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 28, 2017~~

May 4, 2019


☐	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~~1‑10299

(Exact name of registrant as specified in its charter)


New York	~~13-3513936~~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)~~(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 ☑ 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 ☐

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 June 11, 2019: 109,701,174

~~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 November 24, 2017: 121,205,589~~

Table of Contents

FOOT LOCKER, INC.

TABLE OFOF CONTENTS

			Page
PART I	FINANCIAL INFORMATION		1
	Item 1.	Financial Statements	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Comprehensive Income	3
		Condensed Consolidated Statements of Shareholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	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

							~~Page~~
~~PART I~~		~~FINANCIAL INFORMATION~~
				~~Item 1.~~		~~Financial Statements~~
				~~Condensed Consolidated Balance Sheets~~	1
				~~Condensed Consolidated Statements of Operations~~	2
				~~Condensed Consolidated Statements of Comprehensive Income~~	3
				~~Condensed Consolidated Statements of Cash Flows~~	4
				~~Notes to Condensed Consolidated Financial Statements~~	5
		~~Item 2.~~		~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	17
		~~Item 4.~~		~~Controls and Procedures~~	26

~~PART II~~		~~OTHER INFORMATION~~
		~~Item 1.~~		~~Legal Proceedings~~	26
		~~Item 1A.~~		~~Risk Factors~~	26
		~~Item 2.~~		~~Unregistered Sales of Equity Securities and Use of Proceeds~~	26
		~~Item 6.~~		~~Exhibits~~	26

~~SIGNATURE~~					27

~~INDEX OF EXHIBITS~~					28

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FOOT LOCKER, INC.

CONDENSED ~~CONSOLIDATED~~CONSOLIDATED BALANCE SHEETS

($ in millions, except shares)


							May 4,		May 5,		February 2,
	October 28,		October 29,		January 28,		2019		2018		2019
	2017		2016		2017			(Unaudited)		(Unaudited)		*
	(Unaudited)		(Unaudited)		*			($ in millions)
ASSETS

Current assets:
Cash and cash equivalents	$	890	$	865	$	1,046	$	1,126	$	1,029	$	891
Merchandise inventories		1,313		1,361		1,307		1,211		1,210		1,269
Other current assets		295		291		280		255		301		358
		2,498		2,517		2,633		2,592		2,540		2,518
Property and equipment, net		835		732		765		810		843		836
Operating lease right-of-use assets								3,025		—		—
Deferred taxes		164		171		161		89		104		87
Goodwill		158		156		155		156		158		157
Other intangible assets, net		45		43		42		22		43		24
Other assets		113		75		84		234		275		198
	$	3,813	$	3,694	$	3,840	$	6,928	$	3,963	$	3,820

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	241	$	215	$	249	$	451	$	344	$	387
Accrued and other liabilities		326		327		363		340		309		377
Current portion of capital lease obligations		—		1		—
Current portion of lease obligations								499		—		—
		567		543		612		1,290		653		764
Long-term debt and obligations under capital leases		126		127		127
Long-term debt								123		125		124
Long-term lease obligations								2,804		—		—
Other liabilities		463		391		391		109		642		426
Total liabilities		1,156		1,061		1,130		4,326		1,420		1,314
Shareholders’ equity:
Common stock and paid-in capital: 133,336,171; 174,687,964; and 132,616,087 shares outstanding, respectively		921		1,168		900
Common stock and paid-in capital: 113,161,373;
121,341,925; and 112,932,605 shares outstanding, respectively								820		848		809
Retained earnings		2,467		3,546		2,254		2,207		2,184		2,104
Accumulated other comprehensive loss		(286)		(353)		(363)		(384)		(313)		(370)
Less: Treasury stock at cost: 10,730,582; 42,326,538; and 1,120,466 shares, respectively		(445)		(1,728)		(81)
Less: Treasury stock at cost: 774,355; 4,080,653;
and 711,024 shares, respectively								(41)		(176)		(37)
Total shareholders' equity		2,657		2,633		2,710		2,602		2,543		2,506
	$	3,813	$	3,694	$	3,840	$	6,928	$	3,963	$	3,820

~~See Accompanying Notes to Condensed Consolidated Financial Statements.~~

*The balance sheet at ~~January 28, 2017~~February 2, 2019 has been derived from the previously reported audited 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~~10‑K for the year ended ~~January 28, 2017.~~February 2, 2019.

See Accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in millions, except per share amounts)



	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended
	October 28,		October 29,		October 28,		October 29,		May 4,		May 5,
	2017		2016		2017		2016		2019		2018

Sales	$	1,870	$	1,886	$	5,572	$	5,653	$	2,078	$	2,025

Cost of sales		1,290		1,246		3,809		3,730		1,389		1,359
Selling, general and administrative expenses		368		366		1,078		1,077		416		385
Depreciation and amortization		44		40		127		118		44		45
Litigation and other charges		13		6		63		6		1		12
Income from operations		155		228		495		722		228		224

Interest (income) / expense, net		—		1		(1)		2
Interest income, net										4		2
Other income		(1)		—		(2)		(3)		2		3
Income before income taxes		156		227		498		723		234		229
Income tax expense		54		70		165		248		62		64
Net income	$	102	$	157	$	333	$	475	$	172	$	165

Basic earnings per share	$	0.81	$	1.18	$	2.57	$	3.53	$	1.53	$	1.39
Weighted-average shares outstanding		126.0		132.9		129.6		134.6		112.4		118.7

Diluted earnings per share	$	0.81	$	1.17	$	2.55	$	3.50	$	1.52	$	1.38
Weighted-average shares outstanding, assuming dilution		126.4		134.0		130.3		135.7		113.1		119.1

See Accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

($ in millions)


		Thirteen weeks ended
	May 4,		May 5,
	2019		2018

Net income	$	172	$	165
Other comprehensive income, net of income tax

Foreign currency translation adjustment:
Translation adjustment arising during the period, net of income tax (benefit) of $- and $(5) million, respectively		(15)		(38)

Cash flow hedges:
Change in fair value of derivatives, net of income tax		(2)		1

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 million, respectively		3		3
Comprehensive income	$	158	$	131

See Accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

($ in millions)


	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)
Reissued - ESPP												—
Retirement of treasury stock												—
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


	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 3, 2018	121,262	$	842	(1,433)	$	(63)	$	2,019	$	(279)	$	2,519
Restricted stock issued	76											—
Issued under director and stock plans	4		—									—
Share-based compensation expense			6									6
Shares of common stock used to satisfy tax withholding obligations				(31)		(1)						(1)
Share repurchases				(2,617)		(112)						(112)
Net income								165				165
Cash dividends declared on common stock ($0.345 per share)								(41)				(41)
Translation adjustment, net of tax										(38)		(38)
Change in cash flow hedges, net of tax										1		1
Pension and postretirement adjustments, net of tax										3		3
Cumulative effect of the adoption of ASU 2014-09								4				4
Cumulative effect of the adoption of ASU 2016-16								37				37
Balance at May 5, 2018	121,342	$	848	(4,081)	$	(176)	$	2,184	$	(313)	$	2,543

Table of Contents

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

($ in millions)


	May 4,		May 5,
	2019		2018
		($ in millions)
From operating activities:
Net income	$	172	$	165
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44		45
Share-based compensation expense		7		5
Qualified pension plan contributions		(55)		—
Change in assets and liabilities:
Merchandise inventories		50		53
Accounts payable		67		90
Accrued and other liabilities		(22)		(6)
Pension litigation accrual		—		12
Other, net		55		51
Net cash provided by operating activities		318		415

From investing activities:
Capital expenditures		(45)		(64)
Minority investments		(45)		—
Insurance proceeds related to loss on property and equipment		—		1
Net cash used in investing activities		(90)		(63)

From financing activities:
Purchase of treasury shares		(2)		(112)
Dividends paid on common stock		(43)		(41)
Proceeds from exercise of stock options		4		—
Shares of common stock repurchased to satisfy tax withholding obligations		(2)		(1)
Net cash used in financing activities		(43)		(154)

Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash		(5)		(18)
Net change in cash, cash equivalents, and restricted cash		180		180
Cash, cash equivalents, and restricted cash at beginning of year		981		1,031
Cash, cash equivalents, and restricted cash at end of period	$	1,161	$	1,211

Cash paid during the year:
Interest	$	—	$	—
Income taxes	$	40	$	61

See Accompanying Notes to Condensed Consolidated Financial Statements.

~~FOOT LOCKER, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited)~~

~~($ in millions)~~

Table of Contents

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016
Net income

$
102

$
157

$
333

$
475

Other comprehensive income, net of income tax:

Foreign currency translation adjustment:

Translation adjustment arising during the period, net of income tax

(4)

(14)

70

3

Cash flow hedges:

Change in fair value of derivatives, net of income tax

—

1

1

4

Available for sale securities:

Unrealized gain on available for sale securities

—

—

1

1

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, $1, $3 and $3 million, respectively, and foreign currency fluctuations

2

3

5

5
Comprehensive income

$
100

$
147

$
410

$
488

~~See Accompanying Notes to Condensed Consolidated Financial Statements.~~

~~FOOT LOCKER, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~($ in millions)~~

Thirty-nine weeks ended

October 28,

October 29,

2017

2016 *

From operating activities:

   Net income
$
333

$
475
   Adjustments to reconcile net income to net cash provided by operating activities:

      Non-cash impairment charges

—

6
      Depreciation and amortization

127

118
      Share-based compensation expense

11

17
      Qualified pension plan contributions

(25)

(33)
      Change in assets and liabilities:

         Merchandise inventories

18

(77)
         Accounts payable

(13)

(66)
         Accrued and other liabilities

(29)

(3)
         Pension litigation accrual

50

—
         Other, net

24

40
Net cash provided by operating activities

496

477

From investing activities:

   Capital expenditures

(204)

(193)
Net cash used in investing activities

(204)

(193)

From financing activities:

   Purchase of treasury shares

(362)

(352)
   Dividends paid on common stock

(120)

(111)
   Proceeds from exercise of stock options

12

24
   Treasury stock reissued under employee stock plan

5

4
   Shares of common stock repurchased to satisfy tax withholding obligations

(10)

(6)
   Payment of revolving credit agreement costs

—

(2)
Net cash used in financing activities

(475)

(443)

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

30

4
Net change in cash, cash equivalents, and restricted cash

(153)

(155)
Cash, cash equivalents, and restricted cash at beginning of period

1,073

1,048
Cash, cash equivalents, and restricted cash at end of period
$
920

$
893

Cash paid during the period:

   Interest
$
6

$
6
   Income taxes
$
187

$
271

~~See Accompanying Notes to Condensed Consolidated Financial Statements.~~

* Amounts for the thirty-nine weeks ended October 29, 2016 have been revised from previously reported amounts to reflect the adoption of new accounting standards in the first quarter of 2017. For additional information, see the ~~Recently Adopted Accounting Pronouncements~~ ~~note.~~

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of ~~Significant~~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 of the fiscal year ending February ~~3, 2018~~1, 2020 and of the fiscal year ended ~~January 28, 2017.~~February 2, 2019. Certain items included in these statements are based on management’s estimates. 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 accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in Foot Locker, Inc.’s (the “Company”) Form ~~10-K~~10‑K for the year ended ~~January 28, 2017,~~February 2, 2019, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on ~~March 23, 2017.~~April 2, 2019.

Other than the changes to the Leases 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 2, 2019.

Recent Accounting Pronouncements

~~In May 2014, the~~ ~~Financial Accounting Standards Board (“FASB”) issued~~ ~~Accounting Standards Update (“ASU”)~~ ~~2014-09,~~ ~~Revenue from Contracts with Customers~~. The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09, as amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein. These ASUs can be adopted either retrospectively to each prior reporting period presented or ~~as a cumulative-effect adjustment as of the date of adoption~~. The Company expects a change in the timing of recognizing gift card breakage, sales relating to shipping and handling for undelivered orders, and a change in timing for the recognition of expenses related to direct-response advertising costs. In addition, we expect a balance sheet reclassification from inventory to other current assets relating to our right to recover products for our sales returns, as well as a change to the accounting for our unredeemed rewards for our loyalty program as a reduction to sales instead of recording the charge to cost of goods sold. Although we are in the process of finalizing the quantification of the effects on the areas discussed above, we currently do not expect the adoption will significantly affect our consolidated statements of operations, financial position or cash flows. The Company expects to adopt the provisions of this standard using the modified retrospective method, which requires a cumulative effect adjustment to the opening balance of retained earnings on the date of adoption.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). . This ASU requires lessees to recognize a lease liability, on a discounted basis, and a right-of-use asset for substantially all leases, as well as additional ~~disclosure~~disclosures regarding leasing arrangements. ~~This standard will be effective for fiscal years beginning after December 15,~~In July 2018, including interim periods therein, and requires a modified retrospective adoption, with earlier adoption permitted. The Company does not expect to adopt this ASU until required and is evaluating the effect of this guidance. The Company has historically presented a non-GAAP measure to adjust its balance sheet to present operating leases as if they were capital leases. Based upon that analysis and preliminary evaluation of the standard, we estimate the adoption will result in the addition of $3 billion to $4 billion of assets and liabilities to our consolidated balance sheet, with no significant change to our consolidated statements of operations or cash flows.

