UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)


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

For the quarterly period ended: May ~~5, 2018~~

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 June 1, 2018: 116,909,047~~

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~~	16
		~~Item 4.~~		~~Controls and Procedures~~	23

~~PART II~~		~~OTHER INFORMATION~~
		~~Item 1.~~		~~Legal Proceedings~~	24
		~~Item 1A.~~		~~Risk Factors~~	24
		~~Item 2.~~		~~Unregistered Sales of Equity Securities and Use of Proceeds~~	24
		~~Item 6.~~		~~Exhibits~~	24

~~SIGNATURE~~					25

~~INDEX OF EXHIBITS~~					26

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,
	May 5,		April 29,		February 3,		2019		2018		2019
	2018		2017		2018			(Unaudited)		(Unaudited)		*
	(Unaudited)		(Unaudited)		*			($ in millions)
ASSETS

Current assets:
Cash and cash equivalents	$	1,029	$	1,049	$	849	$	1,126	$	1,029	$	891
Merchandise inventories		1,210		1,279		1,278		1,211		1,210		1,269
Other current assets		301		294		424		255		301		358
		2,540		2,622		2,551		2,592		2,540		2,518
Property and equipment, net		843		792		866		810		843		836
Operating lease right-of-use assets								3,025		—		—
Deferred taxes		104		162		48		89		104		87
Goodwill		158		156		160		156		158		157
Other intangible assets, net		43		43		46		22		43		24
Other assets		275		102		290		234		275		198
	$	3,963	$	3,877	$	3,961	$	6,928	$	3,963	$	3,820

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	344	$	208	$	258	$	451	$	344	$	387
Accrued and other liabilities		309		327		358		340		309		377
Current portion of lease obligations								499		—		—
		653		535		616		1,290		653		764
Long-term debt		125		127		125		123		125		124
Long-term lease obligations								2,804		—		—
Other liabilities		642		393		701		109		642		426
Total liabilities		1,420		1,055		1,442		4,326		1,420		1,314
Shareholders’ equity:
Common stock and paid-in capital: 121,341,925; 133,088,450; and 121,262,456 shares outstanding, respectively		848		914		842
Common stock and paid-in capital: 113,161,373;
121,341,925; and 112,932,605 shares outstanding, respectively								820		848		809
Retained earnings		2,184		2,393		2,019		2,207		2,184		2,104
Accumulated other comprehensive loss		(313)		(357)		(279)		(384)		(313)		(370)
Less: Treasury stock at cost: 4,080,653; 1,791,789; and 1,433,433 shares, respectively		(176)		(128)		(63)
Less: Treasury stock at cost: 774,355; 4,080,653;
and 711,024 shares, respectively								(41)		(176)		(37)
Total shareholders' equity		2,543		2,822		2,519		2,602		2,543		2,506
	$	3,963	$	3,877	$	3,961	$	6,928	$	3,963	$	3,820

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

*The balance sheet at February ~~3, 2018~~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 February ~~3, 2018.~~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				Thirteen weeks ended
	May 5,		April 29,		May 4,		May 5,
	2018		2017		2019		2018

Sales	$	2,025	$	2,001	$	2,078	$	2,025

Cost of sales		1,359		1,321		1,389		1,359
Selling, general and administrative expenses		385		371		416		385
Depreciation and amortization		45		41		44		45
Litigation and other charges		12		—		1		12
Income from operations		224		268		228		224

Interest income, net		(2)		—		4		2
Other income		(3)		(1)		2		3
Income before income taxes		229		269		234		229
Income tax expense		64		89		62		64
Net income	$	165	$	180	$	172	$	165

Basic earnings per share	$	1.39	$	1.37	$	1.53	$	1.39
Weighted-average shares outstanding		118.7		131.4		112.4		118.7

Diluted earnings per share	$	1.38	$	1.36	$	1.52	$	1.38
Weighted-average shares outstanding, assuming dilution		119.1		132.6		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

May 5,

April 29,

2018

2017
Net income

$
165

$
180
Other comprehensive income, net of income tax:

Foreign currency translation adjustment:

Translation adjustment arising during the period, net of income tax benefit of $(5) and $(1) million, respectively

(38)

4

Cash flow hedges:

Change in fair value of derivatives, net of income tax

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 and $1 million, respectively, and foreign currency fluctuations

3

3
Comprehensive income

$
131

$
186

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

~~FOOT LOCKER, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~($ in millions)~~

Thirteen weeks ended

May 5,

April 29,

2018

2017

From operating activities:

   Net income
$
165

$
180
   Adjustments to reconcile net income to net cash provided by operating activities:

      Depreciation and amortization

45

41
      Share-based compensation expense

5

5
      Qualified pension plan contributions

—

(25)
      Change in assets and liabilities:

         Merchandise inventories

53

31
         Accounts payable

90

(41)
         Accrued and other liabilities

(6)

(26)
         Pension litigation accrual

12

—
         Other, net

51

(6)
Net cash provided by operating activities

415

159

From investing activities:

   Capital expenditures

(64)

(75)
   Insurance proceeds related to loss on property and equipment

1

—
Net cash used in investing activities

(63)

(75)

From financing activities:

   Purchase of treasury shares

(112)

(38)
   Dividends paid on common stock

(41)

(41)
   Proceeds from exercise of stock options

—

9
   Shares of common stock repurchased to satisfy tax withholding obligations

(1)

(9)
Net cash used in financing activities

(154)

(79)

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

(18)

(1)
Net change in cash, cash equivalents, and restricted cash

180

4
Cash, cash equivalents, and restricted cash at beginning of period

1,031

1,073
Cash, cash equivalents, and restricted cash at end of period
$
1,211

$
1,077

Cash paid during the period:

   Interest
$
—

$
—
   Income taxes
$
61

$
122

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

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 ~~2, 2019~~1, 2020 and of the fiscal year ended February ~~3, 2018.~~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 February ~~3, 2018,~~2, 2019, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on ~~March 29, 2018.~~

April 2, 2019.

Other than the changes to the ~~Revenue Recognition~~Leases policies as a result of the recently adopted accounting standards discussed below, there were no significant changes to ~~our significant accounting~~the policies disclosed in Note 1, Summary of Significant Accounting Policies of our Annual Report on Form ~~10-K~~10‑K for the year ended February ~~3, 2018.~~2, 2019.

~~Recently Adopted~~Recent Accounting Pronouncements

In ~~May 2014, the~~ ~~Financial Accounting Standards Board (“FASB”) issued~~ ~~Accounting Standards Update (“ASU”)~~ ~~2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. The core principle of Topic 606 is to 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. The Company adopted ASU 2014-09 during the first quarter of 2018 using the modified retrospective method. We recognized $5 million, or $4 million net of tax, as the cumulative effect of initially applying the new revenue standard as an increase to the opening balance of retained earnings.

~~In October~~February 2016, the FASB issued ASU ~~2016-16,~~ ~~Income Taxes (Topic 740):Intra-Entity Transfers 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 the transfer occurs. The Company adopted this ASU during the first quarter of 2018 using the modified retrospective method, and as a result increased deferred income tax assets by $37 million. The Company has written off the income tax effects that had been deferred from past intercompany transactions involving non-inventory assets to opening retained earnings. The Company also recorded deferred tax assets with an offset to opening retained earnings for amounts that were not previously recognized under the previous guidance but are recognized under this ASU.

