Company Quick10K Filing
Foot Locker
Price40.28 EPS5
Shares110 P/E9
MCap4,451 P/FCF11
Net Debt-644 EBIT648
TEV3,807 TEV/EBIT6
TTM 2019-11-02, in MM, except price, ratios
10-Q 2020-05-02 Filed 2020-06-10
10-K 2020-02-01 Filed 2020-03-27
10-Q 2019-11-02 Filed 2019-12-11
10-Q 2019-08-03 Filed 2019-09-11
10-Q 2019-05-04 Filed 2019-06-12
10-K 2019-02-02 Filed 2019-04-02
10-Q 2018-11-03 Filed 2018-12-11
10-Q 2018-08-04 Filed 2018-09-12
10-Q 2018-05-05 Filed 2018-06-06
10-K 2018-02-03 Filed 2018-03-29
10-Q 2017-10-28 Filed 2017-12-06
10-Q 2017-07-29 Filed 2017-09-06
10-Q 2017-04-29 Filed 2017-06-06
10-K 2017-01-28 Filed 2017-03-23
10-Q 2016-10-29 Filed 2016-12-07
10-Q 2016-07-30 Filed 2016-09-07
10-Q 2016-04-30 Filed 2016-06-08
10-K 2016-01-30 Filed 2016-03-24
10-Q 2015-10-31 Filed 2015-12-09
10-Q 2015-08-01 Filed 2015-09-09
10-Q 2015-05-02 Filed 2015-06-11
10-K 2015-01-31 Filed 2015-03-30
10-Q 2014-11-01 Filed 2014-12-10
10-Q 2014-08-02 Filed 2014-09-10
10-Q 2014-05-03 Filed 2014-06-11
10-K 2014-02-01 Filed 2014-03-31
10-Q 2013-08-03 Filed 2013-09-11
10-Q 2013-05-04 Filed 2013-06-12
10-K 2013-02-02 Filed 2013-04-01
10-Q 2012-10-27 Filed 2012-12-05
10-Q 2012-07-28 Filed 2012-09-05
10-Q 2012-04-28 Filed 2012-06-06
10-K 2012-01-28 Filed 2012-03-26
10-Q 2011-10-29 Filed 2011-12-07
10-Q 2011-07-30 Filed 2011-09-07
10-Q 2011-04-30 Filed 2011-06-08
10-K 2011-01-29 Filed 2011-03-28
10-Q 2010-10-30 Filed 2010-12-08
10-Q 2010-07-31 Filed 2010-09-08
10-Q 2010-05-01 Filed 2010-06-09
10-K 2010-01-30 Filed 2010-03-29
8-K 2020-07-22 Officers, Regulation FD, Exhibits
8-K 2020-07-14 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-06-13
8-K 2020-05-22
8-K 2020-05-20
8-K 2020-04-21
8-K 2020-03-25
8-K 2020-03-18
8-K 2020-03-17
8-K 2020-02-28
8-K 2020-01-23
8-K 2019-11-22
8-K 2019-08-23
8-K 2019-05-24
8-K 2019-05-22
8-K 2019-03-28
8-K 2019-03-27
8-K 2019-03-01
8-K 2019-02-07
8-K 2019-02-05
8-K 2018-11-20
8-K 2018-08-24
8-K 2018-05-25
8-K 2018-05-23
8-K 2018-04-12
8-K 2018-03-28
8-K 2018-03-02
8-K 2018-02-20

FL 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-15 fl-20200502xex15.htm
EX-31.1 fl-20200502ex3115afdcb.htm
EX-31.2 fl-20200502ex312cdb43a.htm
EX-32 fl-20200502xex32.htm
EX-99 fl-20200502xex99.htm

Foot Locker Earnings 2020-05-02

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
2.31.81.30.90.4-0.12012201420172020
Rev, G Profit, Net Income
0.50.30.1-0.0-0.2-0.42012201420172020
Ops, Inv, Fin

FOOT LOCKER, INC.Large Accelerated 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Table of Contents

s

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended:  May 2, 2020

OR

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

For the transition period from __________ to __________

Commission File Number: 1-10299

Graphic

(Exact name of registrant as specified in its charter)

New York

13-3513936

(State or other jurisdiction of incorporation or organization)

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

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

(Address of principal executive offices, Zip Code)

(212-720-3700)

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

FL

New York Stock Exchange

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

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

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

Large accelerated filer þ

Accelerated filer

Non-accelerated filer  

Smaller reporting company

Emerging growth company

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

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

Number of shares of Common Stock outstanding as of June 5, 2020: 104,233,930

Table of Contents

Graphic

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive (Loss) Income

3

Condensed Consolidated Statements of Changes in Shareholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

18

Item 4.