~~In October 2016,~~ the FASB issued ASU ~~2016-16,~~2018-11, ~~Income Taxes~~Leases (Topic ~~740)~~842): Targeted improvements, ~~Intra-Entity Transfers~~which provides an optional transition method of ~~Assets Other Than Inventory. ASU 2016-16 requires recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when~~applying the transfer occurs. This ASU is effective and will be adopted by the Company for annual reporting periods beginning after December 15, 2017, including interim periods therein. The amendments in this update shouldnew lease standard. Topic 842 can be applied onusing either a modified retrospective ~~basis through a cumulative-effect adjustment directly to retained earnings~~approach at the beginning of the earliest period presented, or as ofpermitted by ASU 2018-11, at the beginning of the period in which it is adopted.

The Company adopted Topic 842 on February 3, 2019 (the “effective date”) using the optional transition method, which applies Topic 842 at the beginning of ~~adoption.~~ the period in which it is adopted. Prior period amounts have not been adjusted in connection with the adoption of this standard. The Company elected the package of practical expedients under the new standard, which permits companies to not reassess lease classification, lease identification, or initial direct costs for existing or expired leases prior to the effective date. We have lease agreements with non-lease components that relate to the lease components. The Company elected the practical expedient to account for non-lease components and the lease components to which they relate, as a single lease component for all classes of underlying assets. Also, the Company elected to keep short-term leases with an initial term of twelve months or less off the balance sheet.

Upon adoption of this new standard, the Company recorded right-of-use assets and lease obligations on the Condensed Consolidated Balance Sheet for our operating leases of $3,148 million and $3,422 million, respectively, as of February 3, 2019. As part of adopting the standard, previously recognized liabilities for deferred rent and lease incentives were reclassified as a ~~company~~component of the right-of-use assets. Additionally upon adoption, we evaluated right-to-use assets for impairment and determined that approximately $29 million of impairment was required related to newly recognized right-to-use assets that would ~~write off any~~have been impaired in previous periods. This impairment of the right-to-use asset as of February 3, 2019 was recorded, net of related income tax effects, ~~that had been deferred from past intercompany transactions involving non-inventory assets to opening~~as a $26 million reduction of beginning retained earnings. ~~In addition, an entity would record deferred tax assets with an offset to opening retained earnings for amounts that entity had previously~~The standard did not ~~recognized under existing guidance but would recognize under the new guidance. Based on deferred tax amounts related to applicable past intercompany transactions and the foreign exchange rates as~~significantly affect our Condensed Consolidated Statements of ~~October 28, 2017, we expect the adoption will result in an increase in deferred income tax assets of approximately $40 million to $45 million.~~

Income, Comprehensive Income, or Cash Flows.

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

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Recently Adopted Accounting Pronouncements~~2. Revenue

Store revenue is recognized at the point of sale and includes merchandise, net of returns, and excludes taxes. Revenue from layaway sales is recognized when the customer receives the product, rather than when the initial deposit is paid. Revenue for merchandise that is shipped to our customers from our distribution centers and stores is recognized upon shipment date.

Total revenue recognized includes shipping and handling fees. We have determined that control of the promised good is passed to the customer upon shipment date since the customer has legal title, the rewards of ownership, and has paid for the merchandise as of the shipment date. Shipping and handling is accounted for as a fulfillment activity. The Company accrues the cost and recognized revenue for these activities upon shipment date.

Sales disaggregated based upon sales channel is presented below.


	Thirteen weeks ended
	May 4,		May 5,
	2019		2018
	($ in millions)
Sales by Channel
Stores	$	1,758	$	1,743
Direct-to-customers		320		282
Total sales	$	2,078	$	2,025

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting.~~ ~~ASU 2016-09 simplifies the accounting for share-based payment transactions, including tax consequences, forfeitures, and classifications of the tax related items~~Sales disaggregated based upon geographic area is presented in the ~~statement of cash flows.~~ below table. Sales are attributable to the geographic area in which the sales transaction is fulfilled.


	Thirteen weeks ended
	May 4,		May 5,
	2019		2018
	($ in millions)
Sales by Geography
United States	$	1,552	$	1,501
International		526		524
Total sales	$	2,078	$	2,025

Contract Liabilities

The Company ~~adopted ASU 2016-09 during~~sells gift cards which do not have expiration dates. Revenue from gift card sales is recorded when the ~~first quarter~~gift cards are redeemed by customers. Breakage income is reported as part of ~~2017. Amendments relating~~sales. The table below presents the activity of our gift card liability balance:


		($ in millions)
Balance at February 3, 2019	$	35
Redemptions		(25)
Breakage recognized in sales		(2)
Activations		22
Balance at May 4, 2019	$	30

The Company elected not to ~~accounting for excess tax benefits and deficiencies have been adopted prospectively. For~~disclose the ~~thirteen and thirty-nine weeks ended October 28,~~2017, the Company recorded excess tax benefits related to share-based compensation awards of $2 million and $9 million, respectively, to the income statement, within the income tax provision, whereas such benefits were previously recognized in equity. Also, in the diluted net earnings per share calculation, when applying the treasury stock method for shares that could be repurchased, the assumed proceeds no longer includeinformation about remaining performance obligations since the amount of excess tax benefits. This ASU also requires that we present excess tax benefits or deficiencies as operating activities in our condensed consolidated statement of cash flow. As a result of adopting this change retrospectively, we reclassified excess tax benefits of $16 million which were previously classified as cash flows from financing activities to operating activities for the thirty-nine weeks ended October 29, 2016. Additionally, the presentation of employee taxes paid to taxing authorities for share-based transactions of $6 million, previously classified as cash flows from operating activities, were reclassified to financing activities for the thirty-nine weeks ended October 29, 2016. The Company has made a policy election of recording forfeitures as they occur instead of estimating forfeitures using a modified retrospective approach. The cumulative effect of this change wasgift cards redeemed after 12 months is not significant.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement~~

Table of ~~Cash Flows (Topic 230): Restricted Cash.~~ ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. This ASU is effective for annual reporting periods beginning after December 15, 2017 including interim periods therein. The Company has adopted this ASU as of the first quarter of 2017. ~~Accordingly, we restated our cash and cash equivalents balances in the condensed consolidated statements of cash flows to include restricted cash of $28 million as of October29,2016 and $27 million as of both January 30, 2016, and January 28, 2017. Please see Note 5,~~ ~~Restricted Cash~~, for a reconciliation of cash and cash equivalents as presented on our condensed consolidated balance sheets to cash, cash equivalents, and restricted cash as reported on our condensed consolidated statements of cash flows.Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

23. Segment Information

The Company has 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.

Our operating segments are identified according to how our business activities are managed and evaluated by our chief operating decision maker, our CEO. During 2018, the Company expanded into Asia and launched our digital channels across Singapore, Hong Kong, and Malaysia. In addition, we entered China through a limited offering in partnership with Tmall (a Chinese-language platform for business-to-consumer online retail). During the first quarter of 2019, the Company changed its organizational and internal reporting structure in order to support an accelerated growth strategy for the region. We opened an Asian headquarters in Singapore and realigned our organization into three distinct geographic regions: Europe, Middle East and Africa (“EMEA”), Asia Pacific, and North America.

In light of these changes, the Company has re-evaluated its operating segments. The Company has determined that ~~its~~it has three operating segments, North America, EMEA, and Asia Pacific. Our North America operating segment includes the results of the following banners operating in the U.S. and Canada: Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, and SIX:02, including each of their related e-commerce businesses, as well as our Eastbay business that includes internet, catalog, and team sales. Our EMEA operating segment includes the results of the following banners operating in Europe: Foot Locker, Runners Point, Sidestep, and Kids Foot Locker, including each of their related e-commerce businesses. Our Asia Pacific operating segment includes the results of Foot Locker and Kids Foot Locker and the related e-commerce businesses operating in Australia, New Zealand, and Asia. We have further aggregated these operating segments into one reportable ~~segments are those that are~~segment based ~~on its method of internal reporting. The Company has two reportable segments, Athletic Stores~~upon their shared customer base and ~~Direct-to-Customers.~~ similar economic characteristics.

The Company evaluates performance based on several factors, of which the primary financial measure is the banner’s financial results referred to as division ~~results.~~profit. Division profit reflects income before income taxes, pension litigation ~~charge, reorganization charge,~~charges, corporate expense, non-operating income, and net interest ~~(income) / expense.~~income.

The following table summarizes our results:

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016
Sales

($ in millions)
Athletic Stores

$
1,612

$
1,644

$
4,819

$
4,955
Direct-to-Customers

258

242

753

698
Total sales

$
1,870

$
1,886

$
5,572

$
5,653
Operating Results

Athletic Stores (1)

$
154

$
213

$
504

$
683
Direct-to-Customers

26

32

88

92
Division profit

180

245

592

775
Less: Pension litigation and reorganization charges (2), (3)

13

—

63

—
Less: Corporate expense

12

17

34

53
Operating profit

155

228

495

722
Interest (income) / expense, net

—

1

(1)

2
Other income (4)

1

—

2

3
Income before income taxes

$
156

$
227

$
498

$
723


	Thirteen weeks ended
	May 4,		May 5,
	2019		2018
	($ in millions)
Sales	$	2,078	$	2,025

Operating Results
Division profit		250		247
Less: Pension litigation charges (1)		1		12
Less: Corporate expense (2)		21		11
Income from operations		228		224
Interest income, net		4		2
Other income		2		3
Income before income taxes	$	234	$	229

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Segment Information – (continued)

	(1)	Included in the thirteen and thirty-nine weeks ended October 29, 2016 is a $6 million pre-tax non-cash impairment charge to write down long-lived store assets of Runners Point and Sidestep. See Note 3, ~~Litigation and Other Charges~~ ~~for additional information.~~
~~(2)~~	~~Included in~~The Company recorded pre-tax charges of $1 million and $12 million for the ~~thirty-nine weeks~~quarters ended ~~October 28, 2017 is a pre-tax charge of $50 million relating~~May 4, 2019 and May 5, 2018, respectively, related to a pension litigation matter ~~described further~~and the related plan reformation. The charge in ~~Note 14, Legal Proceedings.~~the current period reflects professional fees in connection with the plan reformation. The prior year charge reflected adjustments to the value of the judgment and interest that continued to accrue, as required by the provisions of the required plan reformation.

~~(3)~~	~~Included in the thirteen~~(2)		Corporate expense consists of unallocated selling, general and ~~thirty-nine weeks ended October 28, 2017 is $13 million in pre-tax reorganization costs~~ administrative expenses as well as depreciation and amortization related to the ~~reduction~~Company’s corporate headquarters, centrally managed departments, unallocated insurance and ~~reorganization of division and corporate staff that occurred in the third quarter of 2017, described more fully in Note 3, Litigation and Other Charges.~~
~~(4)~~	~~Other income includes non-operating items, such as lease termination gains, royalty income, insurance recoveries, and the changes in fair value, premiums paid, and realized~~benefit programs, certain foreign exchange transaction gains and losses, ~~associated with foreign currency option contracts.~~and other items.

~~3. Litigation~~4. Cash, Cash Equivalents, and ~~Other Charges~~

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)
Pension litigation charge

$
—

$
—

$
50

$
—
Reorganization costs

13

—

13

—
Impairment of long-lived assets

—

6

—

6
Total litigation and other charges

$
13

$
6

$
63

$
6

During the third quarter of 2017, the Company reorganized its organizational structure by adjusting certain divisional responsibilities between our various businesses. As a result of this, as well as certain corporate staff reductions taken to improve corporate efficiency, the Company recorded a charge of $13 million. The charge consisted primarily of severance payments and benefit continuation costs for approximately 190 associates. The following is a reconciliation of the accrual for the quarter ended October 28,~~2017:~~

Severance and

Other Related

Benefit Costs

Charges

Total

($ in millions)
Balance at January 28, 2017

$
—

$
—

$
—
Amounts charged to expense

11

2

13
Cash payments

(2)

—

(2)
Balance at October 28, 2017

$
9

$
2

$
11

~~As more fully discussed in Note 14,~~ ~~Legal Proceedings,~~ ~~during the second quarter of 2017 the Company recorded a $50 million pension litigation charge.~~

Included in the thirteen and thirty-nine weeks ended October 29, 2016 is a non-cash charge of $6 million to write down store fixtures and leasehold improvements related to the Runners Point and Sidestep businesses.

~~4. Hurricane-Related Costs~~

Hurricanes Harvey, Irma, and Maria adversely affected the Company’s third quarter of 2017 operations and resulted in the closure of approximately 450 of the Company’s retail stores for varying periods of time. As of October28, 2017, 22 of these stores remain closed in Puerto Rico. The Company expects to re-open 8 of the remaining stores during the fourth quarter of 2017 and an additional 7 stores during the early part of 2018, dependent on timing of repairs and mall openings. Currently, we do not expect to re-open the balance of the stores.

