for
up to three years following a participant’s retirement or termination due to disability, and for up to one year for any other termination of employment for reasons other than cause. (5) Grant Date Fair Value The amounts shown in column (l) reflect the grant date fair value of the full restricted stock and stock option awards granted in 2008, calculated in accordance with FAS 123R. As provided under the SEC’s rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting
conditions and include expected dividend payments on shares of restricted stock at the same rate as paid on our shares of Common Stock. For option awards, that number is calculated by multiplying the Black-Scholes value by the number of options granted. The Black-Scholes value for the options granted in
2008 to Matthew Serra was $2.41, and the Black-Scholes value for the options granted in 2008 to the other named executive officers was $2.47. For information on the valuation assumptions with respect to the 2008 grants, please refer to [Note 25] of the Company’s financial statements in our Form 10-K for the
2008 fiscal year as filed with the SEC. For restricted stock awards, the fair value is calculated by multiplying the closing price of our Common Stock on The New York Stock Exchange on the award date by the number of shares granted. The closing price of our Common Stock on the date of grant was $11.66. Salary. The annual base salaries paid to our named executives in 2008 are set forth in the Summary Compensation Table. For 2008, their salaries represented the following percentages of their total compensation: Mr. Serra (28%), Mr. McHugh (27.7%,) Mr. Halls (28.8%), Mr. Bahler (28.9%), Ms. Petrucci (28.4%),
and Mr. Mina (18.7%). Information on the named executives’ employment agreements appears beginning on Page 32. The following table, Outstanding Equity Awards at Fiscal Year-End shows the number of outstanding stock options, both vested and unvested, and the number of unvested shares of restricted stock held by the named executives at the end of the 2008 fiscal year. 35
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
(a)
Option Awards
Stock Awards
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Name
Number of
Number of
Equity
Option
Option
Number
Market
Equity
Equity Incentive M. Serra
500,000
0
—
11.905
02/12/2011
—
—
—
—
200,000
0
—
16.02
04/18/2012
—
—
—
—
100,000
0
—
16.19
09/11/2013
—
—
—
—
100,000
0
—
25.365
02/18/2014
—
—
—
—
115,000
0
—
27.01
02/09/2015
—
—
—
—
66,666
33,334
—
23.92
03/22/2016
—
—
—
—
16,166
32,334
—
23.42
03/28/2017
—
—
—
—
0
100,000
—
11.66
03/26/2018
—
—
—
—
—
—
—
—
—
18,834
138,618
—
—
—
—
—
—
—
100,000
736,000
—
—
—
—
—
—
—
50,000
368,000
—
— R. McHugh
4,000
0
—
7.1875
01/03/2010
—
—
—
—
20,000
0
—
11.3125
04/12/2010
—
—
—
—
20,000
0
—
12.985
04/11/2011
—
—
—
—
20,000
0
—
16.02
04/18/2012
—
—
—
—
20,000
0
—
10.245
04/16/2013
—
—
—
—
20,000
0
—
25.385
04/01/2014
—
—
—
—
20,000
0
—
28.155
03/23/2015
—
—
—
—
30,000
0
—
21.48
11/21/2015
—
—
—
—
6,666
13,334
—
23.42
03/28/2017
—
—
—
—
0
25,000
—
11.66
03/26/2018
—
—
—
—
—
—
—
—
—
40,000
294,400
—
—
—
—
—
—
—
10,000
73,600
—
— R. Halls
10,000
0
—
16.02
04/18/2012
—
—
—
—
16,667
0
—
10.065
02/02/2013
—
—
—
—
20,000
0
—
25.385
04/01/2014
—
—
—
—
30,000
0
—
28.155
03/23/2015
—
—
—
—
20,000
10,000
—
23.92
03/22/2016
—
—
—
—
20,000
10,000
—
24.755
10/12/2016
—
—
—
—
10,000
20,000
—
23.42
03/28/2017
—
—
—
—
0
25,000
—
11.66
03/26/2018
—
—
—
—
—
—
—
—
—
20,000
147,200
—
—
—
—
—
—
—
30,000
220,800
—
—
—
—
—
—
—
20,000
147,200
—
—
—
—
—
—
—
20,000
147,200
—
— G. Bahler
20,002
0
—
11.3125
04/12/2010
—
—
—
—
47,500
0
—
12.985
04/11/2011
—
—
—
—
47,500
0
—
16.02
04/18/2012
—
—
—
—
33,000
0
—
10.245
04/16/2013
—
—
—
—
32,000
0
—
25.385
04/01/2014
—
—
—
—
25,000
0
—
28.155
03/23/2015
—
—
—
—
16,666
8,334
—
23.92
03/22/2016
—
—
—
—
6,666
13,334
—
23.42
03/28/2017
—
—
—
—
0
25,000
—
11.66
03/26/2018
—
—
—
—
—
—
—
—
—
40,000
294,400
—
—
—
—
—
—
—
10,000
73,600
—
— L. Petrucci
15,834
0
—
16.02
04/18/2012
—
—
—
—
26,667
0
—
10.245
04/16/2013
—
—
—
—
32,000
0
—
25.385
04/01/2014
—
—
—
—
25,000
0
—
28.155
03/23/2015
—
—
—
—
16,666
8,334
—
23.92
03/22/2016
—
—
—
—
6,666
13,334
—
23.42
03/28/2017
—
—
—
—
0
25,000
—
11.66
03/26/2018
—
—
—
—
—
—
—
—
—
40,000
294,400
—
—
—
—
—
—
—
10,000
73,600
—
— R. Mina
21,838
0
—
11.3125
10/31/2009
—
—
—
—
50,000
0
—
12.985
10/31/2009
—
—
—
—
50,000
0
—
16.02
10/31/2009
—
—
—
—
100,000
0
—
10.065
10/31/2009
—
—
—
—
80,000
0
—
25.385
10/31/2009
—
—
—
—
50,000
0
—
28.155
10/31/2009
—
—
—
—
33,333
0
—
23.92
10/31/2009
—
—
—
—
10,000
0
—
23.42
10/31/2009
—
—
—
— 36
Securities
Underlying
Unexercised
Options
(#)
Exercisable(1)
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Exercise
Price
($)
Expiration
Date
of Shares
or Units
of Stock
That Have
Not
Vested
(#)(2)
Value of
Shares or
Units of
Stock
That Have
Not Vested
($)(3)
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)
Plan Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other Rights
That Have
Not Vested
($)
Notes to Table on Outstanding Equity Awards at Fiscal Year End
(1)
The Vesting Schedules for the options shown in columns (b) and (c) are as follows:
Name
Total Number of
Date of Grant
Vesting Date for 1/3
Vesting Date for 1/3
Vesting Date for 1/3 M. Serra
500,000
02/12/2001
02/12/2002
02/12/2003
02/12/2004
200,000
04/18/2002
04/18/2003
04/18/2004
04/18/2005
100,000
09/11/2003
09/11/2004
09/11/2005
09/11/2006
100,000
02/18/2004
02/18/2005
02/18/2006
02/18/2007
115,000
02/09/2005
02/09/2006
02/09/2007
02/01/2008
100,000
03/22/2006
03/22/2007
03/22/2008
03/22/2009
48,500
03/28/2007
03/28/2008
03/28/2009
01/30/2010
100,000
03/26/2008
03/26/2009
*
01/30/2010
*
— R. McHugh
5,000
02/10/1999
02/10/2000
02/10/2001
02/10/2002
4,000
01/03/2000
01/03/2001
01/03/2002
01/03/2003
20,000
04/12/2000
04/12/2001
04/12/2002
04/12/2003
20,000
04/11/2001
04/11/2002
04/11/2003
04/11/2004
20,000
04/18/2002
04/18/2003
04/18/2004
04/18/2005
20,000
04/16/2003
04/16/2004
04/16/2005
04/16/2006
20,000
04/01/2004
04/01/2005
04/01/2006
04/01/2007
20,000
03/23/2005
03/23/2006
03/23/2007
03/23/2008
30,000
11/21/2005
11/21/2006
11/21/2007
11/21/2008
20,000
03/28/2007
03/28/2008
03/28/2009
03/28/2010
25,000
03/26/2008
03/26/2009
03/26/2010
03/26/2011 R. Halls
10,000
04/18/2002
04/18/2003
04/18/2004
04/18/2005
16,667
02/02/2003
02/02/2004
02/02/2005
02/02/2006
20,000
04/01/2004
04/01/2005
04/01/2006
04/01/2007
30,000
03/23/2005
03/23/2006
03/23/2007
03/23/2008
30,000
03/22/2006
03/22/2007
03/22/2008
03/22/2009
30,000
10/12/2006
10/12/2007
10/12/2008
10/12/2009
30,000
03/28/2007
03/28/2008
03/28/2009
03/28/2010
25,000
03/26/2008
03/26/2009
03/26/2010
03/26/2011 * Option granted with 2-year vesting schedule
Name
Total Number of
Date of Grant
Vesting Date for 1/3
Vesting Date for 1/3
Vesting Date for 1/3 G. Bahler
20,002
04/12/2000
04/12/2001
04/12/2002
04/12/2003
47,500
04/11/2001
04/11/2002
04/11/2003
04/11/2004
47,500
04/18/2002
04/18/2003
04/18/2004
04/18/2005
33,000
04/16/2003
04/16/2004
04/16/2005
04/16/2006
32,000
04/01/2004
04/01/2005
04/01/2006
04/01/2007
25,000
03/23/2005
03/23/2006
03/23/2007