Controls and Procedures

28

PART II

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 6.

Exhibits

30

SIGNATURE

31

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Graphic

CONDENSED CONSOLIDATED BALANCE SHEETS

May 2,

May 4,

February 1,

    

2020

    

2019

    

2020

    

(Unaudited)

(Unaudited)

*

 

 ($ in millions)

 

ASSETS

 

  

 

  

 

  

 

Current assets:

 

  

 

  

 

  

 

Cash and cash equivalents

$

1,012

$

1,126

$

907

Merchandise inventories

 

1,458

 

1,211

 

1,208

Other current assets

 

268

 

255

 

271

 

2,738

 

2,592

 

2,386

Property and equipment, net

 

787

 

810

 

824

Operating lease right-of-use assets

2,807

3,025

2,899

Deferred taxes

 

63

 

89

 

81

Goodwill

 

156

 

156

 

156

Other intangible assets, net

 

19

 

22

 

20

Other assets

 

226

 

234

 

223

$

6,796

$

6,928

$

6,589

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Revolving credit facility

$

330

$

$

Accounts payable

468

451

333

Accrued and other liabilities

 

264

 

340

 

343

Current portion of lease obligations

581

499

518

 

1,643

 

1,290

 

1,194

Long-term debt

 

121

 

123

 

122

Long-term lease obligations

2,591

2,804

2,678

Other liabilities

 

127

 

109

 

122

Total liabilities

 

4,482

 

4,326

 

4,116

Shareholders’ equity

 

Common stock and paid-in capital: 104,245,181;

113,161,373; and 104,187,310 shares outstanding, respectively

767

820

764

Retained earnings

1,951

2,207

2,103

Accumulated other comprehensive loss

(404)

(384)

(394)

Less: Treasury stock at cost: 22,879; 774,355;

and -- shares, respectively

(41)

Total shareholders' equity

2,314

2,602

2,473

$

6,796

$

6,928

$

6,589

*

The balance sheet at February 1, 2020 has been derived from the previously reported audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Foot Locker, Inc.’s Annual Report on Form 10-K for the year ended February 1, 2020.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2020 Form 10-Q Page 1

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Thirteen weeks ended

May 2,

May 4,

    

2020

    

2019

    

 

Sales

$

1,176

$

2,078

Cost of sales

 

905

 

1,389

Selling, general and administrative expenses

 

316

 

416

Depreciation and amortization

 

44

 

44

Impairment and other charges

 

16

 

1

(Loss) income from operations

 

(105)

 

228

Interest (expense) income, net

 

(1)

 

4

Other income, net

 

1

 

2

(Loss) income before income taxes

 

(105)

 

234

Income tax expense

 

5

 

62

Net (loss) income

$

(110)

$

172

Basic (loss) earnings per share

$

(1.06)

$

1.53

Weighted-average shares outstanding

 

104.3

 

112.4

Diluted (loss) earnings per share

$

(1.06)

$

1.52

Weighted-average shares outstanding, assuming dilution

 

104.3

 

113.1

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2020 Form 10-Q Page 2

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

Thirteen weeks ended

May 2,

May 4,

    

2020

    

2019

    

 

Net (loss) income

$

(110)

$

172

Other comprehensive (loss) income, net of income tax

 

  

 

  

Foreign currency translation adjustment:

 

  

 

  

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

 

(16)

 

(15)

Cash flow hedges:

 

  

 

  

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

 

3

 

(2)

Pension and postretirement adjustments:

 

  

 

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

 

3

3

Comprehensive (loss) income

$

(120)

$

158

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2020 Form 10-Q Page 3

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

    

Additional Paid-In

    

    

    

    

Accumulated

    

Capital &

Other

Total

Common Stock

Treasury Stock

Retained

Comprehensive

Shareholders'

(shares in thousands, amounts in millions)

Shares

Amount

Shares

Amount

Earnings

Loss

Equity

Balance at February 1, 2020

 

104,188

$

764

 

$

$

2,103

$

(394)

$

2,473

Restricted stock issued

 

54

Issued under director and stock plans

 

3

Share-based compensation expense

 

3

3

Shares of common stock used to satisfy tax withholding obligations

 

(23)

Net loss

 

(110)

(110)

Cash dividends declared on common stock ($0.40 per share)

 

(42)

(42)

Translation adjustment, net of tax

 

(16)

(16)

Change in cash flow hedges, net of tax

 

3

3

Pension and postretirement adjustments, net of tax

 

