10-Q 1 fl-20211030x10q.htm 10-Q
FOOT LOCKER, INC.Large Accelerated 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: October 30, 2021

OR

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

For the transition period from __________ to __________

Commission File Number: 1-10299

Graphic

(Exact name of registrant as specified in its charter)

New York

13-3513936

(State or other jurisdiction of incorporation or organization)

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

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

(Address of principal executive offices, Zip Code)

(212-720-3700)

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

Preferred Stock Purchase Rights

FL

New York Stock Exchange

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer  

Smaller reporting company

Emerging growth company

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

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

Number of shares of Common Stock outstanding as of December 3, 2021: 100,368,462

Graphic

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets (Unaudited)

1

Condensed Consolidated Statements of Operations (Unaudited)

2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

3

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

4

Condensed Consolidated Statements of Cash Flows (Unaudited)

5

Notes to the Unaudited Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

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

20

Item 4.

Controls and Procedures

32

PART II

OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 6.

Exhibits

34

SIGNATURE

35

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks,” “continues,” “feels,” “forecasts,” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.”

These statements include statements relating to trends in or expectations relating to the expected effects of our initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers; expectations regarding increasing global taxes; business opportunities and expansion; acquisitions; investments; expenses; dividends; share repurchases; liquidity; cash flow from operations; use of cash and cash requirements; borrowing capacity and use of proceeds; repatriation of cash to the U.S.; the direct and indirect effects of all variants of the coronavirus pandemic (COVID-19) on our business, including any adverse effects of the U.S. government’s COVID-19 vaccine mandates; supply chain issues, including delays in merchandise receipts and increasing cost pressure caused by higher oceanic shipping and freight costs; labor shortages; expectations regarding increased wages; inflation; consumer spending levels; the effect of governmental assistance programs; and social unrest, on our financial results.

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak to our views only as of the date of this filing. These forward-looking statements are all based on currently-available operating, financial, and competitive information, and are subject to various risks and uncertainties, many of which are unforeseeable and beyond our control, such as the ongoing uncertainty related to COVID-19. Additional risks and uncertainties that we do not presently know about or that we currently consider to be insignificant may also affect our business operations and financial performance.

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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Graphic

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

October 30,

October 31,

January 30,

($ in millions, except share amounts)

    

2021

    

2020

    

2021*

    

ASSETS

 

  

 

  

 

  

 

Current assets:

 

  

 

  

 

  

 

Cash and cash equivalents

$

1,339

$

1,393

$

1,680

Merchandise inventories

 

1,301

 

1,193

 

923

Other current assets

 

253

 

237

 

232

 

2,893

 

2,823

 

2,835

Property and equipment, net

 

860

 

773

 

788

Operating lease right-of-use assets

2,619

2,752

2,716

Deferred taxes

 

95

 

69

 

101

Goodwill

 

651

 

158

 

159

Other intangible assets, net

 

235

 

18

 

17

Minority investments

762

340

337

Other assets

 

96

 

85

 

90

$

8,211

$

7,018

$

7,043

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Accounts payable

$

578

$

514

$

402

Accrued and other liabilities

 

498

 

451

 

560

Current portion of debt and obligations under finance leases

104

2

102

Current portion of lease obligations

577

575

580

 

1,757

 

1,542

 

1,644

Long-term debt and obligations under finance leases

 

456

 

129

 

8

Long-term lease obligations

2,421

2,514

2,499

Other liabilities

 

235

 

181

 

116

Total liabilities

 

4,869

 

4,366

 

4,267

Commitments and contingencies

 

Shareholders’ equity:

Common stock and paid-in capital: 104,541,760; 104,451,566; and 103,693,359 shares issued, respectively

806

777

779

Retained earnings

3,044

2,245

2,326

Accumulated other comprehensive loss

(343)

(365)

(331)

Less: Treasury stock at cost: 3,473,932; 326,727; and 74,236 shares, respectively

(170)

(11)

(3)

Noncontrolling interest

5

6

5

Total shareholders' equity

3,342

2,652

2,776

$

8,211

$

7,018

$

7,043

*

The balance sheet at January 30, 2021 has been derived from the previously reported audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Foot Locker, Inc.’s Annual Report on Form 10-K for the year ended January 30, 2021.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2021 Form 10-Q Page 1