03/23/2008
25,000
03/22/2006
03/22/2007
03/22/2008
03/22/2009
20,000
03/28/2007
03/28/2008
03/28/2009
03/28/2010
25,000
03/26/2008
03/26/2009
03/26/2010
03/26/2011 L. Petrucci
15,834
04/18/2002
04/18/2003
04/18/2004
04/18/2005
26,667
04/16/2003
04/16/2004
04/16/2005
04/16/2006
32,000
04/01/2004
04/01/2005
04/01/2006
04/01/2007
25,000
03/23/2005
03/23/2006
03/23/2007
03/23/2008
25,000
03/22/2006
03/22/2007
03/22/2008
03/22/2009
20,000
03/28/2007
03/28/2008
03/28/2009
03/28/2010
25,000
03/26/2008
03/26/2009
03/26/2010
03/26/2011 Former Executive Officer R. Mina
21,838
04/12/2000
04/12/2001
04/12/2002
04/12/2003
50,000
04/11/2001
04/11/2002
04/11/2003
04/11/2004
50,000
04/18/2002
04/18/2003
04/18/2004
04/18/2005
100,000
02/02/2003
02/02/2004
02/02/2005
02/02/2006
80,000
04/01/2004
04/01/2005
04/01/2006
04/01/2007
50,000
03/23/2005
03/23/2006
03/23/2007
03/23/2008
50,000
03/22/2006
03/22/2007
03/22/2008
*
30,000
03/28/2007
03/28/2008
*
* * Unvested portion of option cancelled upon termination of employment. 37
Securities Underlying
Unexercised Options
of Total Grant
of Total Grant
of Total Grant
Securities Underlying
Unexercised Options
of Total Grant
of Total Grant
of Total Grant
(2)
The vesting dates for the restricted stock awards shown in column (g) are as follows:
Name
Date of Grant
Number of Shares
Vesting Date M. Serra
03/22/2006
18,834
03/15/2009
03/28/2007
100,000
01/30/2010
03/26/2008
50,000
01/30/2010 R. McHugh
03/28/2007
40,000
03/15/2010
03/26/2008
10,000
03/26/2011 R. Halls
03/22/2006
20,000
03/15/2009
10/12/2006
30,000
10/12/2009
03/28/2007
20,000
03/15/2010
03/26/2008
20,000
03/26/2011 G. Bahler
03/28/2007
40,000
03/15/2010
03/26/2008
10,000
03/26/2011 L. Petrucci
03/28/2007
40,000
03/15/2010
03/26/2008
10,000
03/26/2011
|
||||||||||||||||||||
(3) |
|
Value calculated by multiplying the number of unvested shares by the closing price of $7.36 on January 30, 2009, which was the last business day of the 2008 fiscal year. |
||||||||||||||||||
The following table, Option Exercises and Stock Vested, provides information on the stock options exercised by the named executives during 2008 and shares of restricted stock that vested during the year.
OPTION EXERCISES AND STOCK VESTED
|
|
|
|
|
|
|
|
|||||||||||||||||||||
(a) |
Option Awards |
Stock Awards |
||||||||||||||||||||||||||
(b) |
(c) |
(d) |
(e) |
|||||||||||||||||||||||||
|
Name |
Number of Shares |
Value Realized |
Number of Shares |
Value Realized |
||||||||||||||||||||||||
|
M. Serra |
|
— |
|
— |
|
18,833 |
|
206,786 |
||||||||||||||||||||
|
R. McHugh |
|
5,000 |
|
12,194 |
|
30,000 |
|
200,400 |
||||||||||||||||||||
|
R. Halls |
|
— |
|
— |
|
— |
|
— |
||||||||||||||||||||
|
G. Bahler |
|
— |
|
— |
|
— |
|
— |
||||||||||||||||||||
|
L. Petrucci |
|
— |
|
— |
|
— |
|
— |
||||||||||||||||||||
|
Former Executive Officer |
|
|
|
|
|
|
||||||||||||||||||||||
|
R. Mina |
|
— |
|
— |
|
40,000 |
|
439,200 |
||||||||||||||||||||
38
We have employment agreements with each of the named executive officers, excluding Richard Mina, and we describe the material terms of each of these agreements below. Information on potential payments and benefits on termination of the agreements is described under the section “Potential Payments
upon Termination or Change in Control,” beginning on Page 43.
•
Position. We entered into a new agreement in December 2008 with Mr. Serra in his position as Chairman of the Board, President and Chief Executive Officer. This agreement contains substantially the same terms and conditions as the agreement entered into with Mr. Serra in 2006, except for changes made to
comply with Section 409A of the Internal Revenue Code. • Term. The term of this agreement began on October 1, 2006 and ends on January 30, 2010. • Base Salary and Bonus. We pay Mr. Serra an annual base salary of not less than $1.5 million during the term of the agreement. Mr. Serra’s annual bonus at target is 125 percent of his base salary, and his bonus at target under the long-term bonus plan for any three-year performance period is 90 percent of his
base salary at the beginning of the performance period. If Mr. Serra remains employed by Foot Locker through the end of his contract term, he will be eligible for a pro-rata payout under the Long-Term Bonus Plan for the 2008-2010 and 2009-2011 performance periods, provided the performance goals are met. • Benefit Plans and Perquisites. Mr. Serra is entitled to participate in all bonus, incentive, and equity plans offered to senior executives. He is also eligible to participate in all pension, welfare, and fringe benefit plans and perquisites offered to senior executives. The benefits and perquisites available to Mr. Serra
include:
—
Company-paid life insurance in the amount of his annual base salary; — Long-term disability insurance coverage of $25,000 per month; — Annual out-of-pocket medical expense reimbursement of up to $20,000; — Financial planning expenses of up to $7,500 annually; — Reimbursement of dues and membership fees of one private club of up to $20,000 annually; — Automobile expense allowance of up to $40,000 annually and the services of a driver;
Although Mr. Serra is eligible for these perquisites under his agreement, he chose not to receive some of these benefits in 2008. • Non-Compete Provision. Mr. Serra’s agreement provides that he may not compete with Foot Locker or solicit our employees for two years following the termination of his employment agreement. • Certain Defined Terms in the Agreement: “Cause” means Mr. Serra:
—
willfully and continuously fails to perform his duties; — willfully takes part in misconduct that significantly harms the Company; — willfully breaches his employment agreement and does not correct the breach; or — is convicted of a felony (other than a traffic violation). “Change in Control” means any of the following:
—
a person or group makes a tender offer to purchase at least 20 percent of the Company’s outstanding stock; — the Company merges with another company or sells all (or substantially all) of its assets. This event would exclude, for example, mergers (or similar transactions) in which no one becomes the beneficial owner of more than 20 percent of the stock outstanding; — the acquisition of 20 percent or more of the outstanding stock. (The Board may, however, increase this threshold up to 40 percent); 39
— shareholder approval of a plan of liquidation, dissolution, or sale of substantially all of the assets of the Company; or — during any period of two consecutive years, the directors at the start of the period, plus any new director whose election or nomination for election was approved by at least two-thirds of the directors then remaining on the Board who either were directors at the beginning of the period or whose election or
nomination was approved in this manner, do not comprise at least a majority of the Board. “Disability” means:
—
Mr. Serra is incapacitated due to physical or mental illness and, as a result, has not performed his duties on a full-time basis for six months and does not return to perform his duties after the Company gives him notice.