~~Other recently adopted ASUs are discussed within the applicable disclosures on the following pages.~~

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~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~~In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted improvements, which provides an optional transition method of applying the new lease standard. Topic 842 can be ~~effective for fiscal years beginning after December 15, 2018, including interim periods therein, and requires~~applied using either a modified retrospective ~~adoption, with earlier adoption permitted.~~ approach at the beginning of the earliest period presented, or as permitted by ASU 2018-11, at the beginning of the period in which it is adopted.

The Company ~~does~~adopted Topic 842 on February 3, 2019 (the “effective date”) using the optional transition method, which applies Topic 842 at the beginning of the period in which it is adopted. Prior period amounts have not ~~expect to adopt this ASU until required and is evaluating~~been adjusted in connection with the ~~effect~~adoption of this ~~guidance.~~standard. The Company ~~has historically presented~~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 ~~non-GAAP measure~~single lease component for all classes of underlying assets. Also, the Company elected to ~~adjust its~~keep short-term leases with an initial term of twelve months or less off the balance ~~sheet to present~~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 ~~if they~~of February 3, 2019. As part of adopting the standard, previously recognized liabilities for deferred rent and lease incentives were ~~capital leases. Based upon that analysis and preliminary evaluation~~reclassified as a 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 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, as a $26 million reduction of beginning retained earnings. The standard ~~we estimate the adoption will result in the addition~~did not significantly affect our Condensed Consolidated Statements 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~~Income, Comprehensive Income, or ~~cash flows.~~

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

2. Revenue ~~Recognition~~

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.

~~In conjunction with the adoption of Topic 606 during the first quarter of 2018, we have determined that revenue~~ Revenue for merchandise that is shipped to our customers from our distribution centers and stores ~~will be~~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. This reflects a change in timing in how we previously recognized revenue for our direct-to-customer sales. Prior to the adoption of Topic 606, the Company recognized such revenue upon date of delivery. As a result of this change, the Company recorded $1 million, net of tax, as an increase to opening retained earnings to reflect the cumulative effect of adopting this change. We have elected to account for shippingShipping and handling is accounted for as a fulfillment activity. The Company accrues the cost and recognized revenue for these activities upon shipment date.

~~Gift Cards~~

The Company sells to its customers gift cards, which do not have expiration dates. Revenue from gift card sales is recorded when the gift cards are redeemed. Effective as of the first quarter of 2018 with the adoption of Topic 606, gift card breakage is recognized as revenue in proportion to the pattern of rights exercised by the customer, unless there is a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions. This reflects a change in our accounting for gift card breakage from the remote method to the proportional method. As a result of adopting Topic 606, the Company recorded $4 million, or $3 million net of tax, as an increase to opening retained earnings to reflect the cumulative effect of this change based upon historical redemption patterns. Additionally, breakage income was previously recorded within selling, general and administrative expenses, however this amount is currently reported within sales as required by the standard. This change in classification is not considered significant.

~~2. Revenue~~

Sales disaggregated based upon sales channel is presented below.


	Thirteen weeks ended				Thirteen weeks ended
	May 5,		April 29,		May 4,		May 5,
	2018		2017		2019		2018
	($ in millions)				($ in millions)
Sales by Channel
Stores	$	1,743	$	1,722	$	1,758	$	1,743
Direct-to-customers		282		279		320		282
Total sales	$	2,025	$	2,001	$	2,078	$	2,025

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


		Thirteen weeks ended			Thirteen weeks ended
		May 5,		April 29,	May 4,		May 5,
		2018		2017	2019		2018
		($ in millions)			($ in millions)
Sales by Geography
United States	$	1,501	$	1,500	$	1,552	$	1,501
International		524		501		526		524
Total sales	$	2,025	$	2,001	$	2,078	$	2,025

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Contract Liabilities

The Company sells gift cards which do not have expiration dates. Revenue from gift card sales is recorded when the gift cards are redeemed by customers. Breakage income is reported as part of sales. The table below presents the activity of our gift card liability balance:


		($ in millions)
Balance at February ~~4, 2018~~3, 2019	$	38 35
Redemptions		~~(24)~~ (25)
~~Cumulative catch-up adjustment to retained earnings from the adoption of Topic 606~~Breakage recognized in sales		~~(4)~~ (2)
~~Breakage recognized~~		~~(2)~~
Activations		20 22
Balance at May ~~5, 2018~~4, 2019	$	28 30

~~Due to the fact that most gift cards are redeemed within 12 months, the~~The Company elected not to disclose the information about remaining performance ~~obligations.~~obligations since the amount of gift cards redeemed after 12 months is not significant.

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FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. 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. ~~Prior to fiscal~~During 2018, the Company ~~had two reportable segments: Athletic Stores~~expanded into Asia and ~~Direct-to-Customers. Beginning~~launched our digital channels across Singapore, Hong Kong, and Malaysia. In addition, we entered China through a limited offering in ~~fiscal 2018,~~partnership with Tmall (a Chinese-language platform for business-to-consumer online retail). During the first quarter of 2019, the Company ~~has~~ changed its organizational and internal reporting structure in order to ~~execute~~support an accelerated growth strategy for the region. We opened an Asian headquarters in Singapore and realigned our ~~omni-channel strategy.~~ 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, which now reflect the combination of stores and direct-to-customer by geography.~~segments. The Company has determined that it has ~~two~~three operating segments, North America, EMEA, and ~~International.~~Asia Pacific. Our North America operating segment includes the results of the following ~~banners:~~banners operating in the U.S. and Canada: Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, and SIX:02, ~~Foot Locker Canada,~~ including each of their related e-commerce businesses, as well as our Eastbay business that includes internet, catalog, and team ~~services and~~ sales. Our ~~International~~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 ~~Europe, Runners Point, Sidestep,~~and Kids Foot Locker ~~Asia Pacific, including each of their~~and the related e-commerce ~~businesses.~~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. ~~Prior-year information has been restated to reflect this change.~~

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,~~charges, corporate expense, non-operating income, and net interest income.

The following table summarizes our results:



	Thirteen weeks ended				Thirteen weeks ended
	May 5,		April 29,		May 4,		May 5,
	2018		2017		2019		2018
	($ in millions)				($ in millions)
Sales	$	2,025	$	2,001	$	2,078	$	2,025

Operating Results
Division profit		247		283		250		247
Less: Pension litigation (1)		12		—
Less: Pension litigation charges (1)						1		12
Less: Corporate expense (2)		11		15		21		11
Income from operations		224		268		228		224
Interest income, net		(2)		—		4		2
Other income (3)		3		1
Other income						2		3
Income before income taxes	$	229	$	269	$	234	$	229

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FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Segment Information – (continued)


(1)	~~Included in~~	The Company recorded pre-tax charges of $1 million and $12 million for the ~~thirteen weeks~~quarters ended May 4, 2019 and May 5, 2018, ~~is a pre-tax charge of $12 million relating~~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.

	(2)		Corporate expense consists of unallocated selling, general and administrative expenses as well as depreciation and amortizationrelated 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, such as lease termination gains, 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 security, and net benefit expense related to our pension and postretirement programs excluding the service cost component.

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

~~As more fully discussed in Note 14,~~ ~~Legal Proceedings,~~ during the first quarter of 2018 the Company recorded a $12 million charge related to the pension litigation. This charge comprised $11 million related to the estimated cost of the reformation and $1 million in professional fees incurred in connection with the plan reformation.

During the third quarter of the prior year, the Company reorganized its organizational structure by adjusting certain divisional responsibilities between our various businesses. The following is a reconciliation of the accrual recorded in connection with that event for the quarter ended May 5, 2018:

Severance and

Other Related

Benefit Costs

Charges

Total

($ in millions)
Balance at February 3, 2018

$
5

$
2

$
7
Amounts charged to expense

—

—

—
Cash payments

(2)

—

(2)
Balance at May 5, 2018

$
3

$
2

$
5

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.


	May 5,		April 29,		February 3,		May 4,		May 5,
	2018		2017		2018		2019		2018
	($ in millions)						($ in millions)
Cash and cash equivalents	$	1,029	$	1,049	$	849	$	1,126	$	1,029
Restricted cash included in other current assets		1		1		1		5		1
Restricted cash included in other non-current assets		181		27		181		30		181
Cash, cash equivalents, and restricted cash	$	1,211	$	1,077	$	1,031	$	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 ~~funds deposited to a qualified settlement fund in connection with the pension litigation and~~ 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.

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~As a result~~In light of the ~~first quarter~~ change in our organizational and internal reporting structure in the first quarter of 2019, we ~~have determined that we have one reportable segment. We~~ have reassessed our reporting units ~~in light of this change~~ and have ~~deemed~~determined that the collective omni-channel banners in North America, EMEA, and ~~International to be~~Asia Pacific are the ~~two~~three reporting units at which goodwill is tested. ~~Therefore,~~

Accordingly, goodwill was re-allocated ~~to these~~between the affected reporting units based on their relative fair values. As required, we conducted ~~our~~the annual impairment review both before and after this change. Neither review resulted in the recognition of impairment, as the fair value of each reporting unit exceeded its carrying value.

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FOOT LOCKER, INC.

7.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Other Intangible Assets, net

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



		May 5, 2018						April 29, 2017						February 3, 2018							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	$	128	$	(117)	$	11	$	118	$	(107)	$	11	$	135	$	(122)	$	13
	Trademarks / trade names		20		(14)		6		20		(13)		7		20		(14)		6
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		(6)		1	$	136	$	(123)	$	13	$	155	$	(137)	$	18
		$	155	$	(137)	$	18	$	145	$	(125)	$	20	$	162	$	(142)	$	20
Indefinite life intangible assets: (1)	Indefinite life intangible assets: (1)
	Runners Point Group trademarks / trade names					$	25					$	23					$	26
Runners Point Group trademarks / trade names																								$	9					$	25
Other intangible assets, net	Other intangible assets, net					$	43					$	43					$	46					$	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.

The annual review of intangible assets with indefinite lives performed during the first quarter of ~~2018~~2019 did not result in the recognition of impairment.

Amortization expense recorded is as follows:



	Thirteen weeks ended					Thirteen weeks ended
($ in millions)		May 5, 2018		April 29, 2017		May 4, 2019	May 5, 2018
Amortization expense	$	1	$	1	$	1	$	1

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


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

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.

910

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FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~8. Accumulated Other Comprehensive Loss~~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.

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

May 5,

April 29,

February 3,

2018

2017

2018

($ in millions)
Foreign currency translation adjustments
$
(47)

$
(123)

$
(9)
Cash flow hedges

1

—

—
Unrecognized pension cost and postretirement benefit

(267)

(233)

(270)
Unrealized loss on available-for-sale security

—

(1)

—

$
(313)

$
(357)

$
(279)

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 ~~changes in AOCL~~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:

Items Related

Foreign Currency

to Pension and

Translation

Cash Flow

Postretirement

($ in millions)

Adjustments

Hedges

Benefits

Total
Balance as of February 3, 2018

$
(9)

$
—

$
(270)

$
(279)
OCI before reclassification

(38)

1

1

(36)
Reclassified from AOCL

—

—

2

2
Other comprehensive income

(38)

1

3

(34)
Balance as of May 5, 2018

$
(47)

$
1

$
(267)

$
(313)


	($ 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

~~Reclassifications from AOCL for~~Other information related to operating leases as of May 4, 2019 consisted of the ~~thirteen weeks ended May 5, 2018 were as follows:~~

following:




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

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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)

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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	$	3
Postretirement benefits- amortization of actuarial gain		—
Net periodic benefit cost (see Note ~~12)~~11)		3
Income tax benefit		(1)
~~Net~~Total, net of tax	$	2

9. ~~Income Taxes~~

~~In March 2018, the FASB issued ASU 2018-05,~~ ~~Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118~~ (“SAB 118”). This update provides guidance on income tax accounting implications under Public Law 115-97, informally known as the Tax Cuts and Jobs Act (the "Tax Act"), which was enacted on December 22, 2017. The Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35 percent to 21 percent, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. SAB 118 addressed the application of GAAP to situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. As of the fourth quarter of 2017, the Company had not completed the determination of the accounting implications of the Tax Act on the Company’s tax accruals. However, we reasonably estimated the effects of the Tax Act and recognized a provisional net tax expense of $99 million associated with the Tax Act in the fourth quarter of 2017.

For the thirteen weeks ended May 5, 2018, our accounting for the Tax Act is still incomplete. We have not made any measurement-period adjustments related to these items during the first quarter of fiscal 2018 because we have not finalized the following items: the earnings and profits of the relevant subsidiaries, deemed repatriation of deferred foreign income, and prior-year deferred tax activity. We are continuing to gather additional information to complete our accounting for these items and expect to complete our accounting within the one-year time period provided by SAB 118. Any adjustment to these amounts during the measurement period will be recorded in income tax expense in the period in which the analysis is complete.

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company continues to evaluate the provisions of the Tax Act, including the global intangible low-taxed income (“GILTI”) and the foreign derived intangible income (“FDII”) provisions. The Company has made an accounting policy election to treat GILTI taxes as a current period expense.

The ultimate effect of the Tax Act may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may ~~be issued, as well as any related actions the Company may take.~~

For the thirteen weeks ended May 5, 2018, the Company recorded an income tax provision of $64 million, which represented an effective tax rate of 27.9 percent, compared with the prior-year income tax provision of $89 million, which represented an effective tax rate of 33.0 percent. 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.