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Thirteen weeks ended

Thirty-nine weeks ended

    

October 30,

October 31,

October 30,

October 31,

($ in millions, except per share amounts)

    

2021

    

2020

    

2021

    

2020

    

Sales

$

2,189

$

2,106

$

6,617

$

5,359

Cost of sales

 

1,429

 

1,456

 

4,310

 

3,900

Selling, general and administrative expenses

 

458

 

424

 

1,326

 

1,127

Depreciation and amortization

 

49

 

44

 

142

 

132

Impairment and other charges

 

57

 

4

 

97

 

58

Income from operations

 

196

 

178

 

742

 

142

Interest expense, net

 

(4)

 

(2)

 

(8)

 

(5)

Other income, net

 

30

 

193

 

359

 

197

Income before income taxes

 

222

 

369

 

1,093

 

334

Income tax expense

 

64

 

104

 

303

 

134

Net income

$

158

$

265

$

790

$

200

Basic earnings per share

$

1.53

$

2.54

$

7.63

$

1.92

Weighted-average shares outstanding

 

103.2

 

104.4

 

103.5

 

104.4

Diluted earnings per share

$

1.52

$

2.52

$

7.54

$

1.91

Weighted-average shares outstanding, assuming dilution

 

104.4

 

105.3

 

104.9

 

105.1

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2021 Form 10-Q Page 2

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Thirteen weeks ended

Thirty-nine weeks ended

    

October 30,

October 31,

October 30,

October 31,

($ in millions)

    

2021

    

2020

    

2021

    

2020

    

Net income

$

158

$

265

$

790

$

200

Other comprehensive income (loss), net of income tax

 

  

 

  

 

  

 

  

Foreign currency translation adjustment:

 

  

 

  

 

  

 

  

Translation adjustment arising during the period, net of income tax (benefit)/expense of ($2), $-, ($1), and $2, respectively

 

(7)

 

 

(17)

 

20

Cash flow hedges:

 

  

 

  

 

  

 

  

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

 

1

 

 

1

 

3

Pension and postretirement adjustments:

 

  

 

 

  

 

  

Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $1, $-, $2, and $2, respectively

 

1

 

2

 

4

6

Comprehensive income

$

153

$

267

$

778

$

229

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2021 Form 10-Q Page 3

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

   

Additional Paid-In

   

   

   

Accumulated

Capital &

Other

Total

Thirteen weeks ended

Common Stock

Treasury Stock

Retained

Comprehensive

Noncontrolling

Shareholders'

(shares in thousands, amounts in millions)

Shares

Amount

Shares

Amount

Earnings

Loss

interests

Equity

Balance at July 31, 2021

 

104,516

$

799

(714)

$

(41)

$

2,916

$

(338)

$

5

$

3,341

Issued under restricted stock plans

 

19

Issued under director and stock plans

 

7

Share-based compensation expense

 

7

7

Shares of common stock used to satisfy tax withholding obligations

 

(10)

Share repurchases

 

(2,750)

(129)

(129)

Net income

 

158

158

Cash dividends declared on common stock ($0.30 per share)

 

(30)

(30)

Translation adjustment, net of tax

 

(7)

(7)

Change in cash flow hedges, net of tax

 

1

1

Pension and postretirement adjustments, net of tax

 

1

1

Balance at October 30, 2021

 

104,542

$

806

 

(3,474)

$

(170)

$

3,044

$

(343)

$

5

$

3,342

Balance at August 1, 2020

 

104,392

$

774

$

$

1,996

$

(367)

$

$

2,403

Issued under restricted stock plans

 

53

Issued under director and stock plans

 

7

1

1

Share-based compensation expense

 

2

2

Shares of common stock used to satisfy tax withholding obligations

 

(19)

(1)

(1)

Share repurchases

 

(308)

(10)

(10)

Noncontrolling interests acquired

 

6

6

Net income

 

265

265

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

 

(16)

(16)

Pension and postretirement adjustments, net of tax

2

2

Balance at October 31, 2020

 

104,452

$

777

(327)

$

(11)

$

2,245

$

(365)

$

6

$

2,652

   

Additional Paid-In

   

   

   