3

3

Balance at May 2, 2020

 

104,245

$

767

 

(23)

$

$

1,951

$

(404)

$

2,314

    

Additional Paid-In

    

    

    

    

Accumulated

    

Capital &

Other

Total

Common Stock

Treasury Stock

Retained

Comprehensive

Shareholders'

(shares in thousands, amounts in millions)

Shares

Amount

Shares

Amount

Earnings

Loss

Equity

Balance at February 2, 2019

 

112,933

$

809

 

(711)

$

(37)

$

2,104

$

(370)

$

2,506

Restricted stock issued

 

72

Issued under director and stock plans

 

156

4

4

Share-based compensation expense

 

7

7

Shares of common stock used to satisfy tax withholding obligations

 

(31)

(2)

(2)

Share repurchases

 

(32)

(2)

(2)

Net income

 

172

172

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

 

(43)

(43)

Translation adjustment, net of tax

 

(15)

(15)

Change in cash flow hedges, net of tax

 

(2)

(2)

Pension and postretirement adjustments, net of tax

 

3

3

Cumulative effect of the adoption of Topic 842

(26)

(26)

Balance at May 4, 2019

 

113,161

$

820

 

(774)

$

(41)

$

2,207

$

(384)

$

2,602

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2020 Form 10-Q Page 4

Table of Contents

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Thirteen weeks ended

May 2,

May 4,

    

2020

    

2019

 

($ in millions)

From operating activities:

 

  

 

  

Net (loss) income

$

(110)

$

172

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

  

Impairment charges

 

15

 

Depreciation and amortization

 

44

 

44

Deferred income taxes

 

24

 

2

Share-based compensation expense

 

3

 

7

Qualified pension plan contributions

 

 

(55)

Change in assets and liabilities:

 

 

Merchandise inventories

 

(257)

 

50

Accounts payable

 

138

 

67

Accrued and other liabilities

 

(44)

 

(22)

Other, net

 

71

 

53

Net cash (used in) provided by operating activities

 

(116)

 

318

From investing activities:

 

  

 

  

Capital expenditures

 

(52)

 

(45)

Minority investments

 

(6)

 

(45)

Net cash used in investing activities

 

(58)

 

(90)

From financing activities:

 

  

 

  

Proceeds from the revolving credit facility

330

Purchase of treasury shares

 

 

(2)

Dividends paid on common stock

 

(42)

 

(43)

Proceeds from exercise of stock options

 

 

4

Shares of common stock repurchased to satisfy tax withholding obligations

 

 

(2)

Net cash provided by (used in) financing activities

 

288

 

(43)

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

 

(9)

 

(5)

Net change in cash, cash equivalents, and restricted cash

 

105

 

180

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

 

942

 

981

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

$

1,047

$

1,161

Cash paid during the year:

 

  

 

  

Interest

$

1

$

Income taxes

$

4

$

40

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2020 Form 10-Q Page 5

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all normal, recurring adjustments necessary for a fair presentation of the results for the interim periods presented. As used in these Notes to Condensed Consolidated Financial Statements (Unaudited) the terms “Foot Locker,” “Company,” “we,” “our,” and “us” refer to Foot Locker, Inc. and its consolidated subsidiaries.

The preparation of financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the accompanying Unaudited Condensed Consolidated Financial Statements and these Notes and related disclosures. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The results of operations for the period ended May 2, 2020 are not necessarily indicative of the results to be expected for the full fiscal year due to the continued uncertainty of general economic conditions that may affect us for the remainder of 2020. Specifically, we are uncertain of the extent to which the coronavirus (“COVID-19”) pandemic will affect our sales, traffic to our stores, including our distribution capabilities and those of our suppliers.  

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in Foot Locker, Inc.’s Form 10-K for the year ended February 1, 2020, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 27, 2020.

Other than the changes to the Goodwill policies as a result of the recently adopted accounting standards discussed below, there were no significant changes to the policies disclosed in Note 1, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the year ended February 1, 2020.

Recent Accounting Pronouncements

On February 2, 2020, we adopted FASB guidance on the accounting for implementation costs of a cloud computing arrangement that is considered to be a service contract, that requires companies to follow the guidance for internal-use software to determine which costs to capitalize in a cloud computing arrangement that is a service contract. Under this guidance, such implementation costs will be capitalized in “Other assets” on the Condensed Consolidated Balance Sheet, with the related amortization presented in “Selling, general and administrative expenses” on the Condensed Consolidated Statement of Operations. This guidance was applied prospectively to implementation costs incurred after February 2, 2020. The adoption of this guidance did not have a significant effect on our condensed consolidated financial statements.