“Good Reason” means, following a Change in Control,
a material demotion or reduction in Mr. Serra’s authority or responsibility (except temporarily because of illness or other absence); — a decrease in his base salary rate; — a reduction in his annual bonus classification level; — failure to continue the benefit plans and programs that apply to him, or the reduction of his benefits, without providing substitute comparable plans, programs and benefits; — failure by a successor company to confirm in writing that it will assume the Company’s obligations under the agreement; or — the Company breaches a material provision of the agreement and does not correct the breach. Robert W. McHugh, Ronald J. Halls, Gary M. Bahler, and Laurie J. Petrucci
•
Position/Term/Base Salary. We have employment agreements with these executives in their current positions, as follows:
Name
Position
Term of Agreement
2008 Base Salary Rate
R. McHugh
Senior VP and CFO
1/1/2009–1/31/2010
$525,000
R. Halls
President and CEO, Foot Locker, Inc.–International
5/1/2008–1/31/2010
$750,000
G. Bahler
Senior VP, General Counsel and Secretary
1/1/2009–1/31/2010
$525,000
L. Petrucci
Senior VP–Human Resources
1/1/2009–1/31/2010
$468,600
•
Term. The terms of the agreements will automatically be extended for another year unless notice of non-renewal is given three months prior to the expiration date. • Base Salary. We pay these executives annual base salaries at rates not less than their salaries at the start of their agreements. The executives’ base salaries for 2008 are shown in the table. • Benefit Plans and Perquisites. These executives are entitled to participate in all benefit plans and arrangements in effect at the start of the agreement, including retirement plans, annual and long-term bonus plans, medical, dental, and disability plans, and any other plans subsequently offered to our senior
executives. • Spousal Travel. Mr. Halls’s wife may accompany him on up to eight business trips each fiscal year at the Company’s expense. In 2008, we grossed up Mr. Halls’s salary for a percentage of this spousal travel expense. Beginning in 2009, the Company discontinued the gross-up of this expense. • Non-Compete Provision. The executives’ agreements provide that they may not compete with Foot Locker or solicit our employees for two years following the termination of their employment agreements. 40
—
• Certain Defined Terms in the Agreement: “Cause” means the executive’s:
—
refusal or willful failure to substantially perform his duties; — dishonesty, willful misconduct, or fraud with regard to the Company’s business or assets; — willful breach of his employment agreement and he does not correct the breach; or — conviction of a felony (other than a traffic violation) or any crime involving moral turpitude. “Change in Control” means any of the following:
—
the Company merges with another company or sells all (or substantially all) of its assets. This event excludes, for example, mergers (or similar transactions) in which no one becomes the beneficial owner of more than 50 percent of the stock outstanding; — the acquisition of 35 percent or more of the outstanding stock; or — during any period of two consecutive years, the directors at the start of the period, plus any new director whose election or nomination for election was approved by at least two-thirds of the directors then remaining on the Board who either were directors at the beginning of the period or whose election or
nomination was approved in this manner, do not comprise at least a majority of the Board. “Disability” means:
—
The executive is incapacitated due to physical or mental illness and, as a result, has not performed his duties on a full-time basis for six months, and does not return to perform his duties after the Company gives him notice.
“Good Reason” means: Prior to a Change in Control,
a reduction in base salary, other than an across-the-board reduction in senior executive salaries over a three-year period and the reduction is less than 20% of the executive’s salary from the beginning of the three-year period; — material change in the executive’s authority or responsibilities, except temporarily as a result of illness or other absence; Following a Change in Control,
—
any reduction in base salary; — failure to continue the benefit plans and programs that apply to the executive, or the reduction of his benefits, without providing substitute comparable plans and benefits; — a material demotion or reduction in executive’s authority or responsibility (except temporarily because of illness or other absence); At any time,
—
a reduction in the executive’s annual bonus classification level, other than in connection with a redesign that affects all other employees in the executive’s bonus level; — failure by a successor to the Company to confirm in writing that it will assume the Company’s obligations under the agreement; — failure by the Company to renew the agreement. 41
—
We had an employment agreement with Mr. Mina as President and Chief Executive Officer of Foot Locker, Inc.–U.S.A. substantially in the same form as the agreements described above for the named executive officers other than Mr. Serra. Mr. Mina’s service as President and CEO of Foot Locker, Inc.–U.S.A.
ended on September 30, 2008, and his employment with the Company was terminated on October 31, 2008. Certain obligations under this agreement continue post-termination, such as Mr. Mina’s non-competition obligation.
Name
Position
Term of Agreement
2008 Base Salary Rate R. Mina
President and CEO, Foot Locker, Inc.–U.S.A.
5/1/2008—1/31/2010
$875,000 42
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The executives’ employment agreements and certain of the plans and programs that executives participate in require the Company to pay compensation to the executives if their employment terminates in certain circumstances. The estimated amount of compensation and benefits that would be payable to the
named executives following termination of their employment, including amounts already vested, is stated in the tables below. Except for Richard Mina, whose information appears on Page 53, the information in the tables assumes a termination date of January 31, 2009. Reason for
Severance
Accelerated
SERP
Benefit under Excess Cash Balance Plan
Continuation of Health Benefits
Outplacement
Tax Gross-Up
Total
By Company
$3,228,339
Restricted
$2,639,252
$453,204
$164,597
$25,000
—
$7,753,010
Or
Stock Options:
By Executive
(1)
(2)
(3)
(4)
(5)
(6)
Executive
—
—
$2,639,252
$453,204
$164,597
—
—
$3,257,053
(3)
(4)
(5)
Termination
$5,062,500
Restricted
$2,639,252
$453,204
$164,597
$25,000
—
$9,587,171
Stock Options:
(7)
(8)
(2)(9)
(3)
(4)
(5)
(6)
(10)
Disability
—
Restricted
$2,639,252
$453,204
$164,597
—
—
$4,499,671
Stock Options:
(11)(9)
(12)
(4)
(5)
Death
—
Restricted
$2,639,252
$453,204
—
—
—
$4,335,074
Stock Options:
(11)(9)
(12)
(4)
Cause
—
—
—
$453,204
—
—
—
$453,204
(4) Notes to Table on Matthew D. Serra
(1) The severance amount equals: — $1,500,000, which reflects the total remaining monthly salary payments through the end of the employment contract term on January 30, 2010. Payment of the first six months of salary 43
Termination
Payment
and
Annual
Bonus
Vesting of
Restricted
Stock and
Options
Benefit
Services
Payment
Without
Cause
Stock:
$1,242,618
No acceleration
of vesting
if Company
Breaches
Employment
Agreement
Resigns
Before End
of Term
following
Change in
Control
Stock:
$1,242,618
Accelerated
vesting of
165,668 shares:
$0 value
Stock:
$1,242,618
Accelerated
vesting of
99,501 shares:
$0 value
Stock:
$1,242,618
Accelerated
vesting of
99,501 shares:
$0 value
continuation would be made six months following termination, and the remaining payments would then be made on a monthly basis; plus — $1,728,339, which reflects Mr. Serra’s annual bonus of $1,728,339 for 2008, which would be payable at the time the bonus payments for the plan year are made to other participants in the plan. (2) This amount is the value of 168,834 shares of restricted stock that would vest on termination. The shares were valued at $7.36. (3) This amount is the total benefit payable under the Supplemental Executive Retirement Plan (“SERP”). The payments would be made quarterly over a three-year period. The first two quarterly payments would be made six months following the executive’s termination date, with the remaining payments made
quarterly during the remainder of the three-year period. (4) Benefit payable as of January 31, 2009 in a lump sum under the Foot Locker Excess Cash Balance Plan six months following the executive’s termination date. No information is provided with respect to the benefit under the Foot Locker Retirement Plan because that plan is available generally to all salaried
employees and does not discriminate in terms of scope, terms, or operation in favor of the executive officers. (5) Mr. Serra would be entitled under the SERP to the continuation of medical and dental insurance benefits following termination. The benefits would be substantially the same as those benefits to which senior executives are entitled under Foot Locker’s medical and dental plans for active employees. Mr. Serra
would be required to pay the insurance premium applicable to actively employed senior executives, including any subsequent increases in the premiums. The continuation of benefits would terminate if Mr. Serra engages in competition during the one-year period following termination or becomes a participant
in a new employer’s health plan. The amount shown in the table represents the amount accrued by the Company for Mr. Serra’s post-termination medical and dental benefits. (6) This amount reflects the approximate cost of one year of outplacement services. (7) This covers (i) termination by the Executive within the 30-day period occurring three months after a Change in Control and (ii) by the Company without Cause or by Executive for Good Reason during the two-year period following a Change in Control. (8) This amount equals 1.5 times Executive’s annual base salary plus annual bonus at target, which is the minimum amount payable to the executive for termination following a Change-in-Control. Payment would be made as provided in Note 1 above for the $1,500,000 in remaining salary payments and the