Accumulated

Capital &

Other

Total

Thirty-nine weeks ended

Common Stock

Treasury Stock

Retained

Comprehensive

Noncontrolling

Shareholders'

(shares in thousands, amounts in millions)

Shares

Amount

Shares

Amount

Earnings

Loss

interests

Equity

Balance at January 30, 2021

 

103,693

$

779

(74)

$

(3)

$

2,326

$

(331)

$

5

$

2,776

Issued under restricted stock plans

 

498

Issued under director and stock plans

 

351

11

11

Share-based compensation expense

 

23

23

Shares of common stock used to satisfy tax withholding obligations

 

(205)

(11)

(11)

Share repurchases

 

(3,496)

(170)

(170)

Reissued for Employee Stock Purchase Plan

 

(7)

301

14

7

Net income

 

790

790

Cash dividends declared on common stock ($0.70 per share)

 

(72)

(72)

Translation adjustment, net of tax

 

(17)

(17)

Change in cash flow hedges, net of tax

 

1

1

Pension and postretirement adjustments, net of tax

 

4

4

Balance at October 30, 2021

 

104,542

$

806

(3,474)

$

(170)

$

3,044

$

(343)

$

5

$

3,342

Balance at February 1, 2020

 

104,188

$

764

$

$

2,103

$

(394)

$

$

2,473

Issued under restricted stock plans

 

120

Issued under director and stock plans

 

144

4

4

Share-based compensation expense

 

9

9

Shares of common stock used to satisfy tax withholding obligations

 

(42)

(1)

(1)

Share repurchases

(308)

(10)

(10)

Reissued Employee Stock Purchase Plan

23

Noncontrolling interests acquired

 

6

6

Net income

 

200

200

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

 

(58)

(58)

Translation adjustment, net of tax

 

20

20

Change in cash flow hedges, net of tax

 

3

3

Pension and postretirement adjustments, net of tax

 

6

6

Balance at October 31, 2020

 

104,452

$

777

(327)

$

(11)

$

2,245

$

(365)

$

6

$

2,652

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2021 Form 10-Q Page 4

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Thirty-nine weeks ended

October 30,

October 31,

($ in millions)

    

2021

    

2020

From operating activities:

 

  

 

  

Net income

$

790

$

200

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

 

 

Non-cash impairment and other charges

 

88

 

32

Non-cash gains

(340)

(190)

Depreciation and amortization

 

142

 

132

Deferred income taxes

 

57

 

73

Share-based compensation expense

 

23

 

9

Change in assets and liabilities:

 

 

Merchandise inventories

 

(306)

 

13

Accounts payable

 

122

 

177

Accrued and other liabilities

 

16

 

122

Insurance receivable for inventory loss

 

8

 

Other, net

 

(102)

 

104

Net cash provided by operating activities

 

498

 

672

From investing activities:

 

  

 

  

Purchase of business, net of cash acquired

 

(737)

 

Capital expenditures

 

(137)

 

(116)

Minority investments

 

(115)

 

(8)

Proceeds from sale of property

3

Insurance proceeds related to loss on property and equipment

 

3

 

Net cash used in investing activities

 

(983)

 

(124)

From financing activities:

 

  

 

  

Proceeds from debt issuance, net

395

 

Payment of obligations under finance leases

(3)

Payment of debt issuance costs

(2)

(4)

Proceeds from the revolving credit facility

330

Repayment of the revolving credit facility

(330)

Purchase of treasury shares

(170)

 

(10)

Dividends paid on common stock

(72)

 

(58)

Proceeds from exercise of stock options

10

 

Shares of common stock repurchased to satisfy tax withholding obligations

(11)

 

(1)

Treasury stock reissued under employee stock plan

 

7

 

Proceeds from common stock issued under employee stock plan

2

Contribution from non-controlling interest

6

Net cash provided by (used in) financing activities

 

154

 

(65)

Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash

 

(2)

 

5

Net change in cash, cash equivalents, and restricted cash

 

(333)

 

488

Cash, cash equivalents, and restricted cash at beginning of year

 

1,718

 

942

Cash, cash equivalents, and restricted cash at end of period

$

1,385

$

1,430

Cash paid during the year:

 

  

 

  

Interest

$

7

$

8

Income taxes

$

313

$

55

Cash paid for amounts included in measurement of lease liabilities