On February 2, 2020, we adopted FASB’s updated guidance on the accounting for performing goodwill impairment tests. This update eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. In testing goodwill for impairment, an entity may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Refer to our updated accounting policy in Note 6, Goodwill.  

Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on our present or future consolidated financial statements.

First Quarter 2020 Form 10-Q Page 6

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Revenue

The following table presents sales disaggregated based upon sales channel.

Thirteen weeks ended

May 2,

May 4,

    

2020

    

2019

($ in millions)

Sales by Channel

Stores

$

814

$

1,758

Direct-to-customers

 

362

 

320

Total sales

$

1,176

$

2,078

Sales disaggregated based upon geographic area is presented in the table below. Sales are attributable to the geographic area in which the sales transaction is fulfilled.

May 2,

May 4,

    

2020

    

2019

($ in millions)

Sales by Geography

United States

$

911

$

1,552

International

 

265

 

526

Total sales

$

1,176

$

2,078

Contract Liabilities

We sell gift cards which do not have expiration dates. Revenue from gift card sales is recorded when the gift cards are redeemed by customers. Breakage income is recognized as revenue in proportion to the pattern of rights exercised by the customer. The table below presents the activity of our gift card liability balance:

May 2,

May 4,

2020

2019

($ in millions)

Gift card liability at beginning of year

$

35

$

35

Redemptions

(15)

(25)

Breakage recognized in sales

(1)

(2)

Activations

14

22

Foreign currency fluctuations

(1)

Gift card liability

$

32

$

30

We elected not to disclose the information about remaining performance obligations since the amount of gift cards redeemed after 12 months is not significant.

3. Segment Information

We have integrated all available shopping channels including stores, websites, apps, social channels, and catalogs. Store sales are primarily fulfilled from the store’s inventory but may also be shipped from any of our distribution centers or from a different store location if an item is not available at the original store. Direct-to-customer orders are primarily shipped to our customers through our distribution centers but may also be shipped from any store or a combination of our distribution centers and stores depending on the availability of particular items.

First Quarter 2020 Form 10-Q Page 7

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We evaluate performance based on several factors, of which the primary financial measure is the banner’s financial results referred to as division (loss) profit. Division (loss) profit reflects (loss) income before income taxes, impairment and other charges, corporate expense, non-operating income, and net interest (expense) income.

The following table summarizes our results:

Thirteen weeks ended

May 2,

May 4,

    

2020

    

2019

($ in millions)

Sales

$

1,176

$

2,078

Operating Results

 

  

 

  

Division (loss) profit

 

(79)

 

250

Less: Impairment and other charges (1)

 

16

 

1

Less: Corporate expense (2)

 

10

 

21

(Loss) income from operations

 

(105)

 

228

Interest (expense) income, net

 

(1)

 

4

Other income, net

 

1

 

2

(Loss) income before income taxes

$

(105)

$

234

(1)During the thirteen weeks ended May 2, 2020, we recorded pre-tax charges of $15 million related to the impairment of certain Runners Point and Sidestep stores that will be closing before lease expiration and other underperforming stores in Europe. We recorded pre-tax charges of $1 million in each of the thirteen weeks ended May 2, 2020 and May 4, 2019 related to administrative costs in connection with the pension plan reformation.
(2)Corporate expense consists of unallocated selling, general and administrative expenses, as well as depreciation and amortization related to our corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items.

4. Impairment and Other Charges

Thirteen weeks ended

May 2,

May 4,

    

2020

    

2019

 

($ in millions)

Impairment of long-lived assets and right-of-use assets

$

15

$

Pension litigation related charges

1

1

Total impairment and other charges

$

16

$

1

In May 2020, we made the strategic decision to close our Runners Point business. As part of the decision to close the banner, certain Runners Point stores will convert to other banners and approximately 40 Runners Point and Sidestep stores will close prior to their natural lease expiration. Due to the COVID-19 pandemic and its effect on our actual and projected results, we determined that a triggering event had occurred for certain underperforming stores operating in Europe and, therefore, we conducted an impairment review during the first quarter of 2020. We evaluated the long-lived assets, including the right-of-use assets, of 70 stores and recorded non-cash charges of $15 million to write down store fixtures, leasehold improvements, and right-of-use assets.  

The Company and the Company’s U.S. pension plan were involved in litigation related to the conversion of the plan to a cash balance plan. The court entered its final judgment in 2018, which required the plan to be reformed as directed by the court order. We recorded charges of $1 million for both the thirteen weeks ended May 2, 2020 and May 4, 2019 related to administrative expenses in connection with the reformation.