~~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 May 5, 2018						As of April 29, 2017						As of February 3, 2018						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
Equity investments																			$	—	$	133	$	—	$	—	$	—	$	—
Available-for-sale security	$	—	$	6	$	—	$	—	$	6	$	—	$	—	$	7	$	—		—		6		—		—		6		—
Foreign exchange forward contracts		—		1		—		—		—		—		—		1		—		—		1		—		—		1		—
Total Assets	$	—	$	7	$	—	$	—	$	6	$	—	$	—	$	8	$	—	$	—	$	140	$	—	$	—	$	7	$	—

Liabilities
Foreign exchange forward contracts		—		1		—		—		2		—		—		1		—		—		3		—		—		1		—
Total Liabilities	$	—	$	1	$	—	$	—	$	2	$	—	$	—	$	1	$	—	$	—	$	3	$	—	$	—	$	1	$	—

~~In conjunction with~~The fair values of the ~~first quarter 2018 adoption of ASU 2016-01,~~ ~~Financial Instruments – Overall (Subtopic 825-10): Recognition~~Company’s equity investments are determined by using quoted prices for identical or similar instruments in markets that are not active and ~~Measurement of Financial Assets and Financial Liabilities, our security~~therefore are classified as available-for-sale is now recorded at fair value with gains and losses reported to other income in our Statement of Operations, whereas previously it was recorded to AOCL. The adjustment recorded to retained earnings as a result of adopting ASU 2016-01 was not significant.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.

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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


	May 5,		April 29,		February 3,		May 4,		May 5,
	2018		2017		2018		2019		2018
	($ in millions)						($ in millions)
Carrying value	$	125	$	127	$	125	$	123	$	125
Fair value	$	142	$	147	$	144	$	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				Thirteen weeks ended
	May 5,		April 29,		May 4,		May 5,
	2018		2017		2019		2018
	(in millions, except per share data)				(in millions, except per share data)
Net Income	$	165	$	180	$	172	$	165

Weighted-average common shares outstanding		118.7		131.4		112.4		118.7
Dilutive effect of potential common shares		0.4		1.2		0.7		0.4
Weighted-average common shares outstanding assuming dilution		119.1		132.6		113.1		119.1

Earnings per share - basic	$	1.39	$	1.37	$	1.53	$	1.39
Earnings per share - diluted	$	1.38	$	1.36	$	1.52	$	1.38

Anti-dilutive option awards excluded from diluted calculation		2.2		0.2
Anti-dilutive share-based awards excluded from diluted calculation						1.6		2.2

Additionally, shares of ~~1.1~~0.8 million and ~~0.4~~1.1 million as of May 4, 2019 and May 5, 2018, ~~and April 29, 2017,~~ 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 achieved as of May 4, 2019 and May 5, ~~2018 and April 29, 2017.~~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.

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The following are the components of net periodic pension benefit cost and net periodic postretirement benefit income. ~~In conjunction with the adoption of ASU 2017-07,~~ ~~Compensation - Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, service~~Service cost ~~continues to be~~is recognized as part of SG&A expense, while the remaining pension and postretirement expense components are ~~now~~ recognized as part of other income. ~~Prior periods were not reclassified as required by this ASU as the amounts were not considered significant.~~


									Pension Benefits				Postretirement Benefits
	Pension Benefits				Postretirement Benefits				Thirteen weeks ended				Thirteen weeks ended
	Thirteen weeks ended				Thirteen weeks ended					May 4,		May 5,		May 4,		May 5,
	May 5,		April 29,		May 5,		April 29,			2019		2018		2019		2018
($ in millions)	2018		2017		2018		2017
									($ in millions)
Service cost	$	5	$	4	$	—	$	—	$	5	$	5	$	—	$	—
Interest cost		6		6		—		—		7		6		—		—
Expected return on plan assets		(10)		(9)		—		—		(9)		(10)		—		—
Amortization of net loss (gain)		3		3		—		—		3		3		—		—
Net benefit expense (income)	$	4	$	4	$	—	$	—	$	6	$	4	$	—	$	—

The Company contributed $55 million in March 2019 to its U.S. qualified pension plan. The Company continually evaluates the amount and timing of any future contributions.Actual contributions are dependent on several factors; however, the Company expects to make contributions totaling $128 million during 2018 in connection with the anticipated U.S. pension plan reformation. The Company contributed a~~pproximately $30 million in late May 2018 and currently expects the remaining balance to be contributed on or before September 15, 2018.~~ ~~See Note 14,~~ ~~Legal Proceedings,~~ ~~for further information about this matter.~~

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~~13.~~FOOT LOCKER, INC.

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				Thirteen weeks ended
	May 5,		April 29,		May 4,		May 5,
	2018		2017		2019		2018
	($ in millions)
Options and shares purchased under the employee stock purchase plan	$	2	$	2	$	2	$	2
Restricted stock and restricted stock units		3		3		5		3
Total share-based compensation expense	$	5	$	5	$	7	$	5

Tax benefit recognized	$	1	$	1	$	1	$	1

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 subjective assumptions, including expected term and expected volatility.

The following table shows the Company’s assumptions used to compute share-based compensation expense for awards granted during the thirteen weeks ended May 4, 2019 and May 5, ~~2018 and April 29, 2017:~~

2018:



		Stock Option Plans						Stock Purchase Plan						Stock Option Plans						Stock Purchase Plan
		May 5,			April 29,			May 5,			April 29,		May 4,			May 5,			May 4,			May 5,
		2018			2017			2018			2017		2019			2018			2019			2018
Weighted-average risk free rate of interest		2.7	%		2.1	%		1.2	%		0.7	%		2.2	%		2.7	%		2.3	%		1.2	%
Expected volatility		37	%		25	%		30	%		29	%		38	%		37	%		59	%		30	%
Weighted-average expected award life (in years)		5.5			5.3			1.0			1.0			5.5			5.5			1.0			1.0
Dividend yield		3.1	%		1.7	%		2.1	%		2.0	%		2.6	%		3.1	%		2.6	%		2.1	%
Weighted-average fair value	$	12.35		$	15.58		$	16.49		$	10.33		$	17.19		$	12.35		$	15.64		$	16.49

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The information in the following table covers option activity under the Company’s stock option plans for the thirteen weeks ended May ~~5, 2018:~~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

2,739

$
52.45
Granted

379

44.79
Exercised

(4)

11.66
Expired or cancelled

(23)

50.19
Options outstanding at May 5, 2018

3,091

6.7

$
51.58
Options exercisable at May 5, 2018

2,174

5.6

$
48.91
Options available for future grant at May 5, 2018

8,271

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FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. Share-Based Compensation – (continued)

The total fair value of options vested as of May 4, 2019 and May 5, 2018 ~~and April 29, 2017~~ was $8$6 million and $7$8 million, respectively. The cash received and tax benefits realized from option exercises was $4 million and ~~the related tax benefit~~$1 million, respectively, for the thirteen weeks ended May ~~5, 2018 was not significant.~~

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:

The aggregate intrinsic value for stock options outstanding, and outstanding and exercisable (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:



	Thirteen weeks ended				Thirteen weeks ended
	May 5, 2018		April 29, 2017		May 4, 2019		May 5, 2018
	($ in millions)				($ in millions)
Outstanding	$	11	$	84	$	20	$	11
Outstanding and exercisable	$	11	$	74	$	17	$	11

As of May ~~5, 2018~~4, 2019 there was $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 1.7 years.

The following table summarizes information about stock options outstanding and exercisable at May ~~5, 2018:~~

4, 2019:



	Options Outstanding				Options Exercisable			Options Outstanding				Options Exercisable
		Weighted-							Weighted-
		Average		Weighted-			Weighted-		Average	Weighted-			Weighted-
		Remaining		Average			Average		Remaining	Average			Average
Range of Exercise	Number	Contractual		Exercise	Number		Exercise	Number	Contractual	Exercise		Number	Exercise
Prices	Outstanding	Life		Price	Exercisable		Price	Outstanding	Life	Price		Exercisable	Price
	(in thousands, except prices per share and contractual life)							(in thousands, except prices per share and contractual life)
$9.85 to $18.84	267	2.3	$	16.39	267	$	16.39	134	1.7	$	18.44	134	$	18.44
$24.75 to $34.75	457	4.3		32.33	419		32.10	378	3.7		32.09	340		31.79
$44.78 to $45.75	708	7.9		44.93	339		45.08	586	7.1		44.91	351		44.99
$46.64 to $62.11	699	6.4		61.00	674		61.35	994	6.9		60.07	646		61.16
$63.79 to $73.21	960	8.3		68.60	475		67.12
$63.33 to $73.21								907	7.2		68.54	750		67.71
	3,091	6.7	$	51.58	2,174	$	48.91	2,999	6.4	$	54.28	2,221	$	53.74

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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.

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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 ~~874,458 and 669,542 RSU~~no outstanding restricted stock awards ~~outstanding~~ as of May 4, 2019 and an insignificant number of restricted stock awards were outstanding as May 5, ~~2018 and April 29, 2017, respectively.~~

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.

Restricted stock and RSU activity for the thirteen weeks ended May ~~5, 2018~~4, 2019 is summarized as follows:


			Weighted-
			Average	Weighted-				Weighted-Average
		Number	Remaining	Average		Number		Remaining		Weighted-Average
		of	Contractual	Grant Date		of		Contractual		Grant Date
		Shares	Life	Fair Value		Shares		Life		Fair Value
		(in thousands)	(in years)		(per share)		(in thousands)		(in years)		(per share)
Nonvested at beginning of year		374		$	59.15		1,022			$	47.47
Granted (1)		635			47.31		291				58.95
Vested		(80)			62.78		(72)				63.61
Cancelled (2)		(46)			60.55
Nonvested at May 5, 2018		883	2.5	$	50.22
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)	$	44				$	61


(1)		Approximately ~~0.4~~0.2 million performance-based RSUs were granted during the first quarter of ~~2018~~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)

~~Adjustments were~~

This represents adjustments made to performance-based ~~RSUs previously granted~~RSU awards and ~~are included as cancelled in the table above. These adjustments~~ 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 thirteen weeks ended May 4, 2019 and May 5, 2018 ~~and April 29, 2017~~ was $5 million ~~and $13 million, respectively.~~for both periods. As of May ~~5, 2018,~~4, 2019, there was ~~$33~~$41 million of total unrecognized compensation cost related to nonvested ~~restricted~~ awards.

~~14.~~

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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 discontinued by the Company in past years. These legal proceedings include commercial, intellectual property, customer, environmental, and employment-related ~~claims. Additionally, the Company is a defendant in a purported Fair Credit Reporting Act class action in California, a purported meal break class action in California, and~~claims, including a purported class action in New York alleging failure to pay for all hours worked by employees. ~~The~~Additionally, the Company and certain officers of the Company are defendants in a purported securities law class action in New York. ~~Additionally, the~~The directors and certain officers of the Company are also defendants in a related derivative ~~action.~~

~~FOOT LOCKER, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~For the last several years, the Company and the Company’s U.S. retirement plan have been defendants in a 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 alleged that, in connection with the 1996 conversion 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.

~~In early 2018, the Company exhausted all of its legal remedies and is required to r~~eform the pension plan consistent with the trial court’s decision and judgment. The amount accrued as of February 3, 2018 was $278 million. During the first quarter of 2018, the estimated value of the judgment was increased by $11 million, of which $7 million related to a change in the estimated value of the judgment, based on additional facts as to how the reformation should be calculated, and $4 million related to the interest that continues to accrue as required by the provisions of the required plan reformation. We have been, and will continue, working with plaintiffs’ counsel and the court on the specific steps needed to implement the judgment, which we expect to occur during our second quarter. Until the court enters its final order the Company cannot complete the reformation of the plan as the actual terms of the reformation must be approved by the court. The court will be ruling on the fairness of the class counsel fees and how those costs will be shared by the class members. We believe the amount we have accrued for this matter is appropriate in light of the facts as we currently understand them.

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. Judgments could be rendered or settlements made that could adversely affect the Company’s operating results or cash flows in a particular period.

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 ~~2017~~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, is one of the largest athletic footwear and apparel retailers in the ~~world.~~world, 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. ~~Through~~We operate websites and mobile apps, aligned with the brand names of our 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,~~New Zealand, the Company's purpose is to inspire and empower youth culture around the world, by fueling a shared passion for self-expression and creating unrivaled experiences at the heart of the sport and sneaker communities.

Store Count

At May 4, 2019, we operated 3,201 stores as ~~well~~compared with 3,221 and 3,284 stores at February 2, 2019 and May 5, 2018, respectively.

Franchise Operations

A total of 129 franchised stores were operating at May 4, 2019, as ~~various sports sponsorships~~compared with 122 and ~~events,~~116 stores at February 2, 2019 and 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

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

Table of Contents

We present certain amounts as excluding the 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. Presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our business that are not related to currency movements.

These non-GAAP measures are presented because we ~~reinforce~~believe they assist investors in comparing our ~~image with~~performance across reporting periods on a consistent ~~message~~ — ~~namely,~~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 our progress in achieving 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 ~~destination~~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, our reported results prepared in accordance with GAAP.

Presented below is a reconciliation of GAAP and non-GAAP results for ~~premium athletically-inspired shoes~~the thirteen weeks ended May 4, 2019 and ~~apparel~~May 5, 2018, respectively.


	Thirteen weeks ended
	May 4,		May 5,
	2019		2018
	($ in millions)
Pre-tax income:
Income before income taxes	$	234	$	229
Pre-tax amounts excluded from GAAP:
Pension litigation charge		1		12
Adjusted income before income taxes (non-GAAP)	$	235	$	241

After-tax income:
Net income	$	172	$	165
After-tax adjustments excluded from GAAP:
Pension litigation charge, net of income tax benefit of $- million and $3 million, respectively		1		9
Adjusted net income (non-GAAP)	$	173	$	174

Earnings per share:
Diluted EPS	$	1.52	$	1.38
Diluted EPS amounts excluded from GAAP:
Pension litigation charge		0.01		0.07
Adjusted diluted EPS (non-GAAP)	$	1.53	$	1.45

During the thirteen weeks ended May 4, 2019, the Company recorded pre-tax charges of $1 million in connection with its U.S. retirement plan litigation and required plan reformation. These charges represented professional fees. During the thirteen weeks ended May 5, 2018, the Company recorded a ~~wide selection~~charge related to the same litigation of ~~merchandise~~$12 million, $9 million after-tax or $0.07 per share. The prior year charge represented $11 million related to the estimated cost of the reformation, related interest, and $1 million in ~~a full-service environment.~~ 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. ~~Prior to fiscal 2018, we had two reportable segments, Athletic Stores and Direct-to-Customers.~~

Table of Contents

Beginning in ~~fiscal~~ 2018, the Company ~~has~~ 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.

~~The~~Effective as of 2019, the Company has determined that it has ~~two~~three operating segments, North America, EMEA, and ~~International.~~Asia Pacific. Our North America operating segment includes the results of the following ~~banners:~~banners operating in the U.S. and Canada: Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, and SIX:02, ~~Foot Locker Canada,~~ including each of their related e-commerce businesses, as well as our Eastbay business that includes internet, catalog, and team ~~services and~~ sales. Our ~~International~~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 ~~Europe, Runners Point, Sidestep,~~and Kids Foot Locker ~~Asia Pacific, including each of their~~and the related e-commerce ~~businesses.~~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 3, Segment Information for further information on this change.

~~Store Count~~

At May 5, 2018, we operated 3,284 stores as compared with 3,310 and 3,354 stores at February 3, 2018 and April 29, 2017, respectively. A total of 116 franchised stores were operating at May 5, 2018, as compared with 112 and 77 stores at February 3, 2018 and April 29, 2017, 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 Company presents certain 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 the following discussions, 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 that are not related to currency movements. In addition, these non-GAAP measures are useful in assessing the Company’s progress in achieving its long-term financial objectives.

The non-GAAP financial information is provided in addition to, and not as an alternative to, the Company’s 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 weeks ended May 5, 2018 and April 29, 2017, respectively.

Thirteen weeks ended

May 5, 2018

April 29, 2017

($ in millions)
Pre-tax income:

Income before income taxes

$
229

$
269

Pre-tax amounts excluded from GAAP:

Pension litigation charge

12

—

Adjusted income before income taxes (non-GAAP)

$
241

$
269

After-tax income:

Net income

$
165

$
180

After-tax adjustments excluded from GAAP:

Pension litigation charge, net of income tax benefit of $3 million

9

—

Adjusted net income (non-GAAP)

$
174

$
180

Earnings per share:

Diluted EPS

$
1.38

$
1.36

Diluted EPS amounts excluded from GAAP:

Pension litigation charge

0.07

—

Adjusted diluted EPS (non-GAAP)

$
1.45

$
1.36

During the first quarter ended May 5, 2018, the Company recorded a charge of $12 million, $9 million after-tax or $0.07 per share, related to pension litigation. Please see Item 1. “Financial Statements,” Note 14, ~~Legal Proceedings~~ ~~for further information on this charge.~~

Results of Operations

We evaluate performance based on several factors, of which the primary financial measure ~~of which~~ is the banner’s financial results referred to as division ~~results.~~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				Thirteen weeks ended
	May 5,		April 29,		May 4,		May 5,
	2018		2017		2019		2018
	($ in millions)				($ in millions)
Sales	$	2,025	$	2,001	$	2,078	$	2,025

Operating Results
Division profit		247		283		250		247
Less: Pension litigation (1)		12		—
Less: Pension litigation and reorganization charges (1)						1		12
Less: Corporate expense (2)		11		15		21		11
Income from operations		224		268		228		224
Interest income, net		(2)		—		4		2
Other income (3)		3		1		2		3
Income before income taxes	$	229	$	269	$	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 ~~a pension litigation matter described further in Note 14,~~ ~~Legal Proceedings~~. the same matter.

(2)

Corporate expense consists of unallocated selling, general and administrative expenses as well as depreciation and amortizationrelated 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 $3 million for the thirteen weeks ended May 5, 2018 and April 29, 2017, respectively.~~

~~The allocation of corporate expense to the operating divisions is adjusted annually based upon an internal study; accordingly, the allocation increased by $10 million for the thirteen weeks ended~~ ~~May 5, 2018~~ thus reducing corporate expense. Excluding the corporate allocation change as well as depreciation and amortization, corporate expense increased by $5 million for the thirteen weeks ended May 5, 2018. The increase for the thirteen weeks ended May 5, 2018 was primarily due to increased corporate support costs primarily related to information technology.

(3)

Other income includes non-operating items, ~~such as lease termination gains,~~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, ~~security,~~ and net benefit expense related to our pension and postretirement programs excluding the service cost component.

~~The increase in other income for the thirteen weeks ended May 5, 2018 as compared with the corresponding prior-year period primarily reflects increased royalty income and lease termination gains.~~

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 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.

Table of Contents

~~Sales increased by $24 million, or 1.2 percent, to $2,025 million for the thirteen weeks ended May~~5,2018, from $2,001 million for the thirteen weeks ended April 29, 2017. Excluding the effect of foreign currency fluctuations, total sales decreased by 1.5 percent for the thirteen weeks ended May 5, 2018. Total comparable-store sales decreased by 2.8 percent thirteen weeks ended May 5, 2018. The information shown below represents certain sales metrics by sales channel:


	Thirteen weeks ended						Thirteen weeks ended
	May 5,			April 29,			May 4,			May 5,
	2018			2017			2019			2018
	($ in millions)						($ in millions)
Stores
Sales	$	1,743		$	1,722		$	1,758		$	1,743
$ Change	$	21					$	15
% Change		1.2	%					0.9	%
% of total sales		86.1	%		86.1	%		84.6	%		86.1	%
Comparable sales (decrease)		(3.1)	%		(1.2)	%
Comparable sales increase (decrease)								2.9	%		(3.1)	%

Direct-to-customers
Sales	$	282		$	279		$	320		$	282
$ Change	$	3					$	38
% Change		1.1	%					13.5	%
% of total sales		13.9	%		13.9	%		15.4	%		13.9	%
Comparable sales (decrease) / increase		(0.5)	%		12.1	%
Comparable sales increase (decrease)								14.8	%		(0.5)	%

~~Effective with~~Sales increased by $53 million, or 2.6 percent, to $2,078 million for the first quarter of 2018, the Company discloses one reportable segment and accordingly the following discussion describes the changes in sales by banner on an omni-channel basis, meaning that each banner’s results are inclusive of their store and e-commerce activity.

~~Excluding the effect of foreign currency, sales declined~~thirteen weeks ended May 4, 2019, from $2,025 million for the thirteen weeks ended May 5, ~~2018~~2018. Excluding the effect of foreign currency fluctuations, total sales increased by 4.7 percent for the thirteen weeks ended May 4, 2019.

Total comparable sales increased by 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 weeks ended May 4, 2019.

The comparable sales result for the first quarter was led by our EMEA operating segment, where both 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 ~~Foot Locker Europe, Champs Sports, Runners Point, Sidestep, and Footaction banners. The sales decline for these banners primarily reflected a decrease~~operations in ~~footwear sales,~~Australia which was ~~partially offset~~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 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 ~~gains in apparel for most~~sales of ~~these banners. Our European businesses were negatively affected by the decline in popularity of certain~~women’s court and casual footwear styles. ~~Foot Locker~~Kids footwear sales increased and ~~Kids Foot Locker both experienced an increase~~primarily reflected strength in sales, which was primarily driven by the apparel category in addition to gains in the children’s footwear category. Our e-commerce business in Europe experienced a decline, while our U.S. e-commerce business was relatively flat with the prior year on a comparable basis.

~~The footwear category experienced a decline during the quarter and was primarily caused by a decline in men’s basketball, which was offset, in part, by an increase in certain~~ running styles. ~~The comparable-store~~Men’s footwear sales ~~decline~~reflected increases in ~~women’s footwear primarily reflected decreases in women’s~~casual and running ~~and court~~ styles, ~~reflecting the prior-year success~~while sales of ~~certain offerings with no such comparable offerings in the current year.~~

basketball styles were relatively flat. The ~~overall comparable-store~~ increase in apparel sales was ~~produced by~~primarily related to the ~~majority of our banners,~~men’s business as ~~this category performed very well during~~both women’s and kid’s apparel sales declined for the quarter. ~~The gains primarily reflected comparable-store sales increases in men’s and children’s branded apparel, partially offset by a decline in men’s private label apparel.~~

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Gross Margin

Thirteen weeks ended

May 5, 2018

April 29, 2017
Gross margin rate

32.9
%

34.0
%
Basis point change in the gross margin rate

(110)

Components of the change-

Decrease in the merchandise margin rate

(60)

Higher occupancy and buyers' compensation expense rate

(50)


	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 ~~110~~30 basis points for the thirteen weeks ended May ~~5, 2018.~~4, 2019 as compared with the corresponding prior-year period. The merchandise margin rate decline ~~for the quarter primarily~~ reflected a higher ~~markdown rates, as the Company was more promotional in order to proactively manage inventory levels at optimal levels. Additionally, although to~~proportion of direct-to-customer sales, which bear a ~~lesser degree, a decline in our shipping and handling revenue also negatively affected the merchandise margin rate.~~higher freight cost. The ~~higher~~ 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 ~~reflected an increase in rent-related costs primarily attributed to several high-profile location leases entered into recently, partially offset by~~as compared with a relatively fixed rent ~~reductions in certain other stores.~~

cost.

Selling, General and Administrative Expenses (SG&A)



	Thirteen weeks ended						Thirteen weeks ended
	May 5, 2018			April 29, 2017			May 4, 2019			May 5, 2018
	($ in millions)						($ in millions)
SG&A	$	385		$	371		$	416		$	385
$ Change	$	14					$	31		$
% Change		3.8	%					8.1	%
SG&A as a percentage of sales		19.0	%		18.5	%		20.0	%		19.0

SG&A increased by ~~$14~~$31 million, or by 50100 basis points, to ~~$385~~$416 million for the thirteen weeks ended May 5,~~2018,~~4, 2019, as compared with the ~~prior year.~~corresponding prior-year period. Excluding the effect of foreign currency fluctuations, ~~the~~SG&A increased by $42 million.

The higher SG&A expense rate ~~increased by 20 basis points~~ for the ~~thirteen weeks ended May 5, 2018, as compared with the corresponding prior-year period.~~

~~The increase in the SG&A expense rate~~quarter reflected higher wages, ~~as compared with the corresponding prior-year period, as wages increased at a~~ higher ~~rate than sales. Additionally, we~~incentive compensation expense, and an increase in costs incurred ~~higher costs~~ in connection with our ongoing investment in various technology and infrastructure ~~projects, coupled with an accrual for a legal matter. This~~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 ~~partially offset by~~recorded in the first quarter of 2018 relating to insurance recoveries ~~received~~ for damaged inventory and fixed assets ~~relating to~~for losses incurred ~~last year~~ during Hurricane ~~Maria.~~Maria in 2017.

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Depreciation and Amortization


						Thirteen weeks ended
	Thirteen weeks ended					May 4,			May 5,
	May 5, 2018			April 29, 2017		2019			2018
	($ in millions)					($ in millions)
Depreciation and amortization	$	45		$	41	$	44		$	45
$ Change	$	4				$	(1)		$
% Change		9.8	%				(2.2)	%

~~Depreciation~~Excluding the effect of foreign currency fluctuations, depreciation and amortization ~~increased by $4 million~~was unchanged for the thirteen weeks ended May ~~5, 2018,~~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 period. The ~~increase~~decrease in ~~depreciation and amortization reflected ongoing capital spending~~ ~~on store projects, enhancing our digital capabilities, and various other technologies and infrastructure.~~

~~Division Profit~~

Thirteen weeks ended

May 5, 2018

April 29, 2017

($ in millions)
Division profit

$
247

$
283

Division profit margin

12.2
%

14.1
%

~~Division~~division profit ~~decreased by 12.7 percent~~ for the thirteen weeks ended May ~~5, 2018 as compared with~~4, 2019 reflected an increase in the ~~corresponding prior-year period. The decline in division profit reflected both a lower~~ gross margin rate ~~coupled with the deleverage in the~~offset by higher SG&A ~~expense rate. Both factors contributed equally to the decline in division profit.~~

expenses.

Interest ~~Expense,~~Income, Net


					Thirteen weeks ended
	Thirteen weeks ended				May 4,		May 5,
	May 5, 2018		April 29, 2017		2019		2018
	($ in millions)				($ in millions)
Interest expense	$	3	$	3	$	(2)	$	(3)
Interest income		(5)		(3)		6		5
Interest income, net	$	(2)	$	—	$	4	$	2

~~Interest~~Net interest income increased by $2 million for the thirteen ~~weeks~~ ended May ~~5, 2018,~~4, 2019, as compared with the corresponding prior-year ~~period, while interest expense was unchanged. The increase in interest~~period. Interest income increased primarily ~~represented~~as a result of cash repatriation to the U.S., where we earned a higher average interest ~~rates 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 regularly assesses the adequacy of the Company’s provisions for income tax contingencies in accordance with 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.

During the thirteen weeks ended ~~April 29, 2017~~May 4, 2019, the Company recognized ~~excess~~a tax ~~benefits~~benefit of $7$3 million ~~from share-based compensation, while the amount related~~due to ~~the thirteen weeks ended May 5, 2018 was not significant.~~

an adjustment to a foreign tax credit valuation allowance. Excluding the ~~above-mentioned excess tax benefits,~~valuation allowance adjustment, the effective tax rate for the thirteen weeks ended May ~~5, 2018 decreased~~4, 2019 increased as compared with the corresponding prior-year period, due primarily ~~due~~ to ~~the enactment of the Tax Act which reduced the statutory U.S. federal corporate income tax rate from 35 percent to 21 percent. This was offset, in part, by~~higher taxes on foreign taxes assessed at rates in excess of the U.S. federal rate for which no U.S. foreign tax credit is available, as well as valuation allowances for certain foreign operating loss carryforwards that the Company estimates it will not be able to utilize in future periods.

earnings.

The Company currently expects its full-year tax rate to approximate 27.5 percent excluding the effect of any nonrecurring items that may occur. The actual tax rate will ~~also~~ vary depending on the level and mix of income earned in the various ~~jurisdictions.~~ jurisdictions in which we operate~~Please see Item 1. “Financial Statements,” Note 9,~~ .~~Income Taxes~~ ~~for further information.~~

Net Income

For the thirteen weeks ended May ~~5, 2018,~~4, 2019, net income ~~decreased~~increased by ~~$15~~$7 million, or ~~8.3~~4.2 percent, and d ~~diluted~~iluted earnings per share increased by ~~1.5~~10.1 percent to ~~$1.38~~$1.52 per share, as compared with the corresponding prior-year ~~period~~period. . The increase in diluted earnings per share reflected an increase in net income coupled with a reduction in the number of shares outstanding due to the shares repurchased under the 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~~are to: fund inventory and other working capital requirements; finance capital expenditures related to store openings, store remodelings, ~~Internet~~internet and mobile sites, information systems, and other support facilities; make retirement plan contributions, quarterly dividend payments, and interest payments; and 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 May ~~5, 2018, approximately $646 million~~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 end of the first ~~quarter of 2018, we recorded a pre-tax charge of $12 million~~ ~~($9million after-tax or $0.07 per diluted share)~~ ~~in connection with the pension litigation~~. The accrued amount as of May 5, 2018 was $289 million and is classified as a long-term liability. The accrual will continue to increase with interest until paid, as required by the provisions of the required plan reformation. The Company expects to make contributions totaling $128 million to the pension plan during 2018 to fund a portion of this liability. The timing and the amount of actual contributions to the pension plan are dependent on when the court approves the reformation, the funded status of the plan, and various other factors, such as interest rates and the performance of the plan’s assets.