The Company recorded a $7 million charge associated with its retail stores that were damaged by the hurricanes. This charge was recorded as a component of selling, general and administrative expenses in the Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended October 28, 2017. The charge reflects estimated property damages and other costs of $2 million and inventory write-offs of $5 million. The Company is working with its insurance providers to determine if any of the losses can be recovered.

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

5. 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.


	October 28,		October 29,		January 28,		May 4,		May 5,
	2017		2016		2017		2019		2018
	($ in millions)						($ in millions)
Cash and cash equivalents	$	890	$	865	$	1,046	$	1,126	$	1,029
Restricted cash included in other current assets		1		—		—		5		1
Restricted cash included in other non-current assets		29		28		27		30		181
Cash, cash equivalents, and restricted cash	$	920	$	893	$	1,073	$	1,161	$	1,211

~~Amounts~~During 2017 in connection with the pension litigation matter, the Company deposited $150 million in a qualified settlement fund. At May 5, 2018, this amount was classified as part of non-current assets. During 2018 and in March 2019, the Company used substantially all of the qualified settlement fund to pay class counsel fees and to make a contribution to the pension plan.

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

The Company has elected to present book overdrafts, representing checks issued but still outstanding in excess of bank balances, as part of accounts payable.

6.5. Goodwill

Annually during the first quarter, or more frequently if impairment indicators arise, the Company reviews goodwill and intangible assets with indefinite lives for impairment. ~~The annual review~~

In light of ~~goodwill~~the change in our organizational and ~~intangible assets with indefinite lives performed during~~internal reporting structure in the first quarter of ~~2017 did not result~~2019, we have reassessed our reporting units and have determined that the collective omni-channel banners in North America, EMEA, and Asia Pacific are the three reporting units at which goodwill is tested.

Accordingly, goodwill was re-allocated between the affected reporting units based on their relative fair values. As required, we conducted the annual impairment review both before and after this change. Neither review resulted in the recognition of ~~impairment. The following table provides a summary~~impairment, as the fair value of ~~goodwill by reportable segment. The change in the balance represents foreign currency exchange fluctuations.~~each reporting unit exceeded its carrying value.

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 28,

October 29,

January 28,


2017

2016

2017

($ in millions)
Athletic Stores

$
18

$
17

$
16
Direct-to-Customers

140

139

139
Total goodwill

$
158

$
156

$
155

7.6. Other Intangible Assets, net

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



		October 28, 2017						October 29, 2016						January 28, 2017							May 4, 2019						May 5, 2018
		Gross		Accum.		Net		Gross		Accum.		Net		Gross		Accum.		Net		Gross		Accum.		Net		Gross		Accum.		Net
($ in millions)	($ in millions)	value		amort.		value		value		amort.		value		value		amort.		value		value		amort.		value		value		amort.		value
Amortized intangible assets: (1)	Amortized intangible assets: (1)
	Lease acquisition costs	$	129	$	(117)	$	12	$	118	$	(107)	$	11	$	116	$	(105)	$	11
	Trademarks / trade names		20		(13)		7		20		(13)		7		20		(13)		7
Lease acquisition costs																				$	116	$	(108)	$	8	$	128	$	(117)	$	11
Trademarks / trade names																					20		(15)		5		20		(14)		6
Favorable leases																					-		-		-		7		(6)		1
	Favorable leases		7		(6)		1		7		(5)		2		7		(5)		2	$	136	$	(123)	$	13	$	155	$	(137)	$	18
		$	156	$	(136)	$	20	$	145	$	(125)	$	20	$	143	$	(123)	$	20
Indefinite life intangible assets: (1)	Indefinite life intangible assets: (1)
	Runners Point Group trademarks / trade names					$	25					$	23					$	22
Runners Point Group trademarks / trade names																								$	9					$	25
Other intangible assets, net	Other intangible assets, net					$	45					$	43					$	42					$	22					$	43

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

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~During~~The annual review of intangible assets with indefinite lives performed during the ~~thirty-nine week period ended~~ ~~October, 28 2017,~~first quarter of 2019 did not result in the ~~Company recorded $2~~ ~~million~~recognition of ~~lease acquisition additions, primarily related to our European businesses. These additions are being amortized over a weighted-average life of 10 years.~~impairment. Amortization expense recorded is as follows:



	Thirteen weeks ended				Thirty-nine weeks ended					Thirteen weeks ended
($ in millions)		October 28, 2017		October 29, 2016	October 28, 2017		October 29, 2016			May 4, 2019	May 5, 2018
Amortization expense	$	1	$	1	$	3	$	3	$	1	$	1

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


		($ in millions)	($ in millions)
Remainder of 2017	$	1
2018		4
2019		4
Remainder of 2019			$	2
2020		3		3
2021		2		2
2022		2		2
2023				2
2024				2

~~8. Accumulated~~

7. Leases

The Company is obligated under operating leases for almost all of its store properties. In addition, the Company leases certain warehouse distribution centers. Operating lease periods generally range from 5 to 10 years and most store leases contain rent escalation provisions. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning in 2019 and later, the Company will combine lease components (e.g. rental payments) and non-lease components (e.g. common area maintenance costs and utilities).

Right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term for those arrangements where there is an identified asset and the contract conveys the right to control its use.

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Leases – (continued)

Since the rates implicit in the leases are not readily determinable, the Company uses its incremental borrowing rates based on the remaining lease term to determine the present value of future lease payments. The Company's incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

Some of the store leases contain renewal options with varying terms and conditions. The Company’s lease term includes options to extend or terminate a lease only when it is reasonably certain that it will exercise that option.

Certain leases provide for variable lease costs, which primarily include rent payments based on a percentage of store sales, common area maintenance costs and taxes.

The components of lease cost as of May 4, 2019 were as follows:


	($ in millions)
Operating lease costs	$	166
Variable lease costs		84
Short-term lease costs		7
Net lease cost	$	257

Rent expense for operating leases for the thirteen weeks ended May 5, 2018 amounted to $185 million and consisted of minimum and contingent rentals of $179 million and $7 million, respectively, less sublease income of $1 million.

Amounts recognized in the Condensed Consolidated Balance Sheet related to operating leases as of May 4, 2019 were as follows:


	($ in millions)
Assets
Operating lease right-of-use assets	$	3,025

Liabilities
Current
Operating lease liabilities		499
Noncurrent
Operating lease liabilities		2,804
Total lease liabilities	$	3,303

Other ~~Comprehensive Loss~~

~~Accumulated other comprehensive loss (“AOCL”), net~~information related to operating leases as of ~~tax, is comprised~~May 4, 2019 consisted of the following:

October 28,

October 29,

January 28,

2017

2016

2017

($ in millions)
Foreign currency translation adjustments
$
(57)

$
(116)

$
(127)
Cash flow hedges

2

6

1
Unrecognized pension cost and postretirement benefit

(231)

(243)

(236)
Unrealized loss on available-for-sale security

—

—

(1)

$
(286)

$
(353)

$
(363)

~~The changes in AOCL for the thirty-nine weeks ended October 28, 2017 were as follows:~~

Items Related

Foreign Currency

to Pension and

Unrealized Loss on

Translation

Cash Flow

Postretirement

Available-For-

($ in millions)

Adjustments

Hedges

Benefits

Sale Security

Total
Balance as of January 28, 2017

$
(127)

$
1

$
(236)

$
(1)

$
(363)
OCI before reclassification

70

1

(1)

1

71
Reclassified from AOCL

—

—

6

—

6
Other comprehensive income

70

1

5

1

77
Balance as of October 28, 2017

$
(57)

$
2

$
(231)

$
—

$
(286)

~~Reclassifications from AOCL for the thirty-nine weeks ended October 28, 2017 were as follows:~~




Weighted average remaining lease term (years)	7.4
Weighted average discount rate	5.5	%

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Leases – (continued)

Supplemental cash flow information related to leases as of May 4, 2019 was as follows:


	($ in millions)
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	168
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		29

Maturities of lease liabilities as of May 4, 2019 are as follows:


	($ in millions)
Remainder of 2019	$	503
2020		628
2021		581
2022		526
2023		455
Thereafter		1,374
Total lease payments		4,067
Less: Interest		764
Total lease liabilities	$	3,303

As of February 2, 2019, the estimated future minimum non-cancellable lease commitments were as follows:


	($ in millions)
2019	$	672
2020		631
2021		583
2022		527
2023		456
Thereafter		1,408
Total operating lease commitments	$	4,277

8. Accumulated Other Comprehensive Loss

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


	May 4,		May 5,		February 2,
	2019		2018		2019
	($ in millions)
Foreign currency translation adjustments	$	(99)	$	(47)	$	(84)
Cash flow hedges		(2)		1		—
Unrecognized pension cost and postretirement benefit		(283)		(267)		(286)
	$	(384)	$	(313)	$	(370)

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Accumulated Other Comprehensive Loss – (continued)

The changes in AOCL for the thirteen weeks ended May 4, 2019 were as follows:


	Foreign				Items Related
	Currency				to Pension and
	Translation		Cash Flow		Postretirement
($ in millions)	Adjustments		Hedges		Benefits		Total
Balance as of February 2, 2019	$	(84)	$	—	$	(286)	$	(370)

OCI before reclassification		(15)		(2)		1		(16)
Amortization of pension actuarial loss, net of tax		—		—		2		2
Other comprehensive income		(15)		(2)		3		(14)
Balance as of May 4, 2019	$	(99)	$	(2)	$	(283)	$	(384)

Reclassifications from AOCL for the thirteen weeks ended May 4, 2019 were as follows:


	($ in millions)
Amortization of actuarial (gain) loss:
Pension benefits- amortization of actuarial loss	$	10 3
Postretirement benefits- amortization of actuarial gain	~~(1)~~	—
Net periodic benefit cost (see Note ~~12)~~11)	9	3
Income tax benefit	~~(3)~~	(1)
~~Net~~Total, net of tax	$	6 2

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9. ~~Financial Instruments~~

The Company operates internationally and utilizes certain derivative financial instruments to mitigate its foreign currency exposures, primarily related to third-party and intercompany forecasted transactions. As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties will fail to meet their contractual obligations. To mitigate this counterparty credit risk, the Company has a ~~practice~~ of entering into contracts only with major financial institutions selected based upon their credit ratings and other financial factors. The Company monitors the creditworthiness of counterparties throughout the duration of the derivative instrument. Additional information is contained within Note 10, Fair Value Measurements.

~~Derivative Holdings Designated as Hedges~~

For a derivative to qualify as a hedge at inception and throughout the hedged period, the Company formally documents the nature of the hedged items and the relationships between the hedging instruments and the hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions, and the methods of assessing hedge effectiveness and ineffectiveness. In addition, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction would occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss on the derivative instrument would be recognized in earnings immediately. The amount of such gains or losses that were recognized in earnings during the thirty-nine weeks ended October 28, 2017 was not significant and there were no such gains or losses in the corresponding prior-year period. Derivative financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period, which management evaluates periodically.

The primary currencies to which the Company is exposed are the euro, British pound, Canadian dollar, and Australian dollar. For the most part, merchandise inventories are purchased by each geographic area in their respective local currency. The most significant exception to this is the United Kingdom, whose merchandise inventory purchases are denominated in euros. For option and foreign exchange forward contracts designated as cash flow hedges of the purchase of inventory, the effective portion of gains and losses is deferred as a component of AOCL and is recognized as a component of cost of sales when the related inventory is sold. The amount reclassified to cost of sales related to such contracts was not significant for any of the periods presented. The effective portion of gains or losses associated with other forward contracts is deferred as a component of AOCL until the underlying transaction is reported in earnings. The ineffective portion of gains and losses related to cash flow hedges recorded to earnings was also not significant for any of the periods presented. When using a forward contract as a hedging instrument, the Company excludes the time value of the contract from the assessment of effectiveness. At quarter-end, substantially all of the Company’s hedged forecasted transactions were less than twelve months into the future, and the Company expects the derivative-related amounts reported in AOCL to be reclassified to earnings within twelve months.

The net change in the fair value of the foreign exchange derivative financial instruments designated as cash flow hedges was not significant for the thirteen weeks ended October 28, 2017 and was a $1 million gain for the thirty-nine weeks ended October 28, 2017. At October 28, 2017, a $2 million gain remained in AOCL. For the thirteen and thirty-nine weeks ended October 29, 2016, the net change in fair value was a $1 million and $4 million gain, respectively. The notional value of the foreign exchange contracts designated as hedges outstanding at October 28, 2017 was $138 million, and these contracts mature at various dates through January 2019.

~~Derivative Holdings Not Designated as Hedges~~

The Company enters into certain derivative contracts that are not designated as hedges, such as foreign exchange forward contracts and currency option contracts. These derivative contracts are used to manage certain costs of foreign currency-denominated merchandise purchases, intercompany transactions, and the effect of fluctuating foreign exchange rates on the reporting of foreign currency-denominated earnings. Changes in the fair value of derivative holdings not designated as hedges, as well as realized gains and premiums paid, are recorded in earnings immediately within selling, general and administrative expenses or other income, depending on the type of transaction. The net change in fair value was not significant for the thirteen and thirty-nine weeks ended October 28, 2017.

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The net change in fair value resulted in income of $1 million for the thirteen weeks ended October 29, 2016, and was not significant for the thirty-nine weeks ended October 29, 2016. The notional value of the foreign exchange contracts not designated as hedges outstanding at October 28, 2017 was $2 million, and these contracts mature in November 2017.

From time to time, the Company mitigates the effect of fluctuating foreign exchange rates on the reporting of foreign-currency denominated earnings by entering into currency option contracts. Changes in the fair value of these foreign currency option contracts, which are not designated as hedges, are recorded in earnings immediately within other income. The realized gains, premiums paid, and changes in the fair market value recorded were not significant for any of the periods presented. No such contracts were outstanding at October 28, 2017.

~~Fair Value of Derivative Contracts~~

The following represents the fair value of the Company’s derivative contracts. Many of the Company’s agreements allow for a netting arrangement. The following is presented on a gross basis, by type of contract:

Balance Sheet

October 28,

October 29,

January 28,
($ in millions)

Caption

2017

2016

2017
Hedging Instruments:

Foreign exchange forward contracts

Current assets

$
2

$
7

$
3
Foreign exchange forward contracts

Current liabilities

$
1

$
—

$
3
Non-hedging Instruments:

Foreign exchange forward contracts

Current assets

$
—

$
1

$
—

~~10. Fair Value Measurements~~

The Company’s financial assets recorded at fair value are categorized as follows:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 –Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

Level 3 –Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

~~Level 1~~ –

~~Quoted prices for identical instruments in active markets.~~

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FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	~~Level 2 –~~	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

	~~Level 3 –~~	~~Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.~~

9. Fair Value Measurements – (continued)

The following ~~tables provide~~table provides a summary of the Company’s recognized assets and liabilities that are measured at fair value on a recurring basis:



	As of October 28, 2017						As of October 29, 2016						As of January 28, 2017						As of May 4, 2019						As of May 5, 2018
	($ in millions)																		($ in millions)
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Available-for-sale securities	$	—	$	7	$	—	$	—	$	7	$	—	$	—	$	6	$	—
Equity investments																			$	—	$	133	$	—	$	—	$	—	$	—
Available-for-sale security																				—		6		—		—		6		—
Foreign exchange forward contracts		—		2		—		—		8		—		—		3		—		—		1		—		—		1		—
Total Assets	$	—	$	9	$	—	$	—	$	15	$	—	$	—	$	9	$	—	$	—	$	140	$	—	$	—	$	7	$	—

Liabilities
Foreign exchange forward contracts		—		1		—		—		—		—		—		3		—		—		3		—		—		1		—
Total Liabilities	$	—	$	1	$	—	$	—	$	—	$	—	$	—	$	3	$	—	$	—	$	3	$	—	$	—	$	1	$	—

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Securities~~The fair values of the Company’s equity investments are determined by using quoted prices for identical or similar instruments in markets that are not active and therefore are classified as available-for-sale are recorded at fair value with unrealized gains and losses reported, net of tax, in other comprehensive income, unless unrealized gains or losses are determined to be other than temporary.Level 2. The fair value of the auction rate security is determined by using quoted prices for similar instruments in active markets and accordingly is classified as a Level 2 instrument.

The Company’s derivative financial instruments are valued using market-based inputs to valuation models. These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility and therefore are classified as Level 2 instruments.

There were no transfers into or out of Level 1, Level 2, or Level 3 assets and liabilities for any of the periods presented.

The carrying value and estimated fair value of long-term debt ~~and obligations under capital leases~~ were as follows:


	October 28,		October 29,		January 28,		May 4,		May 5,
	2017		2016		2017		2019		2018
	($ in millions)						($ in millions)
Carrying value	$	126	$	128	$	127	$	123	$	125
Fair value	$	145	$	150	$	148	$	136	$	142

The fair value of long-term debt is determined by using model-derived valuations in which all significant inputs or significant value drivers are observable in active markets and therefore are classified as Level 2. The carrying values of cash and cash equivalents, and other current receivables and payables approximate their fair value.

~~11.~~10. Earnings Per Share

The Company accounts for and discloses earnings per share using the treasury stock method. Basic earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding at the end of the period. Restricted stock awards, which contain non-forfeitable rights to dividends, are considered participating securities and are included in the calculation of basic earnings per share. Diluted earnings per share reflects the weighted-average number of common shares outstanding during the period used in the basic earnings per share computation plus dilutive common stock equivalents.

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. Earnings Per Share – (continued)

The computation of basic and diluted earnings per share is as follows:



	Thirteen weeks ended					Thirty-nine weeks ended				Thirteen weeks ended
		October 28,		October 29,		October 28,		October 29,		May 4,		May 5,
		2017		2016		2017		2016		2019		2018
		(in millions, except per share data)								(in millions, except per share data)
Net Income		$	102	$	157	$	333	$	475	$	172	$	165

Weighted-average common shares outstanding			126.0		132.9		129.6		134.6		112.4		118.7
Dilutive effect of potential common shares			0.4		1.1		0.7		1.1		0.7		0.4
Weighted-average common shares outstanding assuming dilution			126.4		134.0		130.3		135.7		113.1		119.1

Earnings per share - basic		$	0.81	$	1.18	$	2.57	$	3.53	$	1.53	$	1.39
Earnings per share - diluted		$	0.81	$	1.17	$	2.55	$	3.50	$	1.52	$	1.38

Anti-dilutive share-based awards excluded from diluted calculation			2.0		0.5		1.6		0.4		1.6		2.2

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company adopted ASU 2016-09 during the first quarter of 2017. As a result, excess tax benefits and tax deficiencies are no longer included as assumed proceeds in the calculation of diluted shares outstanding. This change was adopted prospectively.

~~Contingently issuable~~Additionally, shares of ~~0.4~~0.8 million and ~~0.3~~1.1 million as of May 4, 2019 and May 5, 2018, respectively, have been excluded from diluted weighted-average shares as the number of shares that will be issued is contingent on the Company’s performance metrics as compared to the pre-established performance goals which have not been ~~included as the vesting conditions have not been satisfied~~achieved as of ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016, respectively.~~May 5, 2018. These shares relate to restricted stock units issued in connection with the Company’s long-term incentive program.

~~12.~~11. Pension and Postretirement Plans

The Company has defined benefit pension plans covering certain of its North American employees, which are funded in accordance with the provisions of the laws where the plans are in effect. The Company also has a defined benefit pension plan covering certain employees of the Runners Point Group.

In addition to providing pension benefits, the Company sponsors postretirement medical and life insurance plans, which are available to most of its retired U.S. employees. These medical and life insurance plans are contributory and are not funded.

The following are the components of net periodic pension benefit cost and net periodic postretirement benefit ~~income, which~~income. Service cost is recognized as part of SG&A expense, while the remaining pension and postretirement expense components are recognized as part of ~~SG&A expense:~~

other income.


																	Pension Benefits				Postretirement Benefits
	Pension Benefits								Postretirement Benefits								Thirteen weeks ended				Thirteen weeks ended
	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Thirty-nine weeks ended					May 4,		May 5,		May 4,		May 5,
	Oct. 28,		Oct. 29,		Oct. 28,		Oct. 29,		Oct. 28,		Oct. 29,		Oct. 28,		Oct. 29,			2019		2018		2019		2018
($ in millions)	2017		2016		2017		2016		2017		2016		2017		2016
																	($ in millions)
Service cost	$	4	$	4	$	12	$	12	$	—	$	—	$	—	$	—	$	5	$	5	$	—	$	—
Interest cost		6		6		19		19		—		1		—		1		7		6		—		—
Expected return on plan assets		(9)		(9)		(28)		(27)		—		—		—		—		(9)		(10)		—		—
Amortization of net loss (gain)		3		4		10		11		—		(1)		(1)		(2)		3		3		—		—
Net benefit expense (income)	$	4	$	5	$	13	$	15	$	—	$	—	$	(1)	$	(1)	$	6	$	4	$	—	$	—

~~During the first quarter of 2017, the~~The Company ~~made a contribution of $25~~contributed $55 million in March 2019 to ~~the~~its U.S. qualified pension plan. The Company continually evaluates the amount and timing of any future contributions. ~~The Company currently does not expect to make any further pension plan contributions during this year.Actual contributions are dependent on several factors, including the outcome~~

Table of ~~the ongoing U.S. pension litigation. See Note 14,~~ ~~Legal Proceedings,~~ ~~for further information.~~Contents

FOOT LOCKER, INC.

~~13.~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. Share-Based Compensation

Total compensation expense included in SG&A, and the associated tax benefits recognized related to the Company’s share-based compensation plans, were as follows:



	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended
	October 28,		October 29,		October 28,		October 29,		May 4,		May 5,
	2017		2016		2017		2016		2019		2018
	($ in millions)
Options and shares purchased under the employee stock purchase plan	$	2	$	3	$	7	$	8	$	2	$	2
Restricted stock and restricted stock units		1		3		4		9		5		3
Total share-based compensation expense	$	3	$	6	$	11	$	17	$	7	$	5

Tax benefit recognized	$	1	$	2	$	3	$	5	$	1	$	1

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Valuation Model and Assumptions

The Company uses the Black-Scholes option-pricing model to estimate the fair value of share-based awards. The Black-Scholes option-pricing model incorporates various and ~~highly~~ subjective assumptions, including expected term and expected volatility.

During the first quarter of 2017, in connection with the adoption of ASU 2016-09, we have made the accounting policy election to discontinue estimating forfeitures and will account for forfeitures as they occur.

The following table shows the Company’s assumptions used to compute share-based compensation expense for awards granted during the ~~thirty-nine~~thirteen weeks ended ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016:~~

May 5, 2018:



		Stock Option Plans						Stock Purchase Plan						Stock Option Plans						Stock Purchase Plan
		October 28,			October 29,			October 28,			October 29,		May 4,			May 5,			May 4,			May 5,
		2017			2016			2017			2016		2019			2018			2019			2018
Weighted-average risk free rate of interest		2.1	%		1.4	%		0.9	%		0.4	%		2.2	%		2.7	%		2.3	%		1.2	%
Expected volatility		25	%		30	%		29	%		27	%		38	%		37	%		59	%		30	%
Weighted-average expected award life (in years)		5.4			5.7			1.0			1.0			5.5			5.5			1.0			1.0
Dividend yield		1.9	%		1.7	%		2.0	%		1.7	%		2.6	%		3.1	%		2.6	%		2.1	%
Weighted-average fair value	$	14.74		$	15.71		$	10.84		$	14.04		$	17.19		$	12.35		$	15.64		$	16.49

The information in the following table covers option activity under the Company’s stock option plans for the ~~thirty-nine~~thirteen weeks ended ~~October 28, 2017:~~May 4, 2019:


		Weighted-		Weighted-
	Number	Average		Average
	of	Remaining		Exercise
	Shares	Contractual Life		Price
	(in thousands)	(in years)		(per share)
Options outstanding at the beginning of the year	2,861			$	52.34
Granted	316				58.96
Exercised	(156)				27.34
Expired or cancelled	(22)				60.56
Options outstanding at May 4, 2019	2,999		6.4	$	54.28
Options exercisable at May 4, 2019	2,221		5.5	$	53.74

Weighted-

Weighted-

Number

Average

Average

of

Remaining

Exercise

Shares

Contractual Life

Price

(in thousands)

(in years)

(per share)
Options outstanding at the beginning of the year

2,806

$
42.61
Granted

547

69.58
Exercised

(536)

21.38
Expired or cancelled

(19)

61.01
Options outstanding at October 28, 2017

2,798

6.7

$
51.82
Options exercisable at October 28, 2017

1,729

5.4

$
42.91
Options available for future grant at October 28, 2017

10,759

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. Share-Based Compensation – (continued)

The total fair value of options vested as of ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016~~May 5, 2018 was $8$6 million and $9$8 million, respectively. The cash received and tax benefits realized from option exercises was $4 million and $1 million, respectively, for the thirteen ~~and thirty-nine~~ weeks ended October 28, 2017 was $2 million and $12 million, respectively. The cash received from option exercises for the thirteen and thirty-nine weeks ended October 29, 2016 was $10 million and $24 million, respectively.

May 4, 2019.

The total intrinsic value of options exercised (the difference between the market price of the Company’s common stock on the exercise date and the price paid by the optionee to exercise the option) is presented below:

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)
Exercised
$
5

$
19

$
20

$
45

The total tax benefit realized from option exercises was $2 million and $8 million for the thirteen and thirty-nine weeks ended October 28, 2017. The total tax benefit realized from option exercises was $7 million and $17 million for the corresponding prior-year periods.

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The aggregate intrinsic value for stock options outstanding, and outstanding and exercisable ~~and vested and expected to vest~~ (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) is presented below:



	Thirty-nine weeks ended
	October 28,		October 29,		Thirteen weeks ended
	2017		2016		May 4, 2019		May 5, 2018
	($ in millions)				($ in millions)
Outstanding	$	5	$	78	$	20	$	11
Outstanding and exercisable	$	5	$	71	$	17	$	11
Vested and expected to vest	$	5	$	78

As of ~~October 28, 2017~~May 4, 2019 there was $7$8 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a remaining weighted-average period of ~~1.5~~1.7 years.

The following table summarizes information about stock options outstanding and exercisable at ~~October 28, 2017:~~May 4, 2019:

Options Outstanding

Options Exercisable

Weighted-

Average

Weighted-

Weighted-

Remaining

Average

Average
Range of Exercise

Number

Contractual

Exercise

Number

Exercise
Prices

Outstanding

Life

Price

Exercisable

Price

(in thousands, except prices per share and contractual life)
$9.85 to $24.75

344

2.7

$
16.77

344

$
16.77
$30.92 to $45.75

787

5.5

38.33

747

38.50
$48.55 to $62.11

704

6.9

61.05

472

61.35
$63.79 to $73.21

963

8.8

68.60

166

64.35

2,798

6.7

$
51.82

1,729

$
42.91


	Options Outstanding				Options Exercisable
		Weighted-
		Average	Weighted-			Weighted-
		Remaining	Average			Average
Range of Exercise	Number	Contractual	Exercise		Number	Exercise
Prices	Outstanding	Life	Price		Exercisable	Price
	(in thousands, except prices per share and contractual life)
$9.85 to $18.84	134	1.7	$	18.44	134	$	18.44
$24.75 to $34.75	378	3.7		32.09	340		31.79
$44.78 to $45.75	586	7.1		44.91	351		44.99
$46.64 to $62.11	994	6.9		60.07	646		61.16
$63.33 to $73.21	907	7.2		68.54	750		67.71
	2,999	6.4	$	54.28	2,221	$	53.74

Restricted Stock and Restricted Stock Units

Restricted shares of the Company’s common stock and restricted stock units (“RSU”) may be awarded to certain officers and key employees of the Company. Additionally, RSU awards are made to employees in connection with the Company’s long-term incentive program and to nonemployee directors.

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. Share-Based Compensation – (continued)

Each RSU represents the right to receive one share of the Company’s common stock provided that the performance and vesting conditions are satisfied. There were ~~361,137~~no outstanding restricted stock awards as of May 4, 2019 and ~~678,466 RSU~~an insignificant number of restricted stock awards were outstanding as ~~of October 28, 2017 and October 29, 2016, respectively.~~

May 5, 2018.

Generally, awards fully vest after the passage of time, typically three years. However, RSU awards made in connection with the Company’s performance-based long-term incentive program are earned after the attainment of certain performance metrics and vest after the passage of time. Restricted stock is considered outstanding at the time of grant and the holders have voting rights. Dividends are paid to holders of restricted stock that vest with the passage of time. With regard to performance-based restricted stock, dividends will be accumulated and paid after the performance criteria are met. No dividends are paid or accumulated on any RSU awards. Compensation expense is recognized using the market value at the date of grant and is amortized over the vesting period, provided the recipient continues to be employed by the Company.

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Restricted stock and RSU activity for the ~~thirty-nine~~thirteen weeks ended ~~October 28, 2017~~May 4, 2019 is summarized as follows:


			Weighted-Average
	Number		Remaining		Weighted-Average
	of		Contractual		Grant Date
	Shares		Life		Fair Value
		(in thousands)		(in years)		(per share)
Nonvested at beginning of year		1,022			$	47.47
Granted (1)		291				58.95
Vested		(72)				63.61
Performance adjustment (2)		10
Expired or cancelled		(5)				55.79
Nonvested at May 4, 2019		1,246		2.0	$	49.17
Aggregate value ($ in millions)	$	61

Weighted-

Average

Weighted-

Number

Remaining

Average

of

Contractual

Grant Date

Shares

Life

Fair Value

(in thousands)

(in years)

(per share)
Nonvested at beginning of year

798

$
56.91
Granted

328

63.72
Vested

(286)

49.55
Expired or cancelled

(447)

64.74
Nonvested at October 28, 2017

393

1.5

$
59.07
Aggregate value ($ in millions)
$
23

(1)

Approximately 0.2 million performance-based RSUs were granted during the first quarter of 2019 and are included as granted in the table above. The number of performance-based RSUs that are ultimately earned may vary from 0% to 200% of target depending on the achievement relative to the Company’s predefined financial performance targets.

(2)

This represents adjustments made to performance-based RSU awards and reflect changes in estimates based upon the Company’s current performance against predefined financial targets.

The total value of awards for which restrictions lapsed during the ~~thirty-nine~~thirteen weeks ended ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016~~May 5, 2018 was ~~$14~~$5 million ~~and $8 million, respectively.~~for both periods. As of ~~October 28, 2017,~~May 4, 2019, there was ~~$10~~$41 million of total unrecognized compensation cost related to nonvested ~~restricted~~ awards.

~~14.~~

Table of Contents

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13. Legal Proceedings

Legal proceedings pending against the Company or its consolidated subsidiaries consist of ordinary, routine litigation, including administrative proceedings, incidental to the business of the Company or businesses that have been sold or ~~disposed of~~discontinued by the Company in past years. These legal proceedings include commercial, intellectual property, customer, environmental, and employment-related ~~claims.~~

~~The~~claims, including a purported class action in New York alleging failure to pay for all hours worked by employees. Additionally, the Company and certain officers of the ~~Company’s U.S. retirement plan~~Company are defendants in a purported securities law class action (~~Osberg v. Foot Locker Inc.~~ ~~et ano., filed~~ in ~~the U.S. District Court for the Southern District of~~ New ~~York) in which the plaintiff alleges that, in connection with the 1996 conversion~~York. The directors and certain officers of the ~~retirement plan to a defined benefit plan with a cash balance formula, the~~ Company and the retirement plan failed to properly advise plan participants of the “wear-away” effect of the conversion. Plaintiff’s claims were for breach of fiduciary duty under the Employee Retirement Income Security Act of 1974, as amended, and violation of the statutory provisions governing the content of the Summary Plan Description. During the third quarter of 2015, the trial court ruled that the retirement plan be reformed. ~~As a result of this development, the Company recorded a charge of $100 million pre-tax ($61 million after-tax) during the third quarter of 2015.~~

The Company appealed the trial court’s decision, and the judgment was stayed pending the outcome of the appeal process. During the second quarter of 2017, the Second Circuit Court of Appeals affirmed the trial court’s decision. In light of this development, the Company reassessed its estimate of the liability. The Company’s updated reasonable estimate of this liability is a range between $150 million and $260 million. The high end of the range reflects the estimated cost to reform the retirement planare also defendants in accordance with the court ruling; however, it excludes any legal fees that may be awarded to plaintiff’s counsel. No amount within that range is more probable than any other amount and therefore, in accordance with U.S. GAAP, the Company recorded a charge of $50 million pre-tax ($30 million after-tax) during the second quarter of 2017, bringing the cumulative amount accrued for this matter to $150 million. The accrual has been classified as a long-term liability. The Company will continue to vigorously defend itself in this case and on November 8, 2017 filed a Petition for Writ of Certiorari with the U.S. Supreme Court. In light of the uncertainties involved in this matter, there is no assurance that the ultimate resolution will not differ from the amount currently accrued by the Company.

related derivative actions.

Management does not believe that the outcome of any such legal proceedings pending against the Company or its consolidated subsidiaries, as described above, would have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations, taken as a whole, based upon current knowledge and taking into consideration current accruals. Litigation is inherently ~~unpredictable, and judgments~~unpredictable. Judgments could be rendered or settlements ~~entered into~~made that could adversely affect the Company’s operating results or cash flows in a particular period.

1619

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. Other than statements of historical facts, all statements which address activities, events, or developments that the Company anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, financial objectives, dividend payments, stock repurchases, growth of the Company’s business and operations, including future cash flows, revenues, and earnings, and other such matters, are forward-looking statements. These forward-looking statements are based on many assumptions and factors which are detailed in the Company’s filings with the U.S. Securities and Exchange Commission.

These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control. For additional discussion on risks and uncertainties that may affect forward-looking statements, see “Risk Factors” disclosed in the ~~2016~~2018 Annual Report on Form ~~10-K~~.10‑K. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.

Business Overview

Foot Locker, Inc., through its subsidiaries, ~~operates in two reportable segments – Athletic Stores and Direct-to-Customers. The Athletic Stores segment~~ is one of the largest athletic footwear and apparel retailers in the world, with formats that include Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. The Direct-to-Customers segment includes Footlocker.com, Inc. and other affiliates, including Eastbay, Inc., and our international ecommerce businesses, which sell to customers through their Internet and mobile sites and catalogs.

operating 3,201 stores in 27 countries. The Foot Locker brand is one of the most widely recognized names in the markets in which we operate, epitomizing premium quality for the active lifestyle customer. ~~This~~We operate websites and mobile apps, aligned with the brand ~~equity has aided our ability to successfully develop and increase our portfolio of complementary retail store formats, such as Lady Foot Locker and Kids Foot Locker, as well as Footlocker.com, part~~names of our ~~direct-to-customer business. Through~~store banners. Our sites offer some of the largest online selections of athletically inspired shoes and apparel, while providing a seamless link between e-commerce and physical stores. We also operate the websites for eastbay.com, final-score.com, and eastbayteamsales.com.

With its various marketing channels and experiences ~~including social, digital, broadcast,~~across North America, Europe, Asia, Australia, and ~~print media, as well as various sports sponsorships~~New Zealand, the Company's purpose is to inspire and ~~events, we reinforce our image with~~empower youth culture around the world, by fueling a ~~consistent message~~ shared passion for self-expression and creating unrivaled experiences at the heart of the sport and sneaker communities—. ~~namely, that we are the destination for premium athletically-inspired shoes and apparel with a wide selection of merchandise in a full-service environment.~~

Store Count

At ~~October 28, 2017,~~May 4, 2019, we operated ~~3,349~~3,201 stores as compared with ~~3,363~~3,221 and ~~3,394~~3,284 stores at ~~January 28, 2017~~February 2, 2019 and ~~October 29, 2016,~~May 5, 2018, respectively.

During the first quarter of 2017, the Company entered into a franchise agreement with Fox-Wizel Ltd, for franchised stores operating in Israel. There are 13 franchised stores operating in Israel as of October 28, 2017. Also, during the second quarter of 2017, the Company terminated its franchise agreement with the third party that operated stores in the Republic of Korea.

Franchise Operations

A total of 97129 franchised stores were operating at ~~October 28, 2017,~~May 4, 2019, as compared with 74122 and 71116 stores at ~~January 28, 2017~~February 2, 2019 and ~~October 29, 2016,~~May 5, 2018, respectively. Revenue from the franchised stores was not significant for any of the periods presented. These stores are not included in the operating store count above.

Reconciliation of Non-GAAP Measures

~~The~~In addition to reporting the Company's financial results in accordance with generally accepted accounting principles (“GAAP”), the Company ~~presents~~reports certain financial results that differ from what is reported under GAAP. We have presented certain financial measures identified as non-GAAP, ~~measures,~~ such as sales changes excluding foreign currency fluctuations, adjusted ~~net~~ income before income taxes, adjusted net income, and adjusted diluted earnings per share. ~~Throughout~~

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We present certain amounts as excluding the ~~following discussions, where~~effects of foreign currency fluctuations, which are also considered non-GAAP measures. Where amounts are expressed as excluding the effects of foreign currency fluctuations, such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates.

We present these non-GAAP measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that are not indicative of our core business. Presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our ~~businesses~~business that are not related to currency movements.

These non-GAAP measures are presented because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core business or affect comparability. In addition, these non-GAAP measures are useful in assessing ~~the Company’s~~our progress in achieving ~~its~~our long-term financial objectives.

The various non-GAAP adjustments are summarized in the tables below. We estimate the tax effect of all non-GAAP adjustments by applying a marginal tax rate to each of the respective items.

The non-GAAP financial information is provided in addition to, and not as an alternative to, ~~the Company’s~~our reported results prepared in accordance with GAAP. ~~The Company estimates the tax effect of the non-GAAP adjustments by applying its marginal rate to each of the respective items.~~

Presented below is a reconciliation of GAAP and non-GAAP results for the thirteen ~~and thirty-nine~~ weeks ended ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016,~~May 5, 2018, respectively.



	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended
	October 28,		October 29,		October 28,		October 29,		May 4,		May 5,
	2017		2016		2017		2016		2019		2018
	($ in millions)								($ in millions)
Pre-tax income:
Income before income taxes	$	156	$	227	$	498	$	723	$	234	$	229
Pre-tax amounts excluded from GAAP:
Reorganization costs		13		—		13		—
Pension litigation charge		—		—		50		—		1		12
Impairment charge		—		6		—		6
Adjusted income before income taxes (non-GAAP)	$	169	$	233	$	561	$	729	$	235	$	241

After-tax income:
Net income	$	102	$	157	$	333	$	475	$	172	$	165
After-tax adjustments excluded from GAAP:
Reorganization costs, net of income tax benefit of $5 million		8		—		8		—
Pension litigation charge, net of income tax benefit of $20 million		—		—		30		—
Impairment charge, net of income tax benefit of $1 million		—		5		—		5
Tax benefit related to intellectual property reassessment		—		(10)		—		(10)
Pension litigation charge, net of income tax benefit of $- million and $3 million, respectively										1		9
Adjusted net income (non-GAAP)	$	110	$	152	$	371	$	470	$	173	$	174

Earnings per share:
Diluted EPS	$	0.81	$	1.17	$	2.55	$	3.50	$	1.52	$	1.38
Diluted EPS amounts excluded from GAAP:
Reorganization costs		0.06		—		0.06		—
Pension litigation charge		—		—		0.23		—		0.01		0.07
Impairment charge		—		0.03		—		0.03
Tax benefit related to intellectual property reassessment		—		(0.07)		—		(0.07)
Adjusted diluted EPS (non-GAAP)	$	0.87	$	1.13	$	2.84	$	3.46	$	1.53	$	1.45

During the ~~third quarter~~thirteen weeks ended ~~October 28, 2017,~~May 4, 2019, the Company ~~reduced~~recorded pre-tax charges of $1 million in connection with its U.S. retirement plan litigation and reorganized its division and corporate staff which resulted in a charge of $13 million, $8 million after-tax or $0.06 per share. The substantial majority of the charge is for severance and related costs.

required plan reformation. These charges represented professional fees. During the ~~second quarter~~thirteen weeks ended ~~July 29, 2017,~~May 5, 2018, the Company recorded a charge related to the same litigation of ~~$50~~$12 million, ~~$30~~$9 million after-tax or ~~$0.23~~$0.07 per ~~share,~~share. The prior year charge represented $11 million related to ~~pension litigation.~~ the estimated cost of the reformation, related interest, and $1 million in professional fees.

Segment Reporting

We identify our operating segments according to how our business activities are managed and evaluated by our chief operating decision maker, our CEO.

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Beginning in 2018, the Company changed its organizational and internal reporting structure in order to execute our omni-channel strategy. This change resulted in the combination of our stores and direct-to-customer financial results.

Effective as of 2019, the Company has determined that it has three operating segments, North America, EMEA, and Asia Pacific. Our North America operating segment includes the results of the following banners operating in the U.S. and Canada: Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, and SIX:02, including each of their related e-commerce businesses, as well as our Eastbay business that includes internet, catalog, and team sales. Our EMEA operating segment includes the results of the following banners operating in Europe: Foot Locker, Runners Point, Sidestep, and Kids Foot Locker, including each of their related e-commerce businesses. Our Asia Pacific operating segment includes the results of Foot Locker and Kids Foot Locker and the related e-commerce businesses operating in Australia, New Zealand, and Asia. We have further aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics. Please see Item 1. “Financial Statements,” Note ~~14,~~3, ~~Legal Proceedings~~Segment Information for further information on this ~~charge.~~change.

In the third quarter of 2016, the Company recorded a $6 million, $5 million after-tax or $0.03 per share, impairment charge associated with underperforming store assets of Runners Point and Sidestep. Also during the third quarter of 2016, the Company’s scheduled triennial reassessment of the value of intellectual property provided to our European business by Foot Locker in the U.S. resulted in a $10 million tax reduction.

Results of Operations

We evaluate performance based on several factors, of which the primary financial measure is the banner’s financial results referred to as division profit. Division profit reflects income before income taxes, pension litigation charge, corporate expense, non-operating income, and net interest income. The following table summarizes our results:


	Thirteen weeks ended
	May 4,		May 5,
	2019		2018
	($ in millions)
Sales	$	2,078	$	2,025

Operating Results
Division profit		250		247
Less: Pension litigation and reorganization charges (1)		1		12
Less: Corporate expense (2)		21		11
Income from operations		228		224
Interest income, net		4		2
Other income (3)		2		3
Income before income taxes	$	234	$	229

(1)

Included in the thirteen weeks ended May 4, 2019 are pre-tax charges of $1 million relating to pension litigation. Included in the thirteen weeks ended May 5, 2018 is a pre-tax charge of $12 million relating to the same matter.

(2)

Corporate expense consists of unallocated selling, general and administrative expenses as well as depreciation and amortization related to the Company’s corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items.

(3)

Other income includes non-operating items, franchise royalty income, changes in fair value, premiums paid, realized gains and losses associated with foreign currency option contracts, changes in the market value of our available-for-sale, and net benefit expense related to our pension and postretirement programs excluding the service cost component.

Sales

All references to comparable-store sales for a given period relate to sales of stores that were open at the period-end and had been open for more than one year. The computation of consolidated ~~comparable-store~~comparable sales also includes ~~the sales of the Direct-to-Customers segment.~~our direct-to-customer channel. Stores opened or closed during the period are not included in the comparable-store base; however, stores closed temporarily for relocation or remodeling are included. Computations exclude the effect of foreign currency fluctuations.

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The information shown below represents certain sales metrics by sales channel:


	Thirteen weeks ended
	May 4,			May 5,
	2019			2018
	($ in millions)
Stores
Sales	$	1,758		$	1,743
$ Change	$	15
% Change		0.9	%
% of total sales		84.6	%		86.1	%
Comparable sales increase (decrease)		2.9	%		(3.1)	%

Direct-to-customers
Sales	$	320		$	282
$ Change	$	38
% Change		13.5	%
% of total sales		15.4	%		13.9	%
Comparable sales increase (decrease)		14.8	%		(0.5)	%

Sales ~~decreased~~increased by ~~$16~~$53 million, or ~~0.8~~2.6 percent, to ~~$1,870~~$2,078 million for the thirteen weeks ended ~~October 28, 2017,~~May 4, 2019, from ~~$1,886~~$2,025 million for the thirteen weeks ended ~~October 29, 2016. For the thirty-nine weeks ended October 28, 2017, sales decreased by 1.4 percent to $5,572 million from sales of $5,653 million in the corresponding prior-year period.~~May 5, 2018. Excluding the effect of foreign currency fluctuations, total sales ~~decreased~~increased by ~~2.3 and 1.5~~4.7 percent for the thirteen ~~and thirty-nine~~ weeks ended ~~October 28, 2017, respectively. Comparable-store~~May 4, 2019.

Total comparable sales ~~decreased~~increased by ~~3.7~~4.6 percent for the thirteen weeks ended May 4, 2019. Overall, both channels generated a comparable sales gain for the period. This result was led by the growth in our direct-to-customers channel, which increased by 14.8 percent for the quarter. The improvement in our direct-to-customers channel reflecting continued positive customer sentiment as a result of our various e-commerce enhancements. Our stores channel sales also performed well and increased by 2.9 percent for the thirteen ~~and thirty-nine~~ weeks ended ~~October 28, 2017, respectively. For~~May 4, 2019.

The comparable sales result for the first quarter was led by our EMEA operating segment, where both ~~periods, this reflected a~~stores and e-commerce garnered sales gains. Europe’s sales increase was primarily related to growth in our stores, coupled with growth in e-commerce penetration. In North America, Champs Sports drove the increase. Footaction and Kids Foot Locker experienced lower sales in the first quarter of 2019, as compared with the corresponding prior-year period. The decline in Footaction’s sales primarily reflected the lack of product availability of certain key men’s footwear styles. Kids Foot Locker’s decline was primarily related to declines in sales of apparel. Asia Pacific continued to increase both from the store expansion in Asia and increased sales from our ~~Athletic Stores segment, partially offset by an~~operations in Australia which was primarily the result of growth in our e-commerce business.

From a product perspective for the combined channels, the increase in comparable sales was across both our ~~Direct-to-Customers segment.~~footwear and apparel categories. The increase was mainly the result of increased sales of footwear, which reflected increases in all wearer segments. Footwear sales were led by sales of women’s court and casual footwear styles. Kids footwear sales increased and primarily reflected strength in running styles. Men’s footwear sales reflected increases in casual and running styles, while sales of basketball styles were relatively flat. The increase in apparel sales was primarily related to the men’s business as both women’s and kid’s apparel sales declined for the quarter.

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Gross Margin

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016
Gross margin rate

31.0
%

33.9
%

31.6
%

34.0
%
Basis point change in the gross margin rate

(290)

(240)

Components of the change-

Decline in the merchandise margin rate

(200)

(140)

Higher occupancy and buyers' compensation expense rate

(90)

(100)


	Thirteen weeks ended
	May 4,		May 5,
	2019		2018
Gross margin rate	33.2	%	32.9	%
Basis point increase in the gross margin rate	30
Components of the change-
Merchandise margin rate decline	(20)
Lower occupancy and buyers’ compensation expense rate	50

Gross margin is calculated as sales minus cost of sales. Cost of sales includes: the cost of merchandise, freight, distribution costs including related depreciation expense, shipping and handling, occupancy and buyers’ compensation. Occupancy costs include rent, common area maintenance charges, real estate taxes, general maintenance, and utilities.

The gross margin rate ~~decreased~~increased by ~~290 and 240~~30 basis points for the thirteen ~~and thirty-nine~~ weeks ended ~~October 28, 2017, respectively.~~

The merchandise margin rate decline for both the quarter and year-to-date periods primarily reflected a higher markdown rate in both our Athletic Stores and Direct-to-Customers segments as the Company was more promotional. Additionally, our Direct-to-Customers segment was also somewhat affected by higher shipping and handling expense. The increased promotional activity was necessary to stimulate sales and ensure that inventory levels remained current and in line with the pace of sales.

The higher occupancy and buyers’ compensation expense rate for both the quarter and year-to-date periods reflected higher rent-related costs coupled with a decrease in sales. Higher occupancy costs are primarily attributed to several high-profile location leases entered into recently, partially offset by rent reductions in certain other stores.

~~Selling, General and Administrative Expenses (SG&A)~~

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)

SG&A

$
368

$
366

$
1,078

$
1,077

$ Change

$
2

$
1

$

% Change

0.5
%

0.1
%

SG&A as a percentage of sales

19.7
%

19.4
%

19.3
%

19.1
%

~~For the thirteen weeks ended October 28, 2017, excluding the effect of foreign currency fluctuations, SG&A expense decreased by $4 million~~May 4, 2019 as compared with the corresponding prior-year period. The merchandise margin rate decline reflected a higher proportion of direct-to-customer sales, which bear a higher freight cost. The occupancy and buyers’ compensation expense rate decreased for the thirteen weeks ended May 4, 2019, which was primarily the result of higher sales during the quarter as compared with a relatively fixed rent cost.

Selling, General and Administrative Expenses (SG&A)


	Thirteen weeks ended
	May 4, 2019			May 5, 2018
	($ in millions)
SG&A	$	416		$	385
$ Change	$	31		$
% Change		8.1	%
SG&A as a percentage of sales		20.0	%		19.0

SG&A increased by $31 million, or by 100 basis points, to $416 million for the thirteen weeks ended May 4, 2019, as compared with the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, ~~for the thirty-nine weeks ended October 28, 2017 was not significant.~~ ~~Comparing the~~ SG&A ~~expense rate with the prior-year periods, the rate~~ increased by ~~30 and 20 basis points for the thirteen and thirty-nine weeks ended October 28, 2017, respectively~~.

$42 million.

The higher SG&A expense rate for ~~both~~ the quarter reflected higher wages, higher incentive compensation expense, and ~~year-to-date periods,~~an increase in costs incurred in connection with our ongoing investment in various technology and infrastructure projects. Corporate expense (a component of SG&A) increased during the quarter, also reflecting the same factors noted previously and higher share-based compensation that is tied to the Company’s performance.

A benefit of $5 million was recorded in the first quarter of 2018 relating to insurance recoveries for damaged inventory and fixed assets for losses incurred during Hurricane Maria in 2017.

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Depreciation and Amortization


	Thirteen weeks ended
	May 4,			May 5,
	2019			2018
	($ in millions)
Depreciation and amortization	$	44		$	45
$ Change	$	(1)		$
% Change		(2.2)	%

Excluding the effect of foreign currency fluctuations, depreciation and amortization was unchanged for the thirteen weeks ended May 4, 2019 as compared to prior year.

Division Profit


	Thirteen weeks ended
	May 4,			May 5,
	2019			2018
	($ in millions)
Division profit	$	250		$	247
Division profit margin		12.0	%		12.2	%

Division profit margin decreased by 20 basis points for the thirteen weeks ended May 4, 2019, as compared with the corresponding prior-year periods, was driven by the Athletic Stores segment and was primarily related to higher store-related compensation costs and hurricane-related expenses. Wages were higher primarily due to minimum wage increases, as well as related payroll taxes and benefits. As a percentage of sales, store wages and associated costs increased due to the declineperiod. The decrease in sales as we were not able to reduce staffing levels commensurate with the rate of decline in sales. In addition, included in SG&A was $7 million of hurricane-related expenses, including lost inventory, damage to fixed assets, and repair and maintenance expenses. These hurricane-related expenses negatively affected the SG&A expense ratedivision profit for the ~~quarter~~thirteen weeks ended May 4, 2019 reflected an increase in the gross margin rate offset by ~~40 basis points. Our Direct-to-Customers segment’s~~higher SG&A ~~expense rate declined for both the quarter and year-to-date periods reflecting decreased publicity and incentive compensation~~ expenses. ~~Additionally, corporate expense significantly declined during the third quarter and year-to-date periods reflecting primarily reduced incentive compensation expense.~~

~~Depreciation and Amortization~~

Interest Income, Net

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)

Depreciation and amortization

$
44

$
40

$
127

$
118

$ Change

$
4

$
9

% Change

10.0
%

7.6
%


	Thirteen weeks ended
	May 4,		May 5,
	2019		2018
	($ in millions)
Interest expense	$	(2)	$	(3)
Interest income		6		5
Interest income, net	$	4	$	2

~~Depreciation and amortization~~Net interest income increased by ~~$4 million and $9~~$2 million for the thirteen ~~and thirty-nine weeks~~ ended ~~October 28, 2017, respectively,~~May 4, 2019, as compared with the corresponding prior-year ~~periods. The increase in depreciation and amortization reflected ongoing capital spending~~ ~~on store projects, enhancing our digital capabilities, and various other technologies and infrastructure.~~

~~Interest Expense, Net~~

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)
Interest expense

$
3

$
3

$
9

$
9
Interest income

(3)

(2)

(10)

(7)
Interest (income) / expense, net

$
—

$
1

$
(1)

$
2

period. Interest income increased ~~by $1 million and $3 million for~~primarily as a result of cash repatriation to the thirteen and thirty-nine weeks ended October 28, 2017, respectively, as compared with the corresponding prior-year periods, while interest expense was unchanged. The increase in interest income was due toU.S., where we earned a higher average interest ~~rates earned on our cash investments.~~rate.

Income Taxes


	Thirteen weeks ended
	May 4,			May 5,
	2019			2018
	($ in millions)
Provision for income taxes	$	62		$	64
Effective tax rate		26.4	%		27.9	%

~~Income Taxes~~

The Company recorded income tax provisions of $54 million and $165 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, which represented effective tax rates of 34.7 percent and 33.2 percent. For the thirteen and thirty-nine weeks ended October 29, 2016, the Company recorded income tax provisions of $70 million and $248 million, which represented effective tax rates of 30.9 percent and 34.4 percent, respectively.

The Company’s interim provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items that occur within the periods presented.

The Company regularly assesses the adequacy of ~~its~~the Company’s provisions for income tax contingencies in accordance with ~~the~~ applicable authoritative guidance on accounting for income taxes. As a result, the Company

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may adjust the reserves for unrecognized tax benefits considering 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. The changes in the tax reserves were not significant for any of the periods presented.

~~For~~During the thirteen weeks ended ~~October 28, 2017,~~May 4, 2019, the Company ~~recorded excess tax benefits of $2 million from stock-based compensation reflecting the change required by ASC 718 as well as~~recognized a tax benefit of $5$3 million ~~related~~due to an adjustment to a staff reduction and reorganization charge of $13 million. Additionally, for the thirty-nine weeks ended October 28, 2017, the Company recorded a pension-related litigation charge of $50 million with a relatedforeign tax benefit of $20 million. The litigation charge and the reorganization costs reduced the overall effective rate because they reduced the proportion of the Company’s worldwide income taxed in jurisdictions where the tax rates are higher.

For the thirteen and thirty-nine weeks ended October 29, 2016, due to a scheduled reassessment the Company increased the value of the intellectual property provided to its European business by Foot Locker in the U.S. The highercredit valuation ~~resulted in catch-up deductions that reduced 2016’s tax expense by $10 million.~~

allowance. Excluding the ~~effects of the excess tax benefits, the litigation charge, the reorganization costs, and the change in the value of the intellectual property, there was no significant change in~~valuation allowance adjustment, the effective tax rate for the thirteen ~~and thirty-nine~~ weeks ended ~~October 28, 2017~~May 4, 2019 increased as compared with the corresponding prior-year ~~periods.~~period, due primarily to higher taxes on foreign earnings.

The Company currently expects its full-year tax rate to approximate 3427.5 percent excluding the effect of any nonrecurring items that may ~~occur and the effects of potential tax reform.~~occur. The actual tax rate will ~~vary depending on the level of stock option exercise activity and the stock price at exercise. Additionally, the actual tax rate will also~~ vary depending on the level and mix of income earned in the ~~United States, as compared with our international operations.~~

various jurisdictions in which we operate.

Net Income

For the thirteen weeks ended ~~October 28, 2017,~~May 4, 2019, net income ~~decreased~~increased by ~~$55~~$7 million, or 354.2 percent, and d ~~diluted~~iluted earnings per share ~~decreased~~increased by 3110.1 percent to ~~$0.81 per share,~~ ~~as compared with the corresponding prior-year period. For the thirty-nine weeks ended October 28, 2017, net income decreased by $142 million, or 30 percent, and diluted earnings per share decreased by 27 percent to $2.55~~$1.52 per share, as compared with the corresponding prior-year period.

~~Segment Information~~

We have two reportable segments, Athletic Stores and Direct-to-Customers, which are based on our method of internal reporting. We evaluate performance based on several factors, the primary financial measure of which is division results. Division profit reflects income before income taxes, pension litigation charge, reorganization charge, corporate expense, non-operating income, and net interest (income) / expense. The ~~following table summarizes results by segment:~~

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016
Operating Results

($ in millions)
Athletic Stores (1)

$
154

$
213

$
504

$
683
Direct-to-Customers

26

32

88

92
Division profit

180

245

592

775
Less: Pension litigation and reorganization charges (2) (3)

13

—

63

—
Less: Corporate expense

12

17

34

53
Operating profit

155

228

495

722
Other income (4)

1

—

2

3
Earnings before interest expense and income taxes

156

228

497

725
Interest (income) / expense, net

—

1

(1)

2
Income before income taxes

$
156

$
227

$
498

$
723


~~(1)~~	~~Included in the thirteen and thirty-nine weeks ended October 29, 2016 is a $6 million pre-tax non-cash impairment charge to write-down long-lived store assets of Runners Point and Sidestep.~~
~~(2)~~	~~Included in the thirteen and thirty-nine weeks ended October 28, 2017 is a charge of $50 million relating to a pension litigation matter described further in Note 14,~~ ~~Legal Proceedings~~.
~~(3)~~	Included in the thirteen and thirty-nine weeks ended October 28, 2017 is a $13 million pre-tax charge related to the reduction and reorganization of division and corporate staff that occurred in the third quarter of 2017. The substantial majority of the charge is for severance and related costs.
~~(4)~~	Other income includes non-operating items, such as lease termination gains, royalty income, insurance recoveries and the changes in fair value, premiums paid, and realized gains and losses associated with foreign currency option contracts.

~~Athletic Stores~~

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)

Sales

$
1,612

$
1,644

$
4,819

$
4,955

$ Change

$
(32)

$
(136)

$

% Change

(1.9)
%

(2.7)
%

Division profit

$
154

$
213

$
504

$
683

Division profit margin

9.6
%

13.0
%

10.5
%

13.8
%

Excluding the effect of foreign currency fluctuations, Athletic Stores segment sales decreased by 3.6 percent and 2.8 percent for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, as compared with the corresponding prior-year periods. The sales decline for the current quarter and year-to-date periods, excluding the effect of foreign currency fluctuations, was across almost all store banners, with the exception of Footaction and Foot Locker Canada, which increased sales.

Comparable-store sales decreased by 5.1 percent and 4.5 percent for the thirteen and thirty-nine weeks ended October 28, 2017, respectively. Foot Locker Canada generated positive comparable-store sales for the quarter and year-to-date periods, while Footaction was positive for the third quarter but not the year-to-date period. All other store banners generated negative comparable-store sales for both periods. The overall decline in comparable-store sales was due to a decrease in footwear sales for both the quarter and year-to-date periods. The footwear sales decline in the quarter was across men’s, women’s, and children’s, whereas the year-to-date decline was related primarily to declines in children’ and men’s footwear. A comparable-sales increase in ~~men’s lifestyle running footwear for both the quarter and year-to-date periods for the majority of our store banners was not enough to compensate for the comparable-store declines~~diluted earnings per share reflected an increase in basketball and court lifestyle footwear. The decline in most other footwear categories for both the quarter and year-to-date periods was the result of insufficient product availability of certain styles and the lack of product innovation in select categories to suit our customers’ quickly-changing style preferences. Women’s court styles mainly contributed to the comparable-store sales decline in women’s footwear both domestically and internationally for the quarter. The decline in women’s footwear was most significant in Foot Locker, Lady Foot Locker, and Foot Locker Europe. Sales of children’s footwear declined for the year-to-date period due primarily by declines in the basketball category.

The decline in footwear sales was partially offset by gains in apparel sales, as the majority of our store banners experienced apparel sales gains for both the thirteen and thirty-nine weeks ended October 28, 2017. Most of our banners benefited from gains in men’s branded apparel and outerwear, which was partially offset by declines in private label and licensed apparel for both the quarter and year-to-date periods. Additionally, women’s apparel performed well for our SIX:02 banner for both the quarter and year-to-date periods, although this was largely driven by increased markdowns. For the quarter and year-to-date periods, children’s apparel experienced both total and comparable-store sales increases as compared to the corresponding prior-year periods.

Athletic Stores division profit decreased by 27.7 percent and 26.2 percent for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, as compared with the corresponding prior-year periods. The decline in division profit margin for both the quarter and year-to-date periods was attributable primarily to a lower gross margin rate,net income coupled with a ~~higher SG&A expense rate.~~

~~Direct-to-Customers~~

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)

Sales

$
258

$
242

$
753

$
698

$ Change

$
16

$
55

% Change

6.6
%

7.9
%

Division profit

$
26

$
32

$
88

$
92

Division profit margin

10.1
%

13.2
%

11.7
%

13.2
%

Comparable-sales for the Direct-to-Customers segment increased by 6.1 percent and 8.1 percent for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, as compared with the corresponding prior-year periods. The increasereduction in the ~~quarter was driven primarily by Eastbay and the continued growth~~number of ecommerce sales associated with our store-banner websites, both domestically and internationally. The increase for the year-to-date period was primarily related to the growth of our store-banner websites.

The footwear category continued to deliver the strongest gains during the current quarter and year-to-date periods. The footwear gains related to our domestic store-banner websites and Eastbay for both the quarter and year-to-date periods were driven by strong results in the children’s and men’s footwear categories. For the quarter, the women’s business softened primarily in the running category. Our international store-banner websites for both the quarter and year-to-date periods were primarily driven by sales from men’s and women’s lifestyle running styles.

Direct-to-Customers division profit for the thirteen and thirty-nine weeks ended October 28, 2017 decreased by $6 million and $4 million, respectively, as compared with the corresponding prior-year periods. Division profit, as a percentage of sales, declined by 310 basis points and 150 basis points for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, as compared with the corresponding prior-year periods. While sales increased, the gross margin rate declined due to increased markdowns in response to promotional activity in the market and, to a lesser degree, higher shipping and handling expense. Partially offsetting the gross margin decline was an expense rate improvement primarily related to lower publicity costs and incentive compensation expense in light of current performance as compared with our plan.

~~Corporate Expense~~

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)

Corporate expense

$
12

$
17

$
34

$
53

$ Change

$
(5)

$
(19)

Corporate expense consists of unallocated SG&A, as well as depreciation and amortization related to the Company’s corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items. Depreciation and amortization included in corporate expense was $4 million and $11 million for both the thirteen and thirty-nine weeks ended ~~October 28, 2017 and October 29, 2016, respectively~~.

The allocation of corporate expense to the operating divisions is adjusted annually based upon an internal study; accordingly, the allocation increased by $1 million and $4 million for the thirteen and thirty-nine weeks ended ~~October 28, 2017,~~ thus reducing corporate expense. Excluding the corporate allocation change, corporate expense decreased by $4 million and $15 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.

Incentive compensation declined by $4 million and $11 million for the thirteen weeks and thirty-nine weeks ended October 28, 2017, respectively, reflecting the Company’s underperformance compared to its plan. Share-based compensation declined by $3 million and $6 million for the thirteen weeks and thirty-nine weeks ended October 28, 2017, respectively, which primarily represented the portion of share-based compensation that is tied to Company performance. Additionally, the decline for the thirty-nine weeks ended October 28, 2017 wasshares outstanding due to the ~~prior-year corporate headquarters relocation costs of $4 million. These decreases were partially offset by a $2 million litigation settlement charge recorded during~~shares repurchased under the ~~third quarter of 2017 and increased corporate support costs such as information technology and real estate management.~~

Company’s share repurchase program.

Liquidity and Capital Resources

Liquidity

Our primary source of liquidity ~~has been~~continues to be cash flow from ~~earnings,~~operations, while the principal uses of cash ~~have been: to~~are to: fund inventory and other working capital requirements; to finance capital expenditures related to store openings, store remodelings, ~~Internet~~internet and mobile sites, information systems, and other support facilities; to make retirement plan contributions, quarterly dividend payments, and interest payments; and to fund other cash requirements to support the development of our short-term and long-term operating strategies. We generally finance real estate with operating leases. We believe our cash, cash equivalents, and future cash flow from operations will be adequate to fund these requirements.

The Company may also from time to time repurchase its common stock or seek to retire or purchase outstanding debt through open market purchases, privately negotiated transactions, or otherwise. Share repurchases and retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, strategic considerations, and other factors. The amounts involved may be material. As of ~~October 28, 2017, approximately $863 million~~May 4, 2019, all of $1.2 billion remained available under the Company’s current ~~$1.2 billion~~3-year share repurchase program.

~~As discussed further in~~ Through June 11, 2019, the ~~Legal Proceedings~~ ~~note under “Item 1. Financial Statements,” during~~Company has repurchased $112 million or 2.7 million shares after the ~~second quarter of 2017, in connection with our pension litigation, we recorded a pre-tax charge of $50 million~~ ($30 million after-tax or $0.23 per diluted share). The Company previously recorded a pre-tax charge of $100 million during 2015. The second quarter 2017 charge reflects the Company’s revised estimate of its exposure for the matter, bringing the total pre-tax amount accrued to $150 million. ~~In light~~end of the uncertainties involved in this matter, there is no assurance that the ultimate resolution will not differ from the amount currently accrued by us. The total accrual of $150 million has been classified as a long-term liability due to the uncertainty involved with the resolution of this litigation, as the appeal process may be lengthy. The pension plan is currently sufficiently funded to initially absorb a $150 million liability and, accordingly, we currently do not anticipate the need to make any pension contributions in the near term in connection with this matter. The timing and the amount of contributions to the pension plan are dependent on the funded status of the plan and various other factors, such as interest rates and the performance of the plan’s assets.

first quarter.

Any material adverse change in customer demand, fashion trends, competitive market forces, or customer acceptance of our merchandise mix and retail locations, uncertainties related to the effect of competitive products and pricing, our reliance on a few key vendors for a significant portion of our merchandise purchases and risks associated with global product sourcing, economic conditions worldwide, the effects of currency fluctuations, as well as other factors listed under the heading “Disclosure Regarding Forward-Looking Statements,” could affect our ability to continue to fund our needs from business operations.

2426

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Operating Activities


	Thirty-nine weeks ended				Thirteen weeks ended
	October 28,		October 29,		May 4,		May 5,
	2017		2016		2019		2018
	($ in millions)				($ in millions)
Net cash provided by operating activities	$	496	$	477	$	318	$	415
$ Change	$	19			$	(97)	$

The amount provided by operating activities reflects net income adjusted for non-cash items and working capital changes. Adjustments to net income for non-cash items include depreciation and amortization, and share-based compensation expense.

The decrease in cash provided by operating activities, compared with the same period of last year, reflected an increase ~~from the prior year primarily reflects~~in net income offset by lower net inflows associated with changes in working capital ~~changes, partially offset~~and a pension contribution. During the thirteen weeks ended May 4, 2019, we contributed $55 million to our U.S. qualified pension plan primarily representing the funds available in the qualified settlement fund established in connection with our pension litigation matter.

Investing Activities


	Thirteen weeks ended
	May 4,		May 5,
	2019		2018
	($ in millions)
Net cash used in investing activities	$	90	$	63
$ Change	$	27	$

Capital expenditures decreased for the thirteen weeks ended May 4, 2019 by ~~the decline in net income~~$19 million as compared with the ~~prior year.~~

~~Investing Activities~~

Thirty-nine weeks ended

October 28,

October 29,

2017

2016

($ in millions)
Net cash used in investing activities
$
204

$
193
$ Change
$
11

~~Capital expenditures were $11 million higher than the prior year. The increase was due to increased~~corresponding prior-year period. This represented a decrease in spending on ~~technology~~store projects ~~and cash payments~~partially offset by an increase related to ~~the 2016 capital program.~~technology projects. The Company’s full-year capital spending is expected to be approximately ~~$269~~$272 million, which includes ~~$198~~$172 million related to the remodeling or relocation of approximately 180 existing stores and the opening of approximately 9080 new stores, as well as ~~$71~~$100 million for the development of information systems, websites, and infrastructure, including supply chain initiatives.

Additionally, investing activities for the thirteen weeks ended May 4, 2019 included $45 million in minority investments. Investing outflows for the thirteen weeks ended May 5, 2018 were partially offset by the receipt of insurance proceeds of $1 million for fixed assets from an insurance claim relating to Hurricane Maria.

Financing Activities


	Thirty-nine weeks ended				Thirteen weeks ended
	October 28,		October 29,		May 4,		May 5,
	2017		2016		2019		2018
	($ in millions)				($ in millions)
Net cash used in financing activities	$	475	$	443	$	43	$	154
$ Change	$	32			$	(111)	$

During the ~~thirty-nine~~thirteen weeks ended ~~October 28, 2017,~~May 4, 2019, we repurchased ~~9,589,660~~32,100 shares of our common stock for ~~$362~~$2 million, as compared with ~~5,874,643~~2,616,805 shares repurchased for ~~$352~~$112 million in the corresponding prior-year period.

The Company also declared and paid dividends of $43 million and $41 million during the first ~~three~~ quarters of ~~2017~~2019 and ~~2016 of $120 million and $111 million,~~2018, respectively. This represented quarterly rates of ~~$0.31~~$0.38 and ~~$0.275~~$0.345 per share for ~~2017~~2019 and ~~2016,~~2018, respectively. Also, during the thirteen weeks ended May 4, 2019 and May 5, 2018, we paid $2 million and $1 million, respectively, to satisfy tax withholding obligations relating to the vesting of share-based equity

Table of Contents

~~Additionally, we~~awards. Offsetting the amounts above were proceeds received ~~proceeds~~ from the issuance of common stock in connection with employee stock programs of ~~$17 million and $28~~$4 million for the ~~thirty-nine~~thirteen weeks ended ~~October 28, 2017~~May 4, 2019. ~~and October29,2016, respectively. Also, during the thirty-nine weeks ended October 28, 2017 and October29,2016, the Company paid $10 million and $6 million, respectively, to satisfy tax withholding obligations relating to the vesting of share-based equity awards.~~

~~Included in the prior year’s financing activities were fees of $2 million paid in connection with the 2016 Credit Agreement.~~

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Annual Report on Form ~~10-K~~10‑K for the fiscal year ended ~~January 28, 2017.~~February 2, 2019.

Recent Accounting Pronouncements

Descriptions of the recently issued and adopted accounting principles are included in Item 1. “Financial Statements” in Note 1, Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements.

Item 4. Co~~ntrols~~Controls and Procedures

During the quarter, the Company’s management performed an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as that term is defined in Rules ~~13a-15(e)~~13a‑15(e) and ~~15d-15(e)~~15d‑15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective to ensure that information relating to the Company that is required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

We are currently migrating our point-of-sale software to a new platform. Approximately 2,300 stores have been converted to the new software platform as of May 4, 2019, and we currently expect to complete the implementation during the second half of 2019. In connection with this implementation and resulting business process changes, we may make changes to the design and operation of our internal control over financial reporting.

Additionally, during the fourth quarter of 2018 the Company implemented a new lease accounting system in advance of the adoption of the new leasing standard that was effective the first quarter of 2019. We revised our controls in connection with this adoption and will further refine business processes and make changes to the design and implementation of our internal control in connection with the new standard.

During the quarter ended ~~October 28, 2017,~~May 4, 2019, there were no changes in the Company’s internal control over financial reporting, other than the implementation of new point-of-sale software and lease accounting system noted above, (as defined in Rules ~~13a-15(f)~~13a‑15(f) of the Exchange Act) that materially affected or are reasonably likely to affect the Company’s internal control over financial reporting.

Table of Contents

PART II - OTHER INFORMATION

Item 1. LeLegal Proceedings~~gal Proceedings~~

Information regarding the Company’s legal proceedings is contained in the Legal Proceedings note under Item 1. “Financial ~~Statements.”~~Statements” in Part I.

Item 1A. Risk Factors

~~There were no material changes~~In addition to the ~~risk~~other information discussed in this report, the factors ~~disclosed~~described in ~~the 2016~~Part I, Item 1A. “Risk Factors” in our 2018 Annual Report on Form ~~10-K.~~10‑K filed with the SEC on April 2, 2019 should be considered as they could materially affect our business, financial condition, or future results.

There have not been any significant changes with respect to the risks described in our 2018 Form 10‑K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to shares of the Company’s common stock that the Company repurchased during the thirteen weeks ended ~~October 28, 2017:~~

May 4, 2019:

Approximate

Total Number of

Dollar Value of

Total

Average

Shares Purchased as

Shares that may

Number

Price

Part of Publicly

yet be Purchased

of Shares

Paid Per

Announced

Under the
Date Purchased

Purchased (1)

Share (1)

Program (2)

Program (2)
July 30 - Aug. 26, 2017

3,002,574

$
35.17

3,000,000

$
1,061,038,524
Aug. 27 - Sept. 30, 2017

4,788,800

35.34

4,788,760

891,816,280
Oct. 1 - Oct. 28, 2017

904,800

31.85

904,800

862,996,130

8,696,174

$
34.92

8,693,560


					Approximate
				Total Number of	Dollar Value of
	Total	Average		Shares Purchased as	Shares that may
	Number	Price		Part of Publicly	yet be Purchased
	of Shares	Paid Per		Announced	Under the
Date Purchased	Purchased (1)	Share (1)		Program (2)	Program (2)
February 3 to March 2, 2019	32,100	$	55.68	32,100	$	1,200,000,000
March 3 to April 6, 2019	30,691		56.93	—		1,200,000,000
April 7 to May 4, 2019	540		59.09	—		1,200,000,000
	63,331	$	56.31	32,100

(1)

~~(1)~~

These columns also reflect shares acquired in satisfaction of the tax withholding obligations of holders of restricted stock ~~units and restricted stock~~unit awards, which vested during the quarter, and shares repurchased pursuant to Rule ~~10b5-1~~10b5‑1 under the Securities Exchange Act of 1934. The calculation of the average price paid per share includes all fees, commissions, and other costs associated with the repurchase of such shares.

(2)

The shares repurchased during the first quarter of 2019 were under the Company’s previous share repurchase program. On February ~~14, 2017,~~20, 2019, the Board of Directors approved a ~~3-year,~~new 3‑year, $1.2 billion share repurchase program extending through January ~~2020.~~2022.

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Item 6. Exhibits~~Exhibits~~



~~(a)~~	~~Exhibits~~
	~~The exhibits that are in this report immediately follow the index.~~

~~SIGNATURE~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~


~~Date: December 6, 2017~~	~~FOOT LOCKER, INC.~~


	~~/s/ Lauren B. Peters~~
	~~LAUREN B. PETERS~~
	~~Executive Vice President and Chief Financial Officer~~
Exhibit No.		Description

~~FOOT LOCKER, INC.~~

~~INDEX OF EXHIBITS~~


~~Exhibit No.~~		~~Description~~
12*		~~Computation of Ratio of Earnings to Fixed Charges.~~
15*		~~Accountants’ Acknowledgement.~~
31.1*		~~Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
31.2*		~~Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)~~
10.1		Amendment Number Three to the Foot Locker Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K dated May 22, 2019 filed on May 28, 2019).
15*		Accountants’ Acknowledgement.
31.1*		Certification of Chief Executive Officer Pursuant to Rule 13a‑14(a) or 15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer Pursuant to Rule 13a‑14(a) or 15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99*		Report of Independent Registered Public Accounting Firm.
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase.
101.LAB*		XBRL Taxonomy Extension Label Linkbase.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase.

*Filed herewith.

**Furnished herewith.




*

~~Filed herewith.~~

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: June 12, 2019	FOOT LOCKER, INC.


	/s/ Lauren B. Peters
	LAUREN B. PETERS
	Executive Vice President and Chief Financial Officer
**

~~Furnished herewith.~~



		Severance and		Other Related
		Benefit Costs		Charges		Total
	($ in millions)
Balance at January 28, 2017	$	—	$	—	$	—
Amounts charged to expense		11		2		13
Cash payments		(2)		—		(2)
Balance at October 28, 2017	$	9	$	2	$	11



					Items Related
	Foreign Currency				to Pension and		Unrealized Loss on
	Translation		Cash Flow		Postretirement		Available-For-
($ in millions)	Adjustments		Hedges		Benefits		Sale Security		Total
Balance as of January 28, 2017	$	(127)	$	1	$	(236)	$	(1)	$	(363)
OCI before reclassification		70		1		(1)		1		71
Reclassified from AOCL		—		—		6		—		6
Other comprehensive income		70		1		5		1		77
Balance as of October 28, 2017	$	(57)	$	2	$	(231)	$	—	$	(286)



	Balance Sheet	October 28,		October 29,		January 28,
($ in millions)	Caption	2017		2016		2017
Hedging Instruments:
Foreign exchange forward contracts	Current assets	$	2	$	7	$	3
Foreign exchange forward contracts	Current liabilities	$	1	$	—	$	3
Non-hedging Instruments:
Foreign exchange forward contracts	Current assets	$	—	$	1	$	—

Thirteen weeks ended

May 4, 2019

May 5, 2018

($ in millions)