First Quarter 2020 Form 10-Q Page 8

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents, as reported on our condensed consolidated balance sheets, to cash, cash equivalents, and restricted cash, as reported on our condensed consolidated statements of cash flows.

May 2,

May 4,

    

2020

    

2019

($ in millions)

Cash and cash equivalents

$

1,012

$

1,126

Restricted cash included in other current assets

7

5

Restricted cash included in other non-current assets

28

30

Cash, cash equivalents, and restricted cash

$

1,047

$

1,161

Amounts included in restricted cash primarily relate to amounts held in escrow in connection with various leasing arrangements in Europe and deposits held in insurance trusts to satisfy the requirement to collateralize part of the self-insured workers’ compensation and liability claims.

6. Goodwill

We review goodwill for impairment annually during the first quarter of each fiscal year, or more frequently if impairment indicators arise. The review of impairment consists of either using a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a one-step quantitative impairment test.

In performing the qualitative assessment, we consider many factors in evaluating whether the carrying value of goodwill may not be recoverable, including declines in our stock price and market capitalization in relation to the book value of the Company and macroeconomic conditions affecting retail. If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed. The quantitative test requires that the carrying value of each reporting unit be compared with its estimated fair value. If the carrying value of a reporting unit is greater than its fair value, a goodwill impairment charge will be recorded for the difference (up to the carrying value of goodwill).

We use a discounted cash flow approach to determine the fair value of a reporting unit. The determination of discounted cash flows of the reporting units and assets and liabilities within the reporting units requires significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the discount rate, terminal growth rates, earnings before depreciation and amortization, and capital expenditures forecasts. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the reporting units, as well as the fair values of the corresponding assets and liabilities within the reporting units.

In addition to performing our qualitative assessment of as the beginning of the year, we performed an additional quantitative assessment due to the COVID-19 pandemic and its effect on our results and stock price. Neither assessment resulted in the recognition of impairment.

First Quarter 2020 Form 10-Q Page 9

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Other Intangible Assets, net

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

May 2, 2020

May 4, 2019

Gross

Accum.

Net

Gross

Accum.

Net

($ in millions)

value

amort.

value

value

amort.

value

Amortized intangible assets: (1)

 

Lease acquisition costs

$

113

$

(106)

$

7

$

116

$

(108)

$

8

Trademarks / trade names

20

(16)

4

20

(15)

5

$

133

$

(122)

$

11

$

136

$

(123)

$

13

Indefinite life intangible assets: (1)

Trademarks / trade names

$

8

$

9

Other intangible assets, net

$

19

$

22

(1)The change in the ending balances reflects the effect of foreign currency fluctuations due primarily to movements of the euro in relation to the U.S. dollar.

The annual review of intangible assets with indefinite lives performed during the first quarter of 2020 did not result in the recognition of impairment.

Amortization expense recorded is as follows:

Thirteen weeks ended

($ in millions)

May 2, 2020

May 4, 2019

Amortization expense

$

1

$

1

Estimated future amortization expense for finite-life intangible assets is as follows:

    

($ in millions)

Remainder of 2020

$

2

2021

2

2022

 

2

2023

2

2024

 

1

2025

 

1

8. Revolving Credit Facility

On May 19, 2016, we entered into a credit agreement with our banks (“2016 Credit Agreement”). The 2016 Credit Agreement provides for a $400 million asset-based revolving credit facility maturing on May 19, 2021. During the term of the 2016 Credit Agreement, we may also increase the commitments by up to $200 million, subject to customary conditions. In the first quarter of 2020, we have drawn $330 million of our credit facility. 

Interest is determined by the eurodollar rate, determined by reference to LIBOR, plus a margin of 1.125 percent to 1.375 percent depending on availability under the 2016 Credit Agreement. In addition, we are paying a commitment fee of 0.20 percent per annum on the unused portion of the commitments.

We are not required to comply with any financial covenants unless certain events of default have occurred and are continuing, or if availability under the 2016 Credit Agreement does not exceed the greater of $40 million and 10 percent of the Loan Cap (as defined in the 2016 Credit Agreement). There are no restrictions relating to the payment of dividends and share repurchases as long as no default or event of default has occurred and the aggregate principal amount of unused commitments under the 2016 Credit Agreement is not less than 15 percent of the lesser of the aggregate amount of the commitments and the Borrowing Base, determined as of the preceding fiscal month and on a proforma basis for the following six fiscal months.

First Quarter 2020 Form 10-Q Page 10

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss (“AOCL”), net of tax, is comprised of the following: