NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

~~2. Revenue~~

~~The following table presents sales disaggregated based upon sales channel.~~

Thirteen weeks ended

May 2,

May 4,

2020

2019

($ in millions)
Sales by Channel

Stores

$
814

$
1,758
Direct-to-customers

362

320
Total sales

$
1,176

$
2,078

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


	May 2,		May 4,		Thirteen weeks ended
	2020		2019		May 1,		May 2,
	($ in millions)
($ in millions)					2021		2020
Sales by Geography
United States	$	911	$	1,552	$	1,713	$	911
International		265		526		440		265
Total sales	$	1,176	$	2,078	$	2,153	$	1,176

Contract Liabilities

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

May 2,

May 4,

2020

2019

($ in millions)
Gift card liability at beginning of year

$
35

$
35
Redemptions

(15)

(25)
Breakage recognized in sales

(1)

(2)
Activations

14

22
Foreign currency fluctuations

(1)

—
Gift card liability

$
32

$
30


	May 1,		May 2,
($ in millions)	2021		2020
Gift card liability at beginning of year	$	41	$	35
Redemptions		(56)		(15)
Breakage recognized in sales		(4)		(1)
Activations		62		14
Foreign currency fluctuations		—		(1)
Gift card liability	$	43	$	32

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

3. Segment Information

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

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

First Quarter ~~2020~~2021 Form 10-Q Page 7

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

~~The following table summarizes our results:~~

Thirteen weeks ended

May 2,

May 4,


2020

2019

($ in millions)
Sales

$
1,176

$
2,078

Operating Results




Division (loss) profit

(79)

250
Less: Impairment and other charges ⁽¹⁾

16

1
Less: Corporate expense ⁽²⁾

10

21
(Loss) income from operations

(105)

228
Interest (expense) income, net

(1)

4
Other income, net

1

2
(Loss) income before income taxes

$
(105)

$
234


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Sales	$	2,153	$	1,176

Operating Results
Division (loss) profit		315		(79)
Less: Impairment and other charges ⁽¹⁾		4		16
Less: Corporate expense ⁽²⁾		29		10
Income (loss) from operations		282		(105)
Interest expense, net		(2)		(1)
Other income, net		4		1
Income (loss) before income taxes	$	284	$	(105)

(1)

During the thirteen weeks ended May ~~2, 2020,~~1, 2021, we recorded pre-tax charges ~~of $15 million related to the impairment of certain Runners Point~~as detailed in Note 4, Impairment and Sidestep stores that will be closing before lease expiration and other underperforming stores in Europe. We recorded pre-tax charges of $1 million in each of the thirteen weeks ended May 2, 2020 and May 4, 2019 related to administrative costs in connection with the pension plan reformation.Other Charges.

(2)

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

4. Impairment and Other Charges


	Thirteen weeks ended				Thirteen weeks ended
	May 2,		May 4,		May 1,		May 2,
	2020		2019
	($ in millions)
($ in millions)					2021		2020
Impairment of investments					$	2	$	—
Reorganization costs						2		—
Impairment of long-lived assets and right-of-use assets	$	15	$	—		—		15
Pension litigation related charges		1		1		—		1
Total impairment and other charges	$	16	$	1	$	4	$	16

During the first quarter of 2021, we recorded an impairment charge of $2 million related to the underperformance of one of our minority investments. Additionally, in connection with the reorganization of certain support functions, we recorded severance charges of $2 million.

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

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

First Quarter ~~2020~~2021 Form 10-Q Page 8

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

5. Cash, Cash Equivalents, and Restricted Cash

The ~~following~~ table below provides a reconciliation of cash and cash equivalents, as reported on our ~~condensed consolidated balance sheets,~~Condensed Consolidated Balance Sheets, to cash, cash equivalents, and restricted cash, as reported on our ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~cash flows.~~Cash Flows:


	May 2,		May 4,		May 1,		May 2,
	2020		2019
	($ in millions)
($ in millions)					2021		2020
Cash and cash equivalents	$	1,012	$	1,126	$	1,963	$	1,012
Restricted cash included in other current assets		7		5		8		7
Restricted cash included in other non-current assets		28		30		30		28
Cash, cash equivalents, and restricted cash	$	1,047	$	1,161	$	2,001	$	1,047

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

6. Goodwill

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

In performing the qualitative assessment, we consider many factors in evaluating whether the carrying value of goodwill may not be recoverable, including declines in our stock price and market capitalization in relation to the book value of the Company and macroeconomic conditions affecting retail. If, based on theThe results of the ~~qualitative assessment, it is concluded that it is~~first quarter analysis did not ~~more likely than not that~~result in an impairment since the fair ~~value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed. The quantitative test requires that the carrying~~ value of each reporting unit ~~be compared with~~exceeded its ~~estimated fair~~carrying value. ~~If the carrying value~~

7. Other Intangible Assets, net

The components of ~~a reporting unit is greater than its fair value, a goodwill impairment charge will be recorded for the difference (up to the carrying value of goodwill).~~

~~We use a discounted cash flow approach to determine the fair value of a reporting unit. The determination of discounted cash flows of the reporting units and~~finite-lived intangible assets and ~~liabilities within~~intangible assets not subject to amortization are as follows:


		May 1, 2021						May 2, 2020
	Gross		Accum.		Net		Gross		Accum.		Net
($ in millions)	value		amort.		value		value		amort.		value
Amortized intangible assets: ⁽¹⁾
Lease acquisition costs	$	119	$	(115)	$	4	$	113	$	(106)	$	7
Trademarks / trade names		20		(17)		3		20		(16)		4
	$	139	$	(132)	$	7	$	133	$	(122)	$	11

Indefinite life intangible assets: ⁽¹⁾
Trademarks / trade names					$	9					$	8
Other intangible assets, net					$	16					$	19

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

The annual review of intangible assets with indefinite lives performed during the ~~reporting units requires significant estimates and assumptions. These estimates and assumptions primarily include, but are~~first quarter of 2021 did not limited to, the discount rate, terminal growth rates, earnings before depreciation and amortization, and capital expenditures forecasts. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the reporting units, as well as the fair values of the corresponding assets and liabilities within the reporting units.

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

First Quarter ~~2020~~2021 Form 10-Q Page 9

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

Amortization expense recorded is as follows:

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


($ in millions)
Remainder of 2021	$	2
2022		2
2023		1
2024		1
2025		1

8. Accumulated Other Comprehensive Loss

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


	May 1,		May 2,		January 30,
($ in millions)	2021		2020		2021
Foreign currency translation adjustments	$	(60)	$	(120)	$	(64)
Cash flow hedges		(1)		—		(1)
Unrecognized pension cost and postretirement benefit		(265)		(284)		(266)
	$	(326)	$	(404)	$	(331)

The changes in AOCL for the thirteen weeks ended May 1, 2021 were as follows:


	Foreign				Items Related
	Currency				to Pension and
	Translation		Cash Flow		Postretirement
($ in millions)	Adjustments		Hedges		Benefits		Total
Balance as of January 30, 2021	$	(64)	$	(1)	$	(266)	$	(331)

OCI before reclassification		4		—		(1)		3
Amortization of pension actuarial loss, net of tax		—		—		2		2
Other comprehensive income		4		—		1		5
Balance as of May 1, 2021	$	(60)	$	(1)	$	(265)	$	(326)

Reclassifications from AOCL for the thirteen weeks ended May 1, 2021 were as follows:


($ in millions)
Amortization of actuarial loss:
Pension benefits	$	3
Income tax benefit		(1)
Total, net of tax	$	2

First Quarter 2021 Form 10-Q Page 10

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

~~7. Other Intangible Assets, net~~

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

May 2, 2020

May 4, 2019

Gross

Accum.

Net

Gross

Accum.

Net
($ in millions)

value

amort.

value

value

amort.

value
Amortized intangible assets: ⁽¹⁾

Lease acquisition costs

$
113

$
(106)

$
7

$
116

$
(108)

$
8
Trademarks / trade names

20

(16)

4

20

(15)

5

$
133

$
(122)

$
11

$
136

$
(123)

$
13

Indefinite life intangible assets: ⁽¹⁾

Trademarks / trade names

$
8

$
9
Other intangible assets, net

$
19

$
22

~~(1)~~

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

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

~~Amortization expense recorded is as follows:~~

Thirteen weeks ended
($ in millions)

May 2, 2020

May 4, 2019
Amortization expense

$
1

$
1

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

($ in millions)
Remainder of 2020

$
2
2021

2
2022

2
2023

2
2024

1
2025

1

~~8. Revolving Credit Facility~~

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

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

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

~~First Quarter 2020 Form 10-Q Page 10~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9. ~~Accumulated Other Comprehensive Loss~~

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

May 2,

May 4,

February 1,


2020

2019

2020

($ in millions)
Foreign currency translation adjustments

$
(120)

$
(99)

$
(104)

Cash flow hedges

—

(2)

(3)

Unrecognized pension cost and postretirement benefit

(284)

(283)

(287)

$
(404)

$
(384)

$
(394)

~~The changes in AOCL for the thirteen weeks ended May 2, 2020 were as follows:~~

Foreign

Items Related

Currency

to Pension and

Translation

Cash Flow

Postretirement

($ in millions)

Adjustments

Hedges

Benefits

Total
Balance as of February 1, 2020

$
(104)

$
(3)

$
(287)

$
(394)

OCI before reclassification

(16)

3

1

(12)
Amortization of pension actuarial loss, net of tax

—

—

2

2
Other comprehensive income

(16)

3

3

(10)
Balance as of May 2, 2020

$
(120)

$
—

$
(284)

$
(404)

~~Reclassifications from AOCL for the thirteen weeks ended May 2, 2020 were as follows:~~

($ in millions)
Amortization of actuarial loss:

Pension benefits

$
3
Income tax benefit

(1)
Total, net of tax

$
2

~~10.~~ Fair Value Measurements

Our financial assets are recorded at fair value, using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are categorized as follows:

Level 1 –

Quoted prices for identical instruments in active markets.

Level 2 –

Observable inputs other than quoted prices included within Level 1, including 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.

~~First Quarter 2020 Form 10-Q Page 11~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The fair value of the auction rate security, classified as available-for-sale, is determined by using quoted prices for similar instruments in active markets and accordingly is classified as a Level 2 instrument.

Our 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis


	As of May 2, 2020							As of May 4, 2019
($ in millions)														As of May 1, 2021						As of May 2, 2020
	($ 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
Assets
Available-for-sale security		—		6		—			—		6		—		—		7		—		—		6		—
Foreign exchange forward contracts		—		2		—			—		1		—		—		2		—		—		2		—
Total Assets	$	—	$	8	$	—		$	—	$	7	$	—	$	—	$	9	$	—	$	—	$	8	$	—
							��
Liabilities
Foreign exchange forward contracts		—		2		—			—		3		—		—		4		—		—		2		—
Total Liabilities	$	—	$	2	$	—		$	—	$	3	$	—	$	—	$	4	$	—	$	—	$	2	$	—

There were 0 transfers into or out of Level 1, Level 2, or Level 3 assets and liabilities for any of the periods presented.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, operating lease right-of-use assets, goodwill, other intangible assets, and minority investments that are not accounted for under the equity method of accounting. These assets are measured using Level 3 inputs, if determined to be impaired.

Minority ~~interests~~investments measured using the fair value ~~option~~measurement alternative had a carrying value of ~~$142~~$323 million and ~~$133~~$142 million as of May 1, 2021 and May 2, 2020, ~~and May 4, 2019, respectively, and are included within Other assets.~~respectively. During the ~~fourth~~first quarter of ~~2019,~~ 2021,

First Quarter 2021 Form 10-Q Page 11

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

we recorded a non-cash charge of $7$2 million related to the write-down of ~~such~~one of our minority ~~investments.~~investments, resulting in $13 million of cumulative impairments.

Long-Term Debt

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 value and estimated fair value of long-term debt were as follows:

May 2, 2020

May 4, 2019

($ in millions)
Carrying value

$
121

$
123
Fair value

$
121

$
136


($ in millions)	May 1, 2021		May 2, 2020
Carrying value	$	99	$	121
Fair value	$	104	$	121

The carrying values of cash and cash equivalents, and other current receivables and payables approximate their fair value.

~~First Quarter 2020 Form 10-Q Page 12~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~11.~~10. Earnings Per Share

We account for earnings per share (“EPS”) using the treasury stock method. Basic EPS is computed by dividing net income (loss) ~~income~~ for the period by the weighted-average number of common shares outstanding at the end of the period. Diluted earnings per share reflects the weighted-average number of common shares outstanding during the period used in the basic EPS computation plus dilutive common stock equivalents. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on EPS.