$1,728,339 annual bonus payment. For the excess amount of $1,834,161, payment would be made in a lump sum six months following the executive’s termination date. (9) The fair market value of a share of the Company’s stock on January 31, 2009 was less than the exercise price of each of the unvested options that would be accelerated, so the intrinsic value of the option on that date was $0. (10) If Mr. Serra receives payments or benefits following a Change in Control that are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, we would pay him a gross-up payment to put him in the same after-tax position he would have been in had no excise tax been imposed. Based on
current estimates, no excise tax would be payable by executive; therefore, there would be no tax gross-up payment. This provision has been in Mr. Serra’s employment agreement since he joined the Company in 1998. (11) The Compensation and Management Resources Committee may, but is not obligated to, accelerate the vesting of some or all of executive’s restricted stock. The number shown in the table assumes approval of the accelerated vesting of 168,834 shares of restricted stock, valued at $7.36. (12) SERP benefit payable in a lump sum following the determination of disability or the date of death. 44
Reason for
Severance
Accelerated
SERP
Benefit under
Continuation
Outplacement
Tax Gross-Up
Total
By Company
$525,000
Restricted
—
$75,810
$8,100
—
—
$608,910
Stock Options:
(1)
(2)
(3)
By Executive
$525,000
Restricted
—
$75,810
$8,100
—
—
$608,910
Stock Options:
(1)
(4)
(2)
(3)
Executive
—
—
—
$75,810
—
—
—
$75,810
(2)
Termination
$1,575,000
Restricted
—
$75,810
$8,100
—
—
$2,026,910
Stock Options:
(5)
(6)(4)
(2)
(3)
(7)
Disability
—
Restricted
$122,306
$75,810
$8,100
—
—
$574,216
Stock Options:
(8)(4)
(9)
(2)
Death
—
Restricted
$122,306
$75,810
—
—
—
$566,116
Stock Options:
(8)(4)
(9)
(2)
Cause
—
—
—
$75,810
—
—
—
$75,810
(2) Notes to Table on Robert W. McHugh
(1)
The severance amount equals 52 weeks’ salary and would be payable six months following termination. (2) Benefit payable as of January 31, 2009 in a lump sum under the Foot Locker Excess Cash Balance Plan six months following the executive’s termination date. No information is provided with respect to the benefit under the Foot Locker Retirement Plan because that plan is available generally to all salaried
employees and does not discriminate in terms of scope, terms, or operation in favor of the executive officers. 45
Termination
Payment
Vesting of
Restricted
Stock and
Options
Benefit
Excess Cash
Balance Plan
of Health
Benefits
Services
Payment
Without
Cause
Stock:
No acceleration
of vesting
No acceleration
of vesting
for Good
Reason
Stock:
No acceleration
of vesting
Accelerated
vesting of
15,000 shares:
$0 value
Resigns
Before End
of Term
following
Change in
Control
Stock:
$368,000
Accelerated
vesting of
38,834 shares:
$0 value
Stock:
$368,000
Accelerated
vesting of
15,000 shares
$0 value
Stock:
$368,000
Accelerated
vesting of
15,000 shares:
$0 value
(3) The amount in the table reflects the estimated cost to the Company of payments to Mr. McHugh to reimburse him for the difference between the cost of the COBRA continuation coverage premium and the amount he would have paid for medical and dental coverage as an active associate for 18 months
following his termination. (4) The fair market value of a share of the Company’s stock on January 31, 2009 was less than the exercise price of each of the unvested options that would be accelerated, so the intrinsic value of the option on that date was $0. (5) The severance amount equals three times the executive’s annual salary. (6) This amount represents the value of 50,000 shares of restricted stock that would vest on termination. The shares were valued at $7.36. (7) If the payments or benefits received by the executive following a Change in Control are subject to the excise tax under Section 4999 of the Internal Revenue, then the Company would automatically reduce Mr. McHugh’s payments and benefits to an amount equal to $1 less than the amount that would subject
him to the excise tax, as long as the reduced amount would result in a greater benefit to him compared to the unreduced amount on a net after-tax basis. (8) The Compensation and Management Resources Committee may, but is not obligated to, accelerate the vesting of some or all of executive’s restricted stock. The number shown in the table assumes approval of the accelerated vesting of 50,000 shares of restricted stock, valued at $7.36. (9) SERP benefit payable in a lump sum following determination of disability or the date of death. 46
Reason for
Severance
Accelerated
SERP
Benefit under
Continuation
Outplacement
Tax Gross-Up
Total
By Company
$750,000
Restricted
—
$86,862
$8,100
—
—
$844,962
Stock Options:
(1)
(2)
(3)
By Executive
$750,000
Restricted
—
$86,862
$8,100
—
—
$844,962
Stock Options:
(1)
(4)
(2)
(3)
Executive
—
—
—
$86,862
—
—
—
$86,862
(2)
Termination
$2,250,000
Restricted
—
$86,862
$8,100
—
—
$3,007,362
Stock Options:
(5)
(6)(4)
(2)
(3)
(7)
Disability
—
Restricted
$336,408
$86,862
$8,100
—
—
$1,093,770
Stock Options:
(8)(4)
(9)
(2)
Death
—
Restricted
$336,408
$86,862
—
—
—
$1,085,670
Stock Options:
(8)(4)
(9)
(2)
Cause
—
—
—
$86,862
—
—
—
$86,862
(2) Notes to Table on Ronald J. Halls
(1)
The severance amount equals 52 weeks’ salary and would be payable six months following termination. (2) Benefit payable as of January 31, 2009 in a lump sum under the Foot Locker Excess Cash Balance Plan six months following the executive’s termination date. No information is provided with respect to the benefit under the Foot Locker Retirement Plan because that plan is available generally to all salaried
employees and does not discriminate in terms of scope, terms, or operation in favor of the executive officers. 47
Termination
Payment
Vesting of
Restricted
Stock and
Options
Benefit
Excess Cash
Balance Plan
of Health
Benefits
Services
Payment
Without
Cause
Stock:
No acceleration
of vesting
No acceleration
of vesting
for Good
Reason
Stock:
No acceleration
of vesting
Accelerated
vesting of
38,333 shares:
$0 value
Resigns
Before End
of Term
following
Change in
Control
Stock:
$662,400
Accelerated
vesting of
65,000 shares:
$0 value
Stock:
$662,400
Accelerated
vesting of
38,333 shares:
$0 value
Stock:
$662,400
Accelerated
vesting of
38,333 shares:
$0 value
(3) This amount reflects the estimated cost to the Company of payments to Mr. Halls to reimburse him for the difference between the cost of the COBRA continuation coverage premium and the amount he would have paid for medical and dental coverage as an active associate for 18 months following his
termination. (4) The fair market value of a share of the Company’s stock on January 31, 2009 was less than the exercise price of each of the unvested options that would be accelerated, so the intrinsic value of the option on that date was $0. (5) The severance amount equals three times the executive’s annual salary. (6) This amount represents the value of 90,000 shares of restricted stock that would vest on termination. The shares were valued at $7.36. (7) If the payments or benefits received by the executive following a Change in Control are subject to the excise tax under Section 4999 of the Internal Revenue Code, then the Company would automatically reduce Mr. Halls’s payments and benefits to an amount equal to $1 less than the amount that would subject
him to the excise tax, as long as the reduced amount would result in a greater benefit to him compared to the unreduced amount on a net after-tax basis. (8) The Compensation and Management Resources Committee may, but is not obligated to, accelerate the vesting of some or all of executive’s restricted stock. The number shown in the table assumes approval of the accelerated vesting of 90,000 shares of restricted stock, valued at $7.36. (9) SERP benefit payable in a lump sum following determination of disability or the date of death. 48
Reason for
Severance
Accelerated
SERP
Benefit under
Continuation
Outplacement
Tax Gross-Up
Total
By Company
$848,077
Restricted
$691,748
$289,032
$291,020
—
—
$2,119,877
Stock Options:
(1)
(2)
(3)
(4)
By Executive
Severance:
Restricted
$691,748
$289,032
$291,020
—
—
$2,119,877
Stock Options:
(1)
(5)
(2)
(3)
(4)
Executive
—
—
$691,748
$289,032
$291,020
—
—
$1,271,800
(2)
(3)
(4)
Termination
$1,575,000
Restricted
$691,748
$289,032
$291,020
—
—
$3,214,800
Stock Options:
(6)
(7)(5)
(2)
(3)
(4)
(8)
Disability
—
Restricted
$691,748
$289,032
$291,020
—
—
$1,639,800
Stock Options:
(9)(5)
(10)
(3)
(4)
Death
—
Restricted
$691,748
$289,032
—
—
—
$1,348,780
Stock Options:
(9)(5)
(10)
(3)
Cause
—
—
—
$289,032
—
—
—
$289,032
(3) Notes to Table on Gary M. Bahler
(1)
The severance amount equals three times weekly salary multiplied by executive’s 28 years of service and would be payable six months following termination. (2) This amount is the total benefit payable under the Supplemental Executive Retirement Plan (“SERP”). The payments would be made quarterly over a three-year period. The first two quarterly payments would be made six months following the executive’s termination date, with the remaining payments made
quarterly during the remainder of the three-year period. 49
Termination
Payment
Vesting of
Restricted
Stock and
Options
Benefit
Excess Cash
Balance Plan
of Health
Benefits
Services
Payment
Without
Cause
Stock:
No acceleration
of vesting
No acceleration
of vesting
for Good
Reason
$848,077
Stock:
No acceleration
of vesting
Accelerated
vesting of
23,334 shares:
$0 value
Resigns
Before End
of Term
following
Change in
Control
Stock:
$368,000
Accelerated
vesting of
46,668 shares:
$0 value
Stock:
$368,000
Accelerated
vesting of
23,334 shares:
$0 value
Stock:
$368,000
Accelerated
vesting of
23,334 shares:
$0 value
(3) Benefit payable as of January 31, 2009 in a lump sum under the Foot Locker Excess Cash Balance Plan six months following executive’s termination date. No information is provided with respect to the benefit under the Foot Locker Retirement Plan because that plan is available generally to all salaried
employees and does not discriminate in terms of scope, terms, or operation in favor of the executive officers. (4) Mr. Bahler would be entitled under the SERP to the continuation of medical and dental insurance benefits following termination. The benefits would be substantially the same as those benefits to which senior executives are entitled under Foot Locker’s medical and dental plans for active employees. Mr.