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.

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Operating Activities


					Thirteen weeks ended
	Thirteen weeks ended				May 4,		May 5,
	May 5, 2018		April 29, 2017		2019		2018
	($ in millions)				($ in millions)
Net cash provided by operating activities	$	415	$	159	$	318	$	415
$ Change	$	256			$	(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~~ and a ~~decrease of $61 million in cash paid for income taxes during~~pension contribution. During the thirteen weeks ended May ~~5, 2018. In the prior year,~~4, 2019, we contributed ~~$25~~$55 million to our U.S. qualified pension ~~plan. No such contribution was made during~~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 ~~5, 2018. The overall increase was partially offset~~4, 2019 by ~~the decline in net income~~$19 million as ~~compared with the prior year.~~

~~Investing Activities~~

Thirteen weeks ended

May 5, 2018

April 29, 2017

($ in millions)
Net cash used in investing activities
$
63

$
75
$ Change
$
(12)

~~Capital expenditures declined by $11 million~~ compared with the corresponding prior-year period. This represented a ~~decline~~decrease in spending on store projects partially offset by an increase related to technology projects. The Company’s full-year capital spending is expected to be approximately ~~$229~~$272 million, which includes ~~$124~~$172 million related to the remodeling or relocation of approximately ~~110~~180 existing stores and the opening of approximately 4080 new stores, as well as ~~$105~~$100 million for the development of information systems, websites, and infrastructure, including supply chain initiatives.

Additionally, ~~during~~investing activities for the thirteen weeks ~~ending~~ended May 4, 2019 included $45 million in minority investments. Investing outflows for the thirteen weeks ended May 5, 2018 ~~we finalized our~~were partially offset by the receipt of insurance proceeds of $1 million for fixed assets from an insurance claim relating to Hurricane Maria and recorded a gain of $5 million. We received $1 million of insurance proceeds for fixed assets and we will receive an additional $4 million during the second quarter, of which $1 million will be classified as an investing activity.

Maria.

Financing Activities


					Thirteen weeks ended
	Thirteen weeks ended				May 4,		May 5,
	May 5, 2018		April 29, 2017		2019		2018
	($ in millions)				($ in millions)
Net cash used in financing activities	$	154	$	79	$	43	$	154
$ Change	$	75			$	(111)	$

During the thirteen weeks ended May ~~5, 2018,~~4, 2019, we repurchased ~~2,616,805~~32,100 shares of our common stock for ~~$112~~$2 million, as compared with ~~546,100~~2,616,805 shares repurchased for ~~$38~~$112 million in the corresponding prior-year period. The Company also declared and paid dividends of $43 million and $41 million during the first ~~quarter~~quarters of 2019 and 2018, ~~and 2017.~~respectively. This represented quarterly rates of ~~$0.345~~$0.38 and ~~$0.31~~$0.345 per share for ~~2018~~2019 and ~~2017,~~2018, respectively. ~~Additionally,~~ Also, during the ~~amount received for proceeds from common stock in connection with employee stock was not significant for the~~ thirteen weeks ended May ~~5, 2018, and was $9~~4, 2019 ~~million for the corresponding prior-year period.~~ ~~Also, during the thirteen weeks ended~~and May 5, 2018, ~~and April 29, 2017, the Company~~we paid $1$2 million and $9$1 million, respectively, to satisfy tax withholding obligations relating to the vesting of share-based equity ~~awards.~~

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awards. Offsetting the amounts above were proceeds received from the issuance of common stock in connection with employee stock programs of $4 million for the thirteen weeks ended May 4, 2019.

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 February ~~3, 2018.~~

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.

~~Contractual Obligations and Commitments~~

The Company’s contractual cash obligations and commercial commitments at May 5, 2018 and the effects such obligations and commitments are expected to have on the Company’s liquidity and cash flows in future periods have not changed significantly since February 3, 2018 other than amounts related to tax reform. The Company plans to elect to pay the tax related to the mandatory deemed repatriation (“toll charge”) in annual installments over an eight year period. During the first quarter of 2018, the IRS issued a Q&A which indicated that a taxpayer may not receive a refund, or credit any portion of properly applied 2017 tax payments, unless the amount of payments exceeds the entire unpaid toll charge. Due to the Company’s prepayments with the IRS, the entire amount of the toll charge has been satisfied. Approximately $10 million related to tax reform remains payable, however the timing of payment is not determinable at this time.

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 ~~500~~2,300 stores have been converted to the new software platform as of May ~~5, 2018,~~4, 2019, and we currently expect to complete the implementation ~~primarily in this fiscal year.~~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 toof 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 May ~~5, 2018,~~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.

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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 2017~~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 May ~~5, 2018:~~

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)
February 4 - March 3, 2018

14,200

$
44.74

14,200

$
757,828,494
March 4 - April 7, 2018

2,232,984

43.10

2,202,605

662,907,107
April 8 - May 5, 2018

400,036

42.18

400,000

646,034,376

2,647,220

$
42.97

2,616,805


					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 unit awards, ~~and restricted stock units~~ 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: June 6, 2018~~	~~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~~
~~10.1†~~		~~Foot Locker Executive Incentive Cash Compensation Plan (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K dated March 28, 2018 filed on April 3, 2018).~~
~~10.2†~~		~~Form of Accelerate Future Growth Award Agreement (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K dated April 12, 2018 filed on April 18, 2018).~~
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.




†

~~Management contract or compensatory plan or arrangement.~~

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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
*

~~Filed herewith.~~

**31

~~Furnished herewith.~~



		Severance and		Other Related
		Benefit Costs		Charges		Total
	($ in millions)
Balance at February 3, 2018	$	5	$	2	$	7
Amounts charged to expense		—		—		—
Cash payments		(2)		—		(2)
Balance at May 5, 2018	$	3	$	2	$	5



					Items Related
	Foreign Currency				to Pension and
	Translation		Cash Flow		Postretirement
($ in millions)	Adjustments		Hedges		Benefits		Total
Balance as of February 3, 2018	$	(9)	$	—	$	(270)	$	(279)
OCI before reclassification		(38)		1		1		(36)
Reclassified from AOCL		—		—		2		2
Other comprehensive income		(38)		1		3		(34)
Balance as of May 5, 2018	$	(47)	$	1	$	(267)	$	(313)

Thirteen weeks ended

May ~~5, 2018~~4, 2019

~~April 29, 2017~~May 5, 2018

($ in millions)