The computation of basic and diluted EPS is as follows:


	Thirteen weeks ended				Thirteen weeks ended
	May 2,		May 4,		May 1,		May 2,
	2020		2019
	(in millions, except per share data)
Net (loss) income	$	(110)	$	172
(in millions, except per share data)					2021		2020
Net income (loss)					$	202	$	(110)

Weighted-average common shares outstanding		104.3		112.4		103.6		104.3
Dilutive effect of potential common shares		—		0.7		1.4		—
Weighted-average common shares outstanding assuming dilution		104.3		113.1		105.0		104.3

(Loss) earnings per share - basic	$	(1.06)	$	1.53
(Loss) earnings per share - diluted	$	(1.06)	$	1.52
Earnings (loss) per share - basic					$	1.95	$	(1.06)
Earnings (loss) per share - diluted					$	1.93	$	(1.06)

Anti-dilutive share-based awards excluded from diluted calculation		2.7		1.6		1.7		2.7

~~Restricted~~Performance stock units related to our long-term incentive programs of ~~0.5~~0.8 million and ~~0.8~~0.5 million have been excluded from diluted weighted-average shares for the periods ended May ~~2, 2020~~1, 2021 and May ~~4, 2019,~~2, 2020, respectively. The issuance of these shares are contingent on our performance metrics as compared to the pre-established performance goals, which have not been achieved.

First Quarter 2021 Form 10-Q Page 12

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

~~12.~~11. Pension

~~We have a defined benefit pension plan covering certain of our North American employees.~~

The components of net periodic pension benefit ~~cost~~expense are presented in the table below. Service cost is recognized as part of SG&A expense, while the other components are recognized as part of Other income, net.


	Thirteen weeks ended				Thirteen weeks ended
		May 2,		May 4,		May 1,		May 2,
		2020		2019
	($ in millions)
($ in millions)						2021		2020
Service cost	$	4	$	5	$	4	$	4
Interest cost		5		7		4		5
Expected return on plan assets		(9)		(9)		(9)		(9)
Amortization of net loss		3		3		3		3
Net benefit expense	$	3	$	6	$	2	$	3

12. Share-Based Compensation

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


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Options and shares purchased under the stock purchase plan	$	2	$	2
Restricted stock units and performance stock units		6		1
Total share-based compensation expense	$	8	$	3

Tax benefit recognized	$	1	$	—

Valuation Model and Assumptions

We use 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 table below shows assumptions used to compute share-based compensation expense for awards granted during the thirteen weeks ended May 1, 2021 and May 2, 2020:


		Stock Option Plans						Stock Purchase Plan
	May 1,			May 2,			May 1,			May 2,
	2021			2020			2021			2020
Weighted-average risk free rate of interest		0.9	%		0.6	%		0.2	%		2.2	%
Expected volatility		47	%		42	%		48	%		48	%
Weighted-average expected award life (in years)		5.5			5.5			1.0			1.0
Dividend yield		1.5	%		4.9	%		5.6	%		3.8	%
Weighted-average fair value	$	20.22		$	5.03		$	6.35		$	11.91

First Quarter ~~2020~~2021 Form 10-Q Page 13

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

The information in the table below provides activity under our stock option plans for the thirteen weeks ended May 1, 2021:


		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	3,540			$	47.17
Granted	183				53.82
Exercised	(125)				31.93
Expired or cancelled	(102)				55.05
Options outstanding at May 1, 2021	3,496		5.6	$	47.83
Options exercisable at May 1, 2021	2,680		4.5	$	52.49
Options available for future grant at May 1, 2021	5,455

The total fair value of options vested during the thirteen weeks ended May 1, 2021 and May 2, 2020 was $4 million and $5 million, respectively. The cash received and related tax benefits realized from option exercises during the thirteen weeks ended May 1, 2021 was $4 million and $1 million, respectively.

The total intrinsic value of options exercised (the difference between the market price of our 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 our 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:

As of May 1, 2021, there was $5 million of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a remaining weighted-average period of 1.8 years.

First Quarter 2021 Form 10-Q Page 14

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

~~13. Share-Based Compensation~~

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

Thirteen weeks ended

May 2,

May 4,

2020

2019

($ in millions)
Options and shares purchased under the stock purchase plan

$
2

$
2
Restricted stock and restricted stock units

1

5
Total share-based compensation expense

$
3

$
7

Tax benefit recognized

$
—

$
1

~~Valuation Model and Assumptions~~

The ~~following~~ table ~~shows assumptions used to compute share-based compensation expense for awards granted during the thirteen weeks ended May 2, 2020 and May 4, 2019:~~

Stock Option Plans

Stock Purchase Plan

May 2,

May 4,

May 2,

May 4,


2020

2019

2020

2019

Weighted-average risk free rate of interest

0.6
%

2.2
%

2.2
%

2.3
%
Expected volatility

42
%

38
%

48
%

59
%
Weighted-average expected award life (in years)

5.5

5.5

1.0

1.0

Dividend yield

4.9
%

2.6
%

3.8
%

2.6
%
Weighted-average fair value

$
5.03

$
17.19

$
11.91

$
15.64

~~The information in the following table covers option activity under our stock option plans for the thirteen weeks ended May 2, 2020:~~

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

2,881

$
54.21
Granted

1,069

21.61
Exercised

(4)

15.10
Expired or cancelled

(44)

51.02
Options outstanding at May 2, 2020

3,902

6.7

$
45.35
Options exercisable at May 2, 2020

2,473

5.0

$
54.67
Options available for future grant at May 2, 2020

5,571

~~First Quarter 2020 Form 10-Q Page 14~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The total fair value of options vested during the thirteen weeks ended May 2, 2020 and May 4, 2019 was $5 million and $6 million, respectively. The cash received and related tax benefits realized from option exercises during the thirteen weeks ended May 2, 2020 was not significant.

Thirteen weeks ended

May 2, 2020

May 4, 2019

($ in millions)
Exercised

$
—

$
5

Thirteen weeks ended

May 2, 2020

May 4, 2019

($ in millions)
Outstanding

$
3

$
20
Outstanding and exercisable

$
1

$
17

As of May 2, 2020 there was $7 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~~below summarizes information about stock options outstanding and exercisable at May ~~2, 2020:~~1, 2021:


	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)
$15.10 to $23.09	1,181	9.0	$	21.33	117	$	18.84
$24.75 to $34.75	376	2.8		32.13	333		31.77
$44.78 to $45.75	563	6.0		44.91	454		44.94
$46.64 to $62.11	910	6.2		59.95	697		60.51
$63.33 to $73.21	872	6.2		68.60	872		68.60
$21.60 - $34.24								1,130	6.6	$	24.34	581	$	26.91
$34.75 - $52.13								540	4.7		44.46	532		44.47
$52.82 - $79.23								1,826	5.2		63.35	1,567		64.68
	3,902	6.7	$	45.35	2,473	$	54.67	3,496	5.6	$	47.83	2,680	$	52.49

Restricted Stock Units and Performance Stock Units

Restricted stock units (“RSU”) ~~may be~~are awarded to certain officers, key employees of the Company, and nonemployee directors. Additionally, performance stock units (“PSU”) are awarded to certain officers and key ~~employees of the Company. Additionally,~~employees. Each RSU ~~awards are made to employees in connection with our long-term incentive program,~~ and ~~to nonemployee directors. Each RSU~~PSU award represents the right to receive one share of our common stock provided that the applicable performance and vesting conditions are satisfied.

Generally, RSU awards fully vest after the passage of time, typically three ~~years. However, RSU~~years for employees and one year for nonemployee directors, provided there is continued service with the Company until the vesting date, subject to the terms of the award. PSU awards ~~made in connection with our performance-based long-term incentive program~~ are earned only after the attainment of ~~certain~~ performance ~~metrics~~goals in connection with the relevant performance period and ~~with regards to certain awards,~~ vest after an additional one-year period.

~~First Quarter 2020 Form 10-Q Page 15~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

No NaN dividends are paid or accumulated on any RSU or PSU 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.~~period.

RSU and PSU activity for the thirteen weeks ended May ~~2, 2020~~1, 2021 is summarized as follows:

Weighted-Average

Number
Remaining
Weighted-Average

of
Contractual
Grant Date

Shares
Life
Fair Value



(in thousands)


(in years)


(per share)
Nonvested at beginning of year

936

$
49.25
Granted

351

21.61
Vested

(54)

68.78
Performance adjustment ⁽¹⁾

(132)

Forfeited

(6)

39.22
Nonvested at May 2, 2020

1,095

1.6

$
38.65

Aggregate value ($ in millions)

$
42


			Weighted-Average
	Number		Remaining		Weighted-Average
	of		Contractual		Grant Date
	Shares		Life		Fair Value
		(in thousands)		(in years)		(per share)
Nonvested at beginning of year		1,348			$	38.48
Granted		414				54.01
Vested		(468)				44.98
Performance adjustment ⁽¹⁾		186
Forfeited		(16)				29.88
Nonvested at May 1, 2021		1,464		2.2	$	42.57

Aggregate value ($ in millions)	$	62

(1)	This represents adjustments made to ~~performance-based RSU awards~~PSUs and reflect changes in estimates based upon our current performance against predefined financial targets.

The total value of awards that vested during the thirteen weeks ended May 1, 2021 and May 2, 2020 ~~and May 4, 2019~~ was $4$21 million and $5$4 million, respectively. As of May ~~2, 2020,~~1, 2021, there was ~~$19~~$40 million of total unrecognized compensation cost related to nonvested awards.

~~14. Income Taxes~~

For the thirteen weeks ended May 2, 2020, we recorded an income tax provision of $5 million, which represented an effective tax rate of negative 4.9 percent on a pretax loss. Included in this quarter’s provision is a $27 million tax charge related to the revaluation of certain intellectual property rights pursuant to a non-U.S. advance pricing agreement.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. We are required to recognize the effects of tax law changes in the period of enactment. We have assessed the applicability of the CARES Act and changes to income tax laws or regulations in other jurisdictions and determined there is no significant affect to our income tax provision for the thirteen weeks ended May 2, 2020. We continue to assess the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.

First Quarter ~~2020~~2021 Form 10-Q Page 1615

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

~~15.~~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.

We do 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 our 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.

~~16.~~14. Subsequent ~~Event~~Events

~~Subsequent~~On May 19, 2021, we entered into an amendment to the ~~end~~2020 Credit Agreement (“Amended Credit Agreement”). The amendment provides for, among other things, (i) reducing the interest rates and commitment fees applicable to the loans and commitments, respectively, as described below, and (ii) reducing the “floor” applicable. The amendment provides that the interest rate applicable to loans drawn under the credit facility will be equal to, at our option, either a base rate, determined by reference to the federal funds rate, plus a margin of ~~first quarter, given~~0.25 percent to 0.75 percent per annum, or a Eurodollar rate, determined by reference to LIBOR, plus a margin of 1.25 percent to 1.75 percent per annum, in each case, depending on availability under the ~~recent social unrest experienced~~Amended Credit Agreement. In addition, we will pay a commitment fee of 0.25 percent per annum on the unused portion of the commitments under the Amended Credit Agreement.

On May 21, 2021 we announced plans, in ~~various cities across the United States, we temporarily closed approximately 130 stores~~partnership with our suppliers, to ~~protect the safety of team members and customers, most of which were already temporarily closed due to COVID-19. Many of these locations may be closed~~position our store fleet for the ~~foreseeable future given~~future. As part of this effort, we have decided to convert approximately one third of our Footaction stores into other existing banner concepts over the ~~potentially extensive physical damage. The extent~~course of ~~physical damage, inventory loss,~~the next 12 to 18 months to focus growth for our core banners. We will close the majority of the remaining Footaction stores as leases expire over the next two years. We believe this strategic decision will position us to better serve our consumers in a post-COVID marketplace. In connection with this decision, we will be performing an impairment review over approximately 60 stores and ~~potential business interruption cannot be determined until we are able~~record charges, if any, during the second quarter of 2021.

One of our minority investments, which is measured using the fair value measurement alternative, received additional funding in late May 2021 at a higher valuation than the investment amount on our balance sheet as of May 1, 2021. This transaction is expected to ~~enter~~generate a significant non-cash gain during the ~~stores safely and assess the damage with our insurance adjusters, such amounts may be significant. The timing and amount~~second quarter of ~~any possible insurance recoveries related to the losses is currently uncertain.~~2021.

First Quarter ~~2020~~2021 Form 10-Q Page 1716

Table of Contents

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

Business Overview

Foot Locker, Inc. leads the celebration of sneaker and youth culture around the globe through a portfolio of ~~brands~~banners including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Eastbay, Footaction, ~~Runners Point,~~ and Sidestep. Foot Locker, Inc. and its subsidiaries hereafter are referred to as the “Company,” “we,” “our,” or “us.” We operate primarily mall-based stores, as well as stores in high-traffic urban retail areas and high streets, in 27 countries including the United States, Canada, Europe, Australia, New Zealand, and Asia. Our 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 global sneaker community.

~~Foot Locker, Inc. uses its~~We use our omni-channel capabilities to bridge the digital world and physical stores, including order-in-store, buy online and pickup-in-store, and buy online and ship-from-store, as well as e-commerce. We operate websites and mobile apps aligned with the ~~brand~~ names of our store banners ~~(including~~(including: footlocker.com, ~~ladyfootlocker.com,~~ kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu ~~(and~~and related e-commerce sites in the various European countries that we ~~operate),~~operate, footlocker.com.au, ~~runnerspoint.com, sidestep-shoes.com,~~footlocker.nz, sidestep-shoes.de, side-stepshoes.nl, footlocker.hk, footlocker.sg, and footlocker.my). These sites offer some of the largest online product selections and provide a seamless link between e-commerce and physical stores. We also operate the websites for eastbay.com ~~final-score.com,~~ and eastbayteamsales.com.

~~Foot Locker, Inc. and its subsidiaries hereafter are referred to as the “Company,” “we,” “our,” or “us.”~~

Store Count

At May ~~2, 2020,~~1, 2021, we operated ~~3,113~~2,952 stores as compared with ~~3,129~~2,998 and ~~3,201~~3,113 stores at ~~February 1, 2020~~January 30, 2021 and May ~~4, 2019,~~2, 2020, respectively.

Franchise Operations

A total of ~~135~~131 franchised stores were operating at May ~~2, 2020,~~1, 2021, as compared with ~~139~~127 and ~~129~~135 stores at ~~February 1, 2020~~January 30, 2021 and May ~~4, 2019,~~2, 2020, respectively. Revenue from franchised stores was not significant for any of the periods presented. These stores are not included in the operating store count above.

COVID-19 Update

In ~~December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. In~~ March 2020, the World Health Organization designated COVID-19 a pandemic. COVID-19 ~~is having~~had a significant effect on overall economic conditions in ~~nearly all regions around~~ the ~~world and resulted~~various geographic areas in ~~travel restrictions and business slowdowns or shutdowns. In March,~~which we closed all our stores in North America, EMEA (Europe, Middle East, and Africa), and most of Asia Pacific. We also transitioned to a work-from-home environment for all our office team members and temporarily closed our distribution centers.have operations. Our ~~stores remained closed for a significant portion of the first quarter, with approximately 100 stores reopened as of May 2, 2020.~~

~~We have set up a special management committee and the committee~~top priority is ~~taking the necessary precautionary measures~~ to protect the health and safety of our team members, as well as following the guidance provided by local health authorities. We have been highly focused on the changes we are making to operate more safely in light of the COVID-19 pandemic. We implemented newly established health protocols, including providing personal protective equipment to our team members and ~~implementing social distancing working practices. Prior to reopening~~their families, our ~~stores, we are implementing various protocols including: occupancy limits, installing protective shields at the register, encouraging social distancing, providing markers in~~customers, and our ~~queue lines, implementing new processes for handling merchandise returns, and instituting new cleaning regimens, including enhanced cleaning of high-touch surfaces throughout the day.~~

~~First Quarter 2020 Form 10-Q Page 18~~

As we reopen stores, we are doing so in accordance with local government guidelines. As of June 9, 2020, we have approximately 2,200 stores open with an additional 175 expected to open in the next two weeks. We expect to continue reopening stores and other facilities around the world in a phased approach, as more states and countries reopen for retail and after considering our safety protocols. The expected number of store re-openings may be affected by the recent disruptions caused by social unrest across the United States.

operations. We have ~~taken numerous steps~~made best efforts to ~~protect the~~comply with all precautionary measures as directed by health authorities and ~~well-being of our team members, customers,~~local, state, and ~~communities, while also focusing on further strengthening our financial liquidity~~national governments.

Beginning in March 2020 and flexibility. On April 21, 2020, we communicated to our United States, Canadian, and Australian employees that we were temporarily furloughing (or its equivalent under applicable local law) the majority of our hourly store and certain of our hourly distribution centers team members. We continued to pay all active employees through the week ended April 26, 2020. Additionally, other measures to preserve our financial position were taken, such as temporarily reducing executive salaries, suspending the cash element of director compensation, temporarily suspending share repurchases and dividends, and by significantly reducing planned capital expenditures.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law and provided opportunities for additional liquidity, emergency assistance for individuals, families and businesses affected by the novel coronavirus pandemic. During the first quarter, we recognized benefits from the CARES Act, including federal retention tax credits of up to $5,000 per employee for the wages and health insurance we continued to provide to team members not providing services, a deferral of employer social security taxes for the remainder of 2020, 50 percent of which is payable by December 2021 and the remainder payable by December 2022. Additionally, various jurisdictions in which we operate implemented similar legislation to encourage the continued employment of team members. We intend to continue to review and consider any available potential benefits under the CARES Act or other governmental support for which we qualify. During the first quarter of 2020, we ~~recognized benefits~~temporarily closed substantially all of ~~$40 million from~~our retail store locations in response to governmental orders related to the ~~various governmental support programs. No U.S. employer social security taxes~~COVID-19 outbreak. As of the end of the first quarter of 2020, approximately 100 stores were ~~deferred~~open. We were subsequently able to gradually reopen store locations under applicable regulations. Throughout 2020, the pandemic and the shelter in place orders negatively affected customer traffic into the stores that were operating, and certain stores required additional closures during the remainder of the year. For the first ~~quarter.~~

~~Additionally,~~quarter of this year, we operated approximately 83 percent of the ~~CARES Act contains several significant income tax provisions, including a temporary five-year carryback of net~~possible operating ~~losses and relaxed restrictions on business interest deductions,~~days, as well as a permanent technical correction to the depreciation method applicable to “qualified improvement property” placed in service after 2017. We are required to recognize the effect of tax law changescompared with 48 percent in the ~~period of enactment. We have assessed the applicability of this legislation on our income tax provision and determined there is no significant effect to our~~ first quarter ~~2020 income tax provision.~~

~~The continuation~~ of 2020. Our operations in Europe and Canada continued to experience significant temporary closures throughout the ~~coronavirus outbreak may cause prolonged or additional intermittent periods~~first quarter of ~~store closures, modified~~2021. Our distribution centers have been operating schedules, and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores. We are experiencing an increase in operating costs for health and safety protocols for both our team members and customers. Due torelatively unaffected during this time. In order mitigate the ~~continued~~ effects of the COVID-19 pandemic our results may be further negatively affected and may lead to increased asset recovery and valuation risks, such as long-lived tangible and right-of-use asset impairments and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy will likely affect the financial viability of some number of our vendors and require other changes to our operations. temporary closures, we have been operating in-store fulfillment activities.

Given the dynamic nature of these circumstances, the duration of business disruption, and reduced customer traffic in our stores, the related financial ~~affect~~effect cannot be reasonably estimated at this time but ~~are expected to~~may materially affect our business for the remainder of ~~2020. Due to these unprecedented conditions, we have withdrawn our financial guidance for 2020.~~2021.

First Quarter 2021 Form 10-Q Page 17

Table of Contents

Reconciliation of Non-GAAP Measures

In addition to reporting our financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), we report certain financial results that differ from what is reported under GAAP.

~~First Quarter 2020 Form 10-Q Page 19~~

We have presented certain financial measures identified as non-GAAP, such as sales changes excluding foreign currency fluctuations, adjusted ~~(loss)~~ income before income taxes, adjusted net ~~(loss)~~ income, and adjusted diluted ~~(loss)~~ earnings per share.

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 believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core business or affect comparability. In addition, these non-GAAP measures are useful in assessing our progress in achieving our long-term financial objectives. We estimate the tax effect of all non-GAAP adjustments by applying a marginal tax rate to each of the respective items. The income tax items represent the discrete amount that affected the period.

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 the thirteen weeks ended May ~~2, 2020~~1, 2021 and May ~~4, 2019.~~2, 2020.


	Thirteen weeks ended				Thirteen weeks ended
	May 2,		May 4,		May 1,		May 2,
	2020		2019
	($ in millions)
($ in millions, except per share amounts)					2021		2020
Pre-tax income:
(Loss) income before income taxes	$	(105)	$	234
Income (loss) before income taxes					$	284	$	(105)
Pre-tax amounts excluded from GAAP:
Impairment and other charges		16		1		4		16
Adjusted (loss) income before income taxes (non-GAAP)	$	(89)	$	235
Adjusted income (loss) before income taxes (non-GAAP)					$	288	$	(89)

After-tax income:
Net (loss) income	$	(110)	$	172
Net income (loss)					$	202	$	(110)
After-tax adjustments excluded from GAAP:
Impairment and other charges, net of income tax benefit of $3 and $- million, respectively		13		1
Impairment and other charges, net of income tax benefit of $1 and $3, respectively						3		13
Tax charge related to revaluation of certain intellectual property rights		27		—		—		27
Adjusted net (loss) income (non-GAAP)	$	(70)	$	173
Adjusted net income (loss) (non-GAAP)					$	205	$	(70)

Earnings per share:
Diluted (loss) earnings per share	$	(1.06)	$	1.52
Diluted earnings (loss) per share					$	1.93	$	(1.06)
Diluted EPS amounts excluded from GAAP:
Impairment and other charges		0.13		0.01		0.03		0.13
Tax charge related to revaluation of certain intellectual property rights		0.26		—		—		0.26
Adjusted diluted (loss) earnings per share (non-GAAP)	$	(0.67)	$	1.53
Adjusted diluted earnings (loss) per share (non-GAAP)					$	1.96	$	(0.67)

~~For~~First Quarter 2021 Form 10-Q Page 18

Table of Contents

During the thirteen weeks ended May 1, 2021 and May 2, 2020, we recorded ~~impairment~~pre-tax charges of ~~$15~~$4 million ~~related~~and $16 million, respectively, classified as Impairment and Other Charges. See the Impairment and Other Charges section for further information. Related to ~~certain Runners Point and Sidestep stores that will be closing before lease expiration and other underperforming stores in Europe. In each of~~ the ~~thirteen weeks ended May 2, 2020 and May 4, 2019, we recorded $1 million related to administrative costs associated with the pension plan reformation. Also~~non-GAAP adjustments for income taxes, during the first quarter of 2020 we recorded a $27 million tax charge related to the revaluation of certain intellectual property rights, pursuant to a non-U.S. advance pricing agreement.

~~First Quarter 2020 Form 10-Q Page 20~~

Segment Reporting

We have determined that we have three operating segments, North America, EMEA, and Asia Pacific. Our North America operating segment includes the results of the following banners operating in the U.S. and Canada: Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, and Footaction, including each of their related e-commerce businesses, as well as our Eastbay business that includes internet, catalog, and team sales. Our EMEA operating segment includes the results of the following banners operating in Europe: Foot Locker, ~~Runners Point,~~ Sidestep, and Kids Foot Locker, including each of their related e-commerce businesses. Our Asia Pacific operating segment includes the results of Foot Locker and Kids Foot Locker and the related e-commerce businesses ~~as applicable,~~ 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.

Results of Operations

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

Thirteen weeks ended

May 2,

May 4,

2020

2019

($ in millions)
Sales

$
1,176

$
2,078

Operating Results

Division (loss) profit

(79)

250
Less: Impairment and other charges ⁽¹⁾

16

1
Less: Corporate expense ⁽²⁾

10

21
(Loss) Income from operations

(105)

228
Interest (expense) income, net

(1)

4
Other income, net ⁽³⁾

1

2
(Loss) income before income taxes

$
(105)

$
234


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Sales	$	2,153	$	1,176

Operating Results
Division profit (loss)		315		(79)
Less: Impairment and other charges ⁽¹⁾		4		16
Less: Corporate expense ⁽²⁾		29		10
Income (loss) from operations		282		(105)
Interest expense, net		(2)		(1)
Other income, net ⁽³⁾		4		1
Income (loss) before income taxes	$	284	$	(105)

(1)

~~During~~See the ~~thirteen weeks ended May 2, 2020, we recorded pre-tax charges of $15 million related to the impairment of certain Runners Point~~Impairment and Sidestep stores that will be closing before lease expiration and other underperforming stores in Europe. We recorded pre-tax charges of $1 million in each of the thirteen weeks ended May 2, 2020 and May 4, 2019 related to administrative costs in connection with the pension plan reformation.Other Charges section for further information.

(2)

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

(3)

Other income ~~included~~includes non-operating items, franchise royalty income, changes in fair value of minority interests measured using the fair value measurement alternative, changes in the market value of our available-for-sale security, our share of earnings or losses related to our equity method investments, and net benefit expense related to our pension and postretirement programs excluding the service cost component. See the Other income, net section for further information.

