Foot Locker 2013 Annual Report Download - page 43

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shipping offers to remain competitive with other Internet retailers. Vendor allowances had no effect on the
gross margin rate, as compared with the prior year. Excluding the effect of the 53
rd
week in 2012, gross margin
increased by 90 basis points as compared with 2011.
Selling, General and Administrative Expenses
2013 2012 2011
SG&A as a percentage of sales 20.5% 20.9% 22.1%
Selling, general and administrative (‘‘SG&A’’) expenses increased by $40 million, or 3.1 percent, to $1,334 million
in 2013, as compared with 2012. Excluding the effect of foreign currency fluctuations, SG&A increased by $34
million. Runners Point Group, which was acquired in early July 2013, represented an incremental $45 million in
expenses. Additionally, the Company incurred $6 million in integration and acquisition costs during 2013.
Excluding foreign currency fluctuations, the effect of the recent acquisition, and the effect of the 53
rd
week in
2012, SG&A decreased by $4 million. The decrease reflects effective expense management, specifically vari-
able costs.
SG&A expenses increased by $50 million, or 4.0 percent, to $1,294 million in 2012, as compared with 2011.
Excluding the effect of foreign currency fluctuations, SG&A increased by $69 million. This increase reflects the
effect of the 53
rd
week, which contributed $13 million in additional expenses, as well as higher variable expenses
to support sales, such as store wages and banking expenses. The Company also increased its marketing and
advertising spending by $8 million during 2012 in order to support the Company’s strategic objective of differ-
entiating its formats.
Depreciation and Amortization
2013 2012 2011
Percentage increase 12.7% 7.3% 3.8%
The increases in both 2013 and 2012 reflect increased capital spending on store improvements and technology.
In addition, the increase in the current year reflects the inclusion of depreciation and amortization relating to
the Runners Point Group of $6 million. The effect of foreign currency fluctuations was not significant for 2013.
Interest Expense, Net
2013 2012 2011
(in millions)
Interest expense $11 $11 $13
Interest income (6) (6) (7)
Interest expense, net $5 $5 $6
Weighted-average interest rate (excluding fees) 7.1% 7.6% 7.6%
Net interest expense in 2013 was essentially unchanged from the prior year. The overall reduction in net interest
expense in 2012 as compared with 2011 primarily reflected lower expenses associated with the Company’s
revolving credit facility, which was amended at the end of 2011 with lower annual fees.
The Company did not have any short-term borrowings, other than amounts outstanding in connection with
capital leases, for any of the periods presented.
Income Taxes
The effective tax rate for 2013 was 35.3 percent, as compared with 34.6 percent in 2012. The Company regularly
assesses the adequacy of the provisions for income tax contingencies in accordance with the applicable authori-
tative guidance on accounting for income taxes. As a result, the reserves for unrecognized tax benefits may be
adjusted as a result of new facts and developments, such as changes to interpretations of relevant tax law,
assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitation.
During the third quarter of 2013, the Company settled a foreign tax audit resulting in a reserve release of $3
million. The effective tax rate for 2013 also includes other reserve releases totaling $3 million due to audit
settlements and lapses of statutes of limitations. Additionally, in connection with the purchase of Runners Point
20