Bahler would be required to pay the insurance premium applicable to actively employed senior executives, including any subsequent increases in the premiums. The amount shown in the table represents the amount accrued by the Company for Mr. Bahler’s post-termination medical and dental benefits. (5) The fair market value of a share of the Company’s stock on January 31, 2009 was less than the exercise price of each of the unvested options that would be accelerated, so the intrinsic value of the option on that date was $0. (6) The severance amount equals three times the executive’s annual salary. (7) This amount represents the value of 50,000 shares of restricted stock that would vest on termination. The shares were valued at $7.36. (8) If the payments or benefits received by the executive following a Change in Control are subject to the excise tax under Section 4999 of the Internal Revenue, then the Company would automatically reduce Mr. Bahler’s payments and benefits to an amount equal to $1 less than the amount that would subject
him to the excise tax, as long as the reduced amount would result in a greater benefit to him compared to the unreduced amount on a net after-tax basis. (9) The Compensation and Management Resources Committee may, but is not obligated to, accelerate the vesting of some or all of executive’s restricted stock. The number shown in the table assumes approval of the accelerated vesting of 50,000 shares of restricted stock, valued at $7.36. (10) SERP benefit payable in a lump sum following the determination of disability or the date of death. 50
Reason for
Severance
Accelerated
SERP
Benefit under
Continuation
Outplacement
Tax Gross-Up
Total
By Company
$468,600
Restricted
—
$65,171
$5,603
—
—
$539,374
Stock Options:
(1)
(2)
(3)
By Executive
$468,600
Restricted
—
$65,171
$5,603
—
—
$539,374
Stock Options:
(1)
(4)
(2)
(3)
Executive
—
—
—
$65,171
—
—
—
$65,171
(2)
(3)
Termination
$1,405,800
Restricted
—
$65,171
$5,603
—
—
$1,844,574
Stock Options:
(5)
(6)(4)
(2)
(3)
(7)
Disability
—
Restricted
$436,698
$65,171
$5,603
—
—
$875,472
Stock Options:
(8)(4)
(2)
(3)
Death
—
Restricted
$436,698
$65,171
—
—
—
$869,869
Stock Options:
(8)(4)
(2)
Cause
—
—
—
$65,171
—
—
—
$65,171
(2) Notes to Table on Laurie J. Petrucci
(1)
The severance amount equals 52 weeks’ salary and would be payable six months following termination. (2) Benefit payable as of January 31, 2009 in a lump sum under the Foot Locker Excess Cash Balance Plan six months following the executive’s termination date. No information is provided with respect to the benefit under the Foot Locker Retirement Plan because that plan is available generally to all salaried
employees and does not discriminate in terms of scope, terms, or operation in favor of the executive officers. 51
Termination
Payment
Vesting of
Restricted
Stock and
Options
Benefit
Excess Cash
Balance Plan
of Health
Benefits
Services
Payment
Without
Cause
Stock:
No acceleration
of vesting
No acceleration
of vesting
for Good
Reason
Stock:
No acceleration
of vesting
Accelerated
vesting of
23,334 shares:
$0 value
Resigns
Before End
of Term
following
Change in
Control
Stock:
$368,000
Accelerated
vesting of
46,668 shares:
$0 value
Stock:
$368,000
Accelerated
vesting of
23,334 shares:
$0 value
Stock:
$368,000
Accelerated
vesting of
23,334 shares:
$0 value
(3) This amount reflects the estimated cost to the Company of payments to Ms. Petrucci to reimburse her for the difference between the cost of the COBRA continuation coverage premium and the amount she would have paid for medical and dental coverage as an active associate for 18 months following her
termination. (4) The fair market value of a share of the Company’s stock on January 31, 2009 was less than the exercise price of each of the unvested options that would be accelerated, so the intrinsic value of the option on that date was $0. (5) The severance amount equals three times the executive’s annual salary. (6) This amount represents the value of 50,000 shares of restricted stock that would vest on termination. The shares were valued at $7.36. (7) If the payments or benefits received by the executive following a Change in Control are subject to the excise tax under Section 4999 of the Internal Revenue, then the Company would automatically reduce Ms. Petrucci’s payments and benefits to an amount equal to $1 less than the amount that would subject
her to the excise tax, as long as the reduced amount would result in a greater benefit to her compared to the unreduced amount on a net after-tax basis. (8) The Compensation and Management Resources Committee may, but is not obligated to, accelerate the vesting of some or all of executive’s restricted stock. The number shown in the table assumes approval of the accelerated vesting of 50,000 shares of restricted stock, valued at $7.36. 52
On September 30, 2008, we notified Mr. Mina that the Company was terminating his employment without Cause as of October 31, 2008. Subsequently, the Audit Committee retained counsel to conduct an investigation into an anonymous allegation communicated to the Company with regard to Mr. Mina. Mr.
Mina subsequently brought an action against the Company in connection with the termination of his employment. As of the date of this proxy statement, no severance benefit, payments under the SERP, or payment under the Excess Cash Balance Plan have been made to Mr. Mina. In addition, as of the date of this
proxy statement, no final determination has been made with regard to the status of his termination. The amounts shown in the table reflect the amount of the payments that the Company anticipates that it would make to Mr. Mina as a consequence of the termination of his employment without Cause. Mr. Mina
forfeited all of his unvested restricted stock on his termination date, and there was no acceleration of the vesting of any of his unvested stock options. He is not entitled to any tax gross-up payment. Reason for
Severance
SERP
Benefit under
Continuation
Continuation of
Outplacement
Insurance
Total
By Company
$1,463,942
$914,620
$527,391
$348,372
$30,000
$20,000
$5,507
$3,309,832
(1)
(2)
(3)
(4)
(5)
(6) Notes to Table on Richard Mina
(1)
The severance amount equals three weeks’ salary multiplied by Mr. Mina’s 29 years of service. (2) This amount is the total benefit payable under the Supplemental Executive Retirement Plan (“SERP”). The payments would be made quarterly over a three-year period. The first two quarterly payments would be made six months following Mr. Mina’s termination date, with the remaining payments made
quarterly during the remainder of the three-year period. (3) Benefit payable in a lump sum under the Foot Locker Excess Cash Balance Plan six months following the Mr. Mina’s termination date. No information is provided with respect to the benefit under the Foot Locker Retirement Plan because that plan is available generally to all salaried employees and does not
discriminate in terms of scope, terms, or operation in favor of the executive officers. (4) For a termination without Cause, Mr. Mina would be entitled under the SERP to the continuation of medical and dental insurance benefits. The benefits would be substantially the same as those benefits to which senior executives are entitled under Foot Locker’s medical and dental plans for active employees.
Mr. Mina would be required to pay the insurance premium applicable to actively employed senior executives, including any subsequent increases in the premiums. The amount shown in the table represents the amount accrued by the Company for post-termination medical and dental benefits. (5) The amount shown in the table represents the maximum reimbursement Mr. Mina is eligible to receive for the continuation of his automobile expense reimbursement. (6) The Company paid the annual premiums through December 2008 on a long-term disability insurance policy and through July 2009 on a universal life insurance policy for Mr. Mina. 53
Termination
Payment
Benefit
Excess Cash
Balance Plan
of Health
Benefits
Automobile
Expense
Reimbursement
Services
Premiums
Without
Cause
Foot Locker Retirement Plan The Foot Locker Retirement Plan (the “Retirement Plan”) is a defined benefit plan with a cash balance formula, which covers eligible employees of the Company and substantially all of our United States subsidiaries. All qualified employees who are at least 21 years old with one year of service are covered by
the Retirement Plan. Plan participants become fully vested in their benefits under this plan generally upon completion of five years of service or upon reaching normal retirement age (age 65) while actively employed. Under the cash balance formula, each participant has an account, for record keeping purposes only, to which credits are allocated annually based upon a percentage of the participant’s W-2 Compensation, as defined in the Retirement Plan. This percentage is determined by the participant’s years of service with
the Company as of the beginning of each calendar year. The following table shows the percentage used to determine credits at the years of service indicated.
Years of
Percent of All
+
Percent of W-2 Less than 6
1.10
0.55 6–10
1.50
0.75 11–15
2.00
1.00 16–20
2.70
1.35 21–25
3.70
1.85 26–30
4.90
2.45 31–35
6.60
3.30 More than 35
8.90
4.45 In addition, all balances in the participants’ accounts earn interest at the fixed rate of 6 percent, which is credited annually. At retirement or other termination of employment, an amount equal to the vested balance then credited to the account under the Retirement Plan is payable to the participant in the form
of a qualified joint and survivor annuity (if the participant is married) or a life annuity (if the participant is not married). The participant may elect to waive the annuity form of benefit and receive benefits under the plan upon retirement in an optional annuity form or an immediate or deferred lump sum, or, upon
other termination of employment, in a lump sum. Additional optional forms of payment are available to participants who were participating in the Retirement Plan as of December 31, 1995. Foot Locker Excess Cash Balance Plan The Internal Revenue Code limits annual retirement benefits that may be paid to, and the compensation that may be taken into account in calculating benefits for, any person under a qualified retirement plan such as the Foot Locker Retirement Plan. Accordingly, for any person covered by the Retirement
Plan whose annual retirement benefit, calculated in accordance with the terms of the Retirement Plan, exceeds the limitations of the Internal Revenue Code, the Company has adopted the Foot Locker Excess Cash Balance Plan (the “Excess Plan”). The Excess Plan is an unfunded, nonqualified benefit plan, under
which the individual is paid the difference between the Internal Revenue Code limitations and the retirement benefit to which he or she would otherwise be entitled under the Retirement Plan. Early Retirement Eligibility The Foot Locker Retirement Plan provides for a reduced benefit payment to a participant who retires after reaching early retirement age but prior to normal retirement age. Early retirement age is defined under the Retirement Plan and Excess Plan as age 55 with at least 5 years of vesting service. Mr. Serra
and Mr. Bahler are the only named executive officers currently eligible for early retirement under these plans. 54
Service
W-2 Compensation
Compensation
Over $22,000
Foot Locker Supplemental Executive Retirement Plan In addition, the Foot Locker Supplemental Executive Retirement Plan (the “SERP”), which is an unfunded, nonqualified benefit plan, provides for payment by the Company of supplemental retirement, death and disability benefits to certain executive officers and certain other key employees of the Company
and its subsidiaries who participate in this plan. The named executive officers, excluding Richard T. Mina, and three other executive officers of the Company currently participate in the SERP. The Compensation and Management Resources Committee sets an annual targeted incentive award under the SERP for
each participant consisting of a percentage of salary and bonus based on the Company’s performance against target. Achievement of the target causes an 8 percent credit to a participant’s account for that year. The applicable percentage for the year increases or decreases proportionately to the percentage of the
Company’s performance in relation to the target, but may not be less than 4 percent or more than 12 percent in any year. Participants’ accounts accrue simple interest at the rate of 6 percent annually. A participant is eligible to receive a benefit under the SERP only if his or her age plus years of service at retirement equals at least 65. Currently, Messrs. Serra and Bahler have age plus years of service totaling at least 65. Mr. Mina had age plus years of service exceeding 65 at the time of his termination of
employment. If a participant’s employment terminates due to death or disability he (or his estate) would be entitled to payment of his SERP balance. A participant’s SERP benefit is paid in 12 quarterly installments following retirement, with the first two quarters payable six months following retirement. Upon
death or disability, a participant’s SERP benefit is paid in a lump sum. The SERP provides for the continuation of medical and dental insurance benefits if an executive’s age plus years of service total at least 65 when his employment terminates. The benefits would be substantially the same as those benefits to which senior executives are entitled under Foot Locker’s medical and
dental plans for active employees. The terminated executive would be required to pay the insurance premium applicable to actively employed senior executives, including any increases in the premiums, and the Company would pay the difference between the actual premium rate and the active employee rate. Payment of Retirement Benefits The table below provides the present value of the accumulated benefit payable to each of the named executives and the years of service credited to each of them under the Foot Locker Retirement Plan, the Excess Plan, and the SERP determined using interest rate and mortality rate assumptions consistent
with those used in our 2008 financial statements. With regard to Mr. Mina, the SERP amount assumes that Mr. Mina is eligible for the SERP benefit and reflects his account balance at February 1, 2008 with no interest or pay credit for 2008. 55
(a)
(b)
(c)
(d)
(e)
Name
Plan
Number of Years
Present Value of
Payments During M. Serra
Retirement Plan
9
41,737
0
Excess Plan
9
450,300
SERP
11
2,415,210
2,907,247 R. McHugh
Retirement Plan
10
44,118
0
Excess Plan
10
71,460
SERP
4
111,261
226,839 R. Halls
Retirement Plan
7
31,890
0
Excess Plan
7
83,453
SERP
6
307,641
422,984 G. Bahler
Retirement Plan
27
224,935
0
Excess Plan
27
279,245
SERP
11
633,027
1,137,207 L. Petrucci
Retirement Plan
10
40,920
0
Excess Plan
10
61,412
SERP
8
397,755
500,087 Former Executive Officer R. Mina
Retirement Plan
27
178,209
0
Excess Plan
27
524,837
SERP
10
933,128
1,636,174 Notes to Pension Benefits Table
(1)
In general, the present value of accumulated benefits was determined using the same measurement date (January 31, 2009) and assumptions used for financial reporting purposes. Expected retirement age for the Retirement Plan and the Excess Plan is equal to normal retirement age as defined by the plans. For
the SERP, the age at which Participants become eligible for retirement under the plan is used as the expected retirement age. The following are the key assumptions that were used in calculating the values in the table:
FAS 87 Discount rate of 6.5 percent for the Retirement Plan and the SERP; • Retirement age is assumed to be 65 for the Retirement Plan and the Excess Plan; for the SERP the retirement age is assumed to be when age plus years of service equal 65. • 417(e) interest rate of 6 percent. • Form of payment for the Retirement Plan and the Excess Plan is a lump sum; the form of payment for the SERP is 12 quarterly installments. The years of service for the SERP reflect the number of years that the executive has been approved by the Compensation Committee as a participant in that plan. Mr. Serra’s years of service under the Retirement Plan and the Excess Plan are less than the number of years of credited service under the SERP
because of the requirement that an employee must complete a year of eligibility service before becoming eligible for participation in these plans. 56
Name
Credited Service
(#)(1)
Accumulated Benefit
($)(1)
Last Fiscal Year
($)
•
FAS 87 Discount rate of 6.4 percent for the Excess Plan.
Trust Agreement for Certain Benefit Plans The Company has established a trust for certain benefit plans, arrangements, and agreements, including the Supplemental Executive Retirement Plan, the Foot Locker Excess Cash Balance Plan, the executive employment agreements, and other benefit plans, agreements or arrangements that may be covered at
a later date (collectively, the “Benefit Obligations”). Under the trust agreement, if there is a Change in Control of the Company (as defined in the Trust agreement), the trustee would pay to the persons entitled to the Benefit Obligations the amounts to which they may become entitled under the Benefit
Obligations. Upon the occurrence of a Potential Change in Control of the Company as defined in the trust agreement, the Company is required to fund the trust with an amount sufficient to pay the total amount of the Benefit Obligations. Following the occurrence, and during the pendency, of a Potential Change in
Control, the trustee would be required to make payments of Benefit Obligations to the extent these payments are not made by the Company. EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of January 31, 2009 for compensation plans under which equity securities may be issued.
(a)
(b)
(c)
Plan Category
Number of Securities
Weighted-Average
Number of Securities Equity Compensation Plans Approved by Security Holders
6,079,819
$
18.6431
7,352,414
(1)(2) Equity Compensation Plans Not Approved by Security Holders
0
0
0 Total
6,079,819
$
18.6431
7,352,414 Notes to Equity Compensation Plan Table
(1)
Includes 2,462,275 shares available for future issuance under the 2003 Employees Stock Purchase Plan (the “2003 Purchase Plan”) other than upon the exercise of an option, warrant or right.
Participating employees under the 2003 Purchase Plan may contribute up to 10 percent of their annual compensation to acquire shares of the Company’s Common Stock at 85 percent of the lower market price on one of two specified dates in each plan year. Payouts under the Long-Term Incentive Compensation Plan may be made in cash or shares of Common Stock. If shares are used, they would be issued as Other Stock-Based Awards under the 2007 Stock Incentive Plan. 57
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Exercise Price of
Outstanding Options,
Warrants and Rights
Remaining Available
For Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in
Column(a))
(2)
The 2007 Stock Incentive Plan (the “2007 Plan”) currently is the only plan under which stock awards may be granted to directors, officers and other employees of Foot Locker. The 2007 Plan limits the number of shares that may be awarded to participants in the form of restricted stock or Other Stock-Based
Awards to 1.5 million shares out of the total number of shares authorized. As of the end of the 2008 fiscal year, a total of 1,172,868 shares remained available for issuance as restricted stock and Other Stock-Based Awards, and these shares are included in the total number of shares disclosed in column (c).
ITEMS TO BE VOTED ON BY SHAREHOLDERS PROPOSAL 1: Our Certificate of Incorporation provides that the Board of Directors be divided into three classes serving staggered three-year terms, each class to be as nearly equal in number as the other two. The terms of the four directors constituting Class III expire at the 2009 annual meeting. Alan D. Feldman, Jarobin Gilbert Jr., and David Y. Schwartz will be considered for election as directors in Class III, to serve for three-year terms expiring at the annual meeting in 2012. In order to make the classes equal in number, Cheryl Nido Turpin, who has been a director of the Company since 2001, will
be considered for election as a director in Class II, to hold office for a two-year term expiring at the annual meeting in 2011. Each nominee has been nominated by the Board of Directors for election and has consented to serve. All of the nominees were elected to serve for their present terms at the 2006 annual
meeting. The five remaining directors will continue in office until the expiration of their terms at the 2010 or 2011 annual meeting. If, prior to the annual meeting, any nominee is not able to serve, then the persons designated as proxies for this meeting (Gary M. Bahler, Robert W. McHugh and Matthew D. Serra)
will have full discretion to vote for another person to serve as a director in place of that nominee. Under the retirement policy for directors, which is described on Page 9, Mr. Preston would be required to retire from the Board following the 2009 Annual Meeting because he has reached age 75. Mr. Preston, who was elected to a three-year term ending in 2010, currently serves as the lead director. Last year,
on the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors waived the retirement policy for Mr. Preston and provided that the Board would review the waiver prior to the 2009 annual meeting of shareholders. This year, the Board reviewed the waiver for Mr. Preston
and, upon the recommendation of the Nominating and Corporate Governance Committee, approved a continuation of the waiver so that Mr. Preston may continue to serve on the Board and as lead director. Mr. Preston did not participate in the deliberations or decisions of either the Board or the committee on
this matter. Biographical information follows for the four nominees and for each of the five other directors of the Company whose terms will continue after the 2009 annual meeting. The ages shown are as of April 9, 2009. There are no family relationships among the directors or executive officers of the Company. The Board of Directors recommends that shareholders vote FOR the election of the four identified Nominee for Director Cheryl Nido Turpin. Age 61. Director since 2001. President and Chief Executive Officer of the Limited Stores (retail merchants), a division of Limited Brands, Inc., from June 1994 to August 1997. Ms. Turpin is a director of The Warnaco Group, Inc. Nominees for Director Alan D. Feldman. Age 57. Director since 2005. Chairman, President and Chief Executive Officer of Midas, Inc. (automotive repair and maintenance services) since May 1, 2006. He was President and Chief Executive Officer of Midas from January 13, 2003 to April 30, 2006. He was an independent consultant
from March 2002 to January 2003. He is a director of Midas, Inc. and JBT Corporation. Jarobin Gilbert Jr. Age 63. Director since 1981. President and Chief Executive Officer of DBSS Group, Inc. (management, planning and trade consulting services) since 1992. He is a director of PepsiAmericas, Inc. and Midas, Inc. He is Chairman of the Board of Trustees of Atlantic Mutual 58
ELECTION OF DIRECTORS
nominees to the Board of Directors.
Term Expiring in 2011
Terms Expiring in 2012
Insurance Company. Mr. Gilbert is also a director of Harlem Partnership, Inc. and a permanent member of the Council on Foreign Relations. David Y. Schwartz. Age 68. Director since 2000. Independent business adviser and consultant, principally in the retail, distribution and service industries, since July 1997. He was a partner with Arthur Andersen LLP from 1972 until he retired from that public accounting firm in 1997. Mr. Schwartz is a director
of Walgreen Co., Stage Stores, Inc., and True Value Company. Directors Continuing in Office James E. Preston. Age 75. Director since 1983. Chairman of the Board of Avon Products, Inc. (manufacture and sale of beauty and related products) from 1989 to May 6, 1999, and Chairman and Chief Executive Officer of Avon Products, Inc. from 1989 to June 1998. Matthew D. Serra. Age 64. Director since 2000. The Company’s Chairman of the Board since February 1, 2004, President since April 12, 2000, and Chief Executive Officer since March 4, 2001. He was the Company’s Chief Operating Officer from February 9, 2000 to March 3, 2001. Dona D. Young. Age 55. Director since 2001. Chairman of the Board, President and Chief Executive Officer of The Phoenix Companies, Inc. (provider of wealth management products and services to individuals and institutions) to April 15, 2009. Mrs. Young has held the positions of Chairman of the Board
since April 1, 2003, President since February 2000, and Chief Executive Officer since January 1, 2003. Mrs. Young is also Chairman of the Board since April 1, 2003 and Chief Executive Officer since January 1, 2003 of Phoenix Life Insurance Company. She previously served as President of Phoenix Life Insurance
Company from February 2000 to March 31, 2003 and Chief Operating Officer from February 2001 to December 31, 2002. She is a director of The Phoenix Companies, Inc. until April 15, 2009. Directors Continuing in Office Nicholas DiPaolo. Age 67. Director since 2002. Vice Chairman of Bernard Chaus, Inc. (apparel designer and manufacturer) from November 1, 2000 to June 23, 2005; Chief Operating Officer of Bernard Chaus from November 1, 2000 to October 18, 2004. Mr. DiPaolo is a director of JPS Industries and R.G.
Barry Corporation. Matthew M. McKenna. Age 58. Director since 2006. President and Chief Executive Officer of Keep America Beautiful, Inc. (non-profit community improvement and educational organization) since January 1, 2008. He was Senior Vice President of Finance of PepsiCo, Inc. (global snack and beverage company)
from August 6, 2001 through December 31, 2007. He is a director of PepsiAmericas, Inc. Mr. McKenna is also a member of the Duke University Library Advisory Board and serves on the board of the Manhattan Theater Club. He is also an adjunct professor at Fordham Business School and Fordham Law School
in New York. 59
Terms Expiring in 2010
Terms Expiring in 2011
PROPOSAL 2: The Audit Committee of the Board of Directors has appointed KPMG LLP as our independent registered public accountants for the 2009 fiscal year. We are asking shareholders at this meeting to ratify this appointment of KPMG LLP for 2009. Representatives of KPMG are expected to be present at the annual meeting and will have an opportunity to make a statement and respond to appropriate questions. The Board of Directors recommends that shareholders vote FOR Proposal 2. The following table shows the fees we paid to KPMG for the audit of Foot Locker’s annual financial statements for 2008 and 2007, as well as the fees billed for other services KPMG provided during these two fiscal years. Category
2008
2007 Audit Fees (1)
$
3,005,000
$
2,780,000 Audit-Related Fees (2)
346,000
198,000 Tax Fees (3)
4,000
4,000 All Other Fees (4)
225,000
0 Total
$
3,580,000
$
2,982,000 Notes to Audit and Non-Audit Fees Table
(1)
Audit fees consisted of professional services provided in connection with the audit of our annual financial statements, reviews of financial statements included in our Form 10-Qs, reviews of registration statements and issuances of consents, as well as work generally only the independent auditor can reasonably
be expected to provide, such as statutory audits. (2) Audit-related fees consisted principally of audits of financial statements of certain employee benefit plans. (3) Tax fees consisted principally of assistance with matters related to tax compliance. (4) All other fees consisted of due diligence services related to an acquisition in 2008. Audit Committee Pre-Approval Policies and Procedures The Audit Committee has a policy that all audit and non-audit services to be provided by our independent accountants, including services for our subsidiaries and affiliates, are to be approved in advance by the Audit Committee, regardless of the estimated cost for providing such services. Between meetings of
the Committee, the Audit Committee has delegated this authority to the Chair of the Committee. In practice, these fees are normally approved by the Committee Chair and reviewed with the Audit Committee at a subsequent meeting. Management reviews with the Audit Committee at regularly scheduled
meetings the total amount and nature of the audit and non-audit services provided by the independent accountants, including services for our subsidiaries and affiliates, since the Committee’s last meeting. None of the services pre-approved by the Audit Committee or the Chair of the Committee during 2008 utilized
the de minimis exception to pre-approval contained in the applicable rules of the Securities and Exchange Commission. 60
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
In accordance with the charter adopted by the Board of Directors, the Audit Committee assists the Board in fulfilling its oversight responsibilities in the areas of the Company’s accounting policies and practices and financial reporting. The Committee has responsibility for appointing the independent
accountants and internal auditors. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Audit Committee consists of five independent directors, as independence is defined under the rules of The New York Stock Exchange. All of the Committee members meet the expertise requirements under the rules of The New York Stock Exchange. The Audit Committee held nine meetings in 2008. At its meetings during 2008, the Committee discussed with management, KPMG LLP, the Company’s independent registered public accountants, and the Company’s internal auditors the assessment of the Company’s internal control over financial reporting.
The Committee also discussed with KPMG its attestation report and opinion on the Company’s internal control over financial reporting contained in the Company’s 2008 Annual Report on Form 10-K. The Audit Committee reviewed and discussed with management and KPMG the audited financial statements for the 2008 fiscal year, which ended January 31, 2009. The Committee also discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, as amended
(AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee, both with and without management present, discussed and reviewed the results of KPMG’s examination of the financial statements and the overall
quality of the Company’s financial reporting. The Audit Committee obtained from KPMG the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with
KPMG its independence and any relationships that may affect its objectivity. The Audit Committee also considered whether the non-audit services provided by KPMG to the Company are compatible with maintaining KPMG’s independence. The Committee has satisfied itself that KPMG is independent. Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Foot Locker’s Annual Report on Form 10-K for the 2008 fiscal year.
Nicholas DiPaolo, Chair
Jarobin Gilbert Jr.
Matthew M. McKenna
Dona D. Young 61
David Y. Schwartz
PROPOSAL 3: On November 19, 2008, the Board of Directors approved, subject to shareholder approval at the 2009 annual meeting, an amendment to Article II, Section 1 of the Company’s By-Laws to reduce the number of directors from a range of 9 to 17 persons to a range of 7 to 13 persons, with the exact number within
this range to be determined by the entire Board of Directors. The number of directors is currently fixed at nine. Shareholders approved an amendment to the By-Laws in 1997 setting the range of directors at between 9 and 17 persons. For the reasons described below, the Board believes that it would be in the best
interests of the Company and its shareholders to reduce the minimum and maximum number of directors at this time. Reasons for Amendment The Board of Directors strongly believes that a smaller board is more effective in facilitating communications and decision making, which is particularly important in maintaining a highly functional board. A board of directors consisting of between 7 and 13 persons would be consistent with the way the Board
has operated since 1997, where the exact number of directors on the Board during this time ranged from a minimum of 9 persons to a maximum of 12 persons. It would also be consistent with the continuing trend towards smaller boards, with the average board size of major corporations decreasing over the past ten
years. We currently have nine members on our Board of Directors. The Board believes that a reduction in the board size would also avoid the potential situation of having to quickly fill any unexpected vacancies in order to meet the existing minimum size requirements. Given the importance of recruiting qualified,
independent directors to serve as directors of your company, we believe that it is prudent to conduct an organized search for a replacement when vacancies occur in order to preserve the high quality of the Board and maintain its diversity of experience. Reducing the range of the minimum and maximum number of
directors would provide added flexibility in determining the appropriate size of the Board from time to time. The Board of Directors believes that the adoption of the proposed amendment to the By-Laws is in the best interests of the Company and our shareholders. Article II, Section 1 of the By-Laws is a shareholder-approved by-law, and we would continue to be required to seek our shareholders’ approval for any
future amendments to this by-law. The full text of Article II, Section 1 of the By-Laws, as proposed to be amended, is as follows: “SECTION 1. The number of directors constituting the entire Board of Directors shall be not less than 7 or more than 13, the exact number of directors to be determined from time to time by resolution adopted by a majority of the entire Board of Directors. At each annual meeting of
shareholders, directors shall be elected to hold officeby a plurality of the votes cast.” The Board of Directors recommends a vote FOR Proposal 3. 62
APPROVAL OF AMENDMENT TO THE BY-LAWS
DEADLINES AND PROCEDURES FOR NOMINATIONS AND Deadlines and Procedures
•
SEC Rule 14a-8
Under SEC Rule 14a-8, if a shareholder would like us to include a proposal in our proxy statement and form of proxy for the 2010 Annual Meeting of Shareholders, our Corporate Secretary must receive the proposal at our corporate headquarters at 112 West 34th Street, New York, New York 10120 by
December 10, 2009 in order to be considered for inclusion in the 2010 proxy statement.
Other Proposals
For any shareholder proposal that is not submitted under SEC Rule 14a-8, including nominations for directors, our By-laws describe the procedures that must be followed. Under these procedures, we must receive notice of a shareholder’s intention to introduce a nomination or proposed item of business for an
annual meeting not less than 90 days nor more than 120 days before the first anniversary of the prior year’s annual meeting. For 2010, we must receive this notice no earlier than January 20, 2010 and no later than February 19, 2010, assuming that our 2010 annual meeting is held on schedule. However, if we hold the
annual meeting on a date that is not within 30 days before or after the first anniversary of the prior year’s annual meeting, then we must receive the notice no later than ten days after the earlier of the date we first provide notice of the meeting to shareholders or announce it publicly. Proposals for nomination for directors and other items of business should be addressed to the Corporate Secretary, 112 West 34th Street, New York, New York 10120 and must contain the information specified in the Company’s By-Laws, which are available on the corporate governance section of our
corporate website at http://www.footlocker-inc.com/IR_index.htm or may be obtained from the Corporate Secretary.
By Order of the Board of Directors
GARY M. BAHLER
Secretary April 9, 2009 63
SHAREHOLDER PROPOSALS
•
LOCATION OF THE 2009 ANNUAL MEETING OF SHAREHOLDERS OF Our corporate headquarters is the site of the 2009 Annual Meeting of Shareholders. We are located at 112 West 34th Street, New York City, New York. BY SUBWAY Take any of these subway lines: the A, B, C, D, E, F, N, Q, R, V, W or the Number 1, 2, or 3 trains to 34th Street. The A, C, E, 1, 2, and 3 trains stop at 34th Street–Penn Station. The B, D, F, N, Q R, V, and W trains stop at 34th Street–Herald Square. Our building is on the south side of 34th Street between 7th
Avenue and Broadway. BY CAR OR TAXI Take the Lincoln Tunnel into New York City, following the signs for 34th Street. Turn left onto West 34th Street. Our building is on the south side of 34th Street between 7th Avenue and Broadway. 64
FOOT LOCKER, INC.
YOUR VOTE IS IMPORTANT
PLEASE VOTE YOUR PROXY
Mark, Sign, Date and Return the Proxy Card Promptly
Using the Enclosed Envelope. DIRECTORS RECOMMEND A VOTE “FOR” PROPOSALS 1, 2 AND 3. 1. ELECTION OF DIRECTORS. NOMINEES FOR FOR all WITHHOLD AUTHORITY EXCEPTIONS* 01 Alan D. Feldman o o o 02 Jarobin Gilbert Jr. 03 David Y. Schwartz NOMINEE FOR 04 Cheryl Nido Turpin (INSTRUCTIONS: To withhold authority to vote for any individual
nominee, mark the “Exceptions” box and write that nominee’s name in
the space provided below). *Exceptions Please mark x FOR AGAINST ABSTAIN 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS. o o o 3. APPROVAL OF AMENDMENT TO THE BY-LAWS. o o o THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3. I plan to attend meeting o Mark Here for Address o Signature
___________________________________ Signature
___________________________________ Date _________________ NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator,
trustee or guardian, give full title as such. If signing on behalf of a corporation, sign the full corporate name by authorized
officer. The signer hereby revokes all proxies heretofore given by the signer to vote at the 2009 Annual Meeting of Shareholders of
Foot Locker, Inc. and any adjournment or postponement thereof. WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING,
Internet and telephone voting is available through 9:00 AM Eastern Time Important notice regarding the Internet availability of
proxy materials for the Annual Meeting of Shareholders The Proxy Statement and the 2008
Annual Report to Shareholders are available at: http://materials.proxyvote.com/344849 INTERNET Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site. OR TELEPHONE Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and
returned your proxy card. 47608 FOOT LOCKER, INC.
Gary
M. Bahler, Robert W. McHugh, Mathew D. Serra, or any of them, each with power
of substitution, are hereby authorized to vote the shares of the undersigned
at the Annual Meeting of Shareholders of Foot Locker, Inc., to be held on May
20, 2009, at 9:00 A.M., local time, at Foot Locker, Inc., 112 West 34th Street,
New York, New York 10120, and at any adjournment or postponement thereof, upon
the matters set forth in the Foot Locker, Inc. Proxy Statement and upon such
other matters as may properly come before the Annual Meeting, voting as
specified on the reverse side of this card with respect to the matters set
forth in the Proxy Statement, and voting in the discretion of the above-named
persons on such other matters as may properly come before the Annual Meeting.
IF YOU ARE
NOT VOTING BY TELEPHONE OR INTERNET, PLEASE SIGN AND DATE THE REVERSE SIDE OF
THIS PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE. THE PERSONS
NAMED ABOVE AS PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS
CARD OR VOTE BY TELEPHONE OR INTERNET. YOU MAY SPECIFY YOUR CHOICES BY MARKING
THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS. EMPLOYEE PLANS IF
YOU ARE A PARTICIPANT IN THE FOOT LOCKER 401(k) PLAN OR THE FOOT LOCKER PUERTO
RICO 1165(e) PLAN, THIS PROXY CARD COVERS THOSE SHARES ALLOCATED TO YOUR PLAN
ACCOUNT. BY SIGNING AND RETURNING THIS PROXY CARD (OR VOTING BY TELEPHONE OR
THE INTERNET), YOU WILL AUTHORIZE THE PLAN TRUSTEES TO VOTE THOSE SHARES
ALLOCATED TO YOUR ACCOUNT AS YOU HAVE DIRECTED. (Continued and to be marked, dated and
signed, on the other side) BNY MELLON SHAREOWNER SERVICES Address Change/Comments P.O. BOX 3550 (Mark the corresponding box on the reverse side) SOUTH HACKENSACK, NJ 07606-9250 ▲ FOLD AND DETACH
HERE ▲ You can now access your BNY Mellon Shareowner Services
account online. The transfer agent for Foot Locker, Inc., now makes it easy and
convenient to get current information on your shareholder account. • View account
status • View payment
history for dividends • View certificate
history • Make address
changes • View book-entry
information • Obtain a duplicate
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your PIN Visit us on the
web at http://www.bnymellon.com/shareowner/isd www.bnymellon.com/shareowner/isd Choose MLinkSM
for fast, easy and secure 24/7 online access to your future proxy
materials, investment plan statements, tax documents and more. Simply log on
to Investor ServiceDirect® at www.bnymellon.com/shareowner/isd
where step-by-step instructions will prompt you through enrollment. 47608
3-YEAR TERMS:
nominees
listed below
to vote for all nominees
listed below
2-YEAR TERM:
your votes as
indicated in
this example
Change or Comments
SEE REVERSE
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ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
on the annual meeting day.
http://www.eproxy.com/fl
1-866-580-9477
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING TO BE HELD ON MAY 20, 2009
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