First Quarter 2021 Form 10-Q Page 19

Table of Contents

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 sales also includes our direct-to-customers 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. Stores that were temporarily closed due to the COVID-19 pandemic are also included in the computation of comparable-store sales. Computations exclude the effect of foreign currency fluctuations.

~~First Quarter 2020 Form 10-Q Page 21~~

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

Thirteen weeks ended

May 2,
May 4,

2020
2019

($ in millions)
Stores

Sales

$
814

$
1,758

$ Change

$
(944)

% Change

(53.7)
%

% of total sales

69.2
%

84.6
%
Comparable sales (decrease) increase

(53.4)
%

2.9
%

Direct-to-customers

Sales

$
362

$
320

$ Change

$
42

% Change

13.1
%

% of total sales

30.8
%

15.4
%
Comparable sales increase

14.3
%

14.8
%


	Thirteen weeks ended
	May 1,			May 2,
($ in millions)	2021			2020
Stores
Sales	$	1,620		$	814
$ Change	$	806			(944)
% Change		99.0	%		(53.7)	%
% of total sales		75.2	%		69.2	%
Comparable sales increase (decrease)		97.4	%		(53.4)	%

Direct-to-customers
Sales	$	533		$	362
$ Change	$	171			42
% Change		47.2	%		13.1	%
% of total sales		24.8	%		30.8	%
Comparable sales increase		43.0	%		14.3	%

For the thirteen weeks ended May ~~2, 2020,~~1, 2021, total sales ~~decreased~~increased by ~~$902~~$977 million, or ~~43.4~~83.1 percent, to ~~$1,176~~$2,153 million, ~~from~~as compared with the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, total sales ~~decreased~~increased by ~~$891 million, or 42.9~~79.4 percent for the thirteen weeks ended May 2,1, 2021 as compared with the corresponding prior-year period. These comparisons were significantly affected by the closures necessitated by the COVID-19 pandemic, most of the stores were closed during the first quarter of 2020. Our stores were only open for 48 percent of the operating days last year as compared with 83 percent this year. By geography, our European and Canadian operations continued to be negatively affected by the required closures during the current year. Europe and Canada were open for 39 percent and 75 percent of the total available operating days, respectively. While sales increased significantly compared with the prior-year period, we also exceeded the sales of the first quarter of 2019. As compared to the first quarter of 2019, total sales increased 3.6 percent, and 2.4 percent excluding the effect of foreign exchange rate fluctuations.

Total comparable sales ~~decreased by 42.8~~represented an increase of 80.3 percent for the ~~thirteen weeks ended May 2, 2020. The~~quarter. Our stores ~~channel had a 53.4 percent decrease for the thirteen weeks ended May 2, 2020 as~~and direct-to-customers channels generated significant increases, which was a result of the temporary closure of our stores across all of our banners around the world ~~beginning in mid-March due~~during the first quarter of 2020. Our significant improvement also reflected increased consumer demand for exciting and new product offerings and the effect of government stimulus. We continue to leverage our technology platforms to improve the ~~COVID-19 pandemic. This decrease was partially offset by strong sales in our direct-to-customers channel, which increased by 14.3 percent for~~digital experience.

For the ~~thirteen weeks ended May 2, 2020 as customer demand was still high for our products.~~

~~In each~~combined channels, all of our operating segments ~~the stores business declined significantly due~~(North America, EMEA, and Asia Pacific) generated significant sales increases as compared to the first quarter of last year, which was negatively affected by the temporary ~~closures. The decline~~store closures necessitated by the pandemic. Both EMEA and Canada generated significant increases despite the continued temporary store closures required in the first quarter this year. Our North American operating segment’s sales strength was across all banners and was led by Champs Sports, with an increase of over 100 percent. Within EMEA, our Sidestep and Foot Locker banners were negatively affected by the ongoing temporary closures in Germany. Asia Pacific, our smallest operating segment, also experienced an increase of over 100 percent.

First Quarter 2021 Form 10-Q Page 20

Table of Contents

From a product ~~categories~~perspective for the combined channels, the increase was across all families of business - footwear, apparel, and accessories. All wearer ~~segments. However, as noted above, our direct-to-customers business increased, driven by~~segments within the footwear category experienced increases, with the largest increases coming from sales of ~~classic~~men’s and children’s basketball ~~styles~~footwear styles. Apparel sales benefited from increases in sales of men’s and ~~key launch footwear. We noted a~~kid’s apparel. The continued athleisure and fitness trend, coupled with exciting product offerings from our suppliers, drove the significant increase in ~~our domestic direct-to-customers business, partially~~sales as a result of the federal stimulus payments received by our customers. Our previous investments in digital and supply chain capabilities allowed us to leverage this part of our business to continue to serve our customers achieving peak daily volume levels.compared with last year.

Gross Margin

Thirteen weeks ended

May 2,

May 4,


2020

2019

Gross margin rate

23.0
%
33.2
%
Basis point decrease in the gross margin rate

(1,020)

Components of the change-

Merchandise margin rate decline

(170)

Higher occupancy and buyers’ compensation expense rate

(850)

~~First Quarter 2020 Form 10-Q Page 22~~


	Thirteen weeks ended
	May 1,		May 2,
	2021		2020
Gross margin rate	34.8	%	23.0	%
Basis point increase (decrease) in the gross margin rate	1,180		(1,020)
Components of the change-
Merchandise margin rate improvement (decline)	250		(170)
Lower (higher) occupancy and buyers’ compensation expense rate	930		(850)

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 (including fixed common area maintenance charges and other fixed non-lease components), real estate taxes, general maintenance, and utilities.

The gross margin rate ~~decreased~~improved to ~~23.0~~34.8 percent for the thirteen weeks ended May ~~2, 2020~~1, 2021, as compared with ~~33.2 percent in the~~ corresponding prior-year ~~period. The~~period, reflecting a higher merchandise margin rate ~~declined due~~since we were significantly less promotional than a year ago, coupled with leverage on the relatively fixed costs. Comparing the gross margin rate to ~~a higher proportion~~the first quarter of ~~direct-to-customer sales, which has a lower~~2019, gross margin improved by 160 basis point reflecting an 80-basis point improvement in the merchandise ~~margin. The~~margin rate and an 80 basis point improvement on occupancy and buyers’ compensation ~~expense~~rate.

The occupancy rate ~~significantly deleveraged. Although~~for the first quarter was positively affected by the increase in sales and COVID-19 related rent abatements. Due to completed lease negotiations, we ~~withheld~~were able to record $5 million of rent ~~payments once our stores closed mid-March~~savings due to rent abatements during the ~~COVID-19 pandemic, this was not reflected~~thirteen weeks ended May 1, 2021. We record rent abatements in ~~the~~ rent expense ~~for~~when the ~~quarter. As~~ negotiations ~~with our landlords~~ are completed ~~we will recognize~~and the ~~reduction of expense at that time.~~leases are modified.

Selling, General and Administrative Expenses (SG&A)

Thirteen weeks ended

May 2,

May 4,


2020

2019

($ in millions)
SG&A

$
316

$
416
$ Change

$
(100)

$

% Change

(24.0)
%

SG&A as a percentage of sales

26.9
%

20.0


	Thirteen weeks ended
	May 1,			May 2,
($ in millions)	2021			2020
SG&A	$	418		$	316
$ Change	$	102
% Change		32.3	%
SG&A as a percentage of sales		19.4	%		26.9	%

SG&A ~~decreased~~increased by ~~$100~~$102 million, ~~to $316~~or $89 million excluding the effect of foreign currency fluctuations, for the thirteen weeks ended May ~~2, 2020, as compared with the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, SG&A decreased by $96 million for the thirteen weeks ended May 2, 2020,~~1, 2021 as compared with the corresponding prior-year period. As a percentage of sales, SG&A ~~increased to 26.9 percent~~decreased by 750 basis points for the thirteen weeks ended May ~~2, 2020. The~~ 1, 2021 driven by higher sales in the quarter as sales in the prior year were significantly affected by the closures necessitated by COVID-19.

First Quarter 2021 Form 10-Q Page 21

Table of Contents

SG&A ~~rate~~for the thirteen weeks ended May 1, 2021 and May 2, 2020 included payroll subsidies from local governments of $10 million and $40 million, respectively. The higher amount related to the prior year credit reflected ~~significantly lower sales as a result of temporary store closures in connection with~~ the ~~COVID-19 pandemic. We carefully managed expenses by reducing spending in all areas of the business, including marketing, travel, and incentive compensation expenses, among other categories. We~~fact that we continued to pay our employees throughout most of the first quarter despite the temporary store closures. ~~Store wage costs were partially offset by CARES Act retention credits and similar credits from other jurisdictions, which totaled $40 million.~~

~~Corporate~~The thirteen weeks ended May 1, 2021 included incremental expense ~~(a component~~ of ~~SG&A) decreased during~~$2 million for personal protective equipment compared with an insignificant cost in the ~~quarter primarily reflecting lower~~corresponding prior-year period. SG&A expense in the current year reflected higher incentive compensation expense of $20 million reflecting our strong performance. Excluding the above-mentioned items and the effect of foreign currency fluctuations, SG&A increased by $37 million or 11 percent representing variable expenses associated with higher sales.

Depreciation and Amortization


	Thirteen weeks ended
	May 1,			May 2,
($ in millions)	2021			2020
Depreciation and amortization	$	45		$	44
$ Change	$	1
% Change		2.3	%

Depreciation and amortization expense increased by $1 million for the thirteen weeks ended May 1, 2021, as compared with the corresponding prior-year ~~period.~~

~~Depreciation and Amortization~~

Thirteen weeks ended

May 2,

May 4,


2020

2019

($ in millions)
Depreciation and amortization

$
44

$
44
$ Change

$
—

$

% Change

—
%

~~Depreciation and amortization expense was unchanged for the thirteen weeks ended May 2, 2020 as compared with the corresponding prior-year period.~~periods. Excluding the effect of foreign currency fluctuations, depreciation and amortization ~~increased $1 million for the thirteen weeks ended May 2, 2020,~~was essentially unchanged as compared with the ~~corresponding prior-year period.~~prior year.

~~First Quarter 2020 Form 10-Q Page 23~~

Impairment and Other Charges

Thirteen weeks ended

May 2,

May 4,

2020

2019

($ in millions)
Impairment and other charges

$
16

$
1
$ Change

$
15

% Change

1,500.0
%

~~Due to~~ the COVID-19 pandemic and its effect on our actual and projected results, we determined that a triggering event had occurred for certain underperforming stores and, therefore, we conducted an impairment review duringDuring the first quarter of ~~2020.~~2021, we recorded an impairment charge of $2 million related to the underperformance of one of our minority investments. Additionally, we recorded a charge of $2 million, which was primarily related to severance in connection with the reorganization of certain support functions.

In May 2020, we made the strategic decision to close our Runners Point business. ~~As part of the decision to close the banner, certain~~Certain Runners Point stores ~~will convert~~converted to other banners and approximately 40 Runners Point and Sidestep stores ~~will close prior to their natural lease expiration.~~were closed. We also conducted an impairment review for certain underperforming stores operating in Europe. We evaluated the long-lived assets, including the right-of-use assets, of 70 stores ~~which included the Runners Point and Sidestep stores identified for closure,~~ and recorded non-cash charges of $15 million to write down store fixtures, leasehold improvements, and right-of-use assets.

~~Also included~~The Company and the Company’s U.S. pension plan were involved in ~~both periods are~~litigation related to the conversion of the plan to a cash balance plan. The court entered its final judgment in 2018, which required the plan to be reformed as directed by the court order. We recorded charges of $1 ~~million related to administrative costs incurred in connection with the pension plan reformation.~~

~~Division (Loss) Profit~~

Thirteen weeks ended


May 2,

May 4,


2020

2019

($ in millions)
Division (loss) profit

$
(79)

$
250

Division (loss) profit margin

(6.7)
%

12.0
%

~~We recognized a division loss of $79~~ million for the thirteen weeks ended May 2, 2020 related to administrative expenses in connection with the reformation.

Corporate Expense


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Corporate expense	$	29	$	10
$ Change	$	19

Corporate expense consists of unallocated general and administrative expenses as well as depreciation and amortization related to our corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items. Depreciation and amortization included in corporate expense was $7 million and $5 million for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively.

First Quarter 2021 Form 10-Q Page 22

Table of Contents

The allocation of corporate expense to the operating divisions is adjusted annually based upon an internal study; accordingly, the allocation increased by $5 million in 2021, thus reducing corporate expense. Excluding the corporate allocation change, corporate expense increased by $24 million as compared with ~~division profit of $250 million in~~ the ~~corresponding~~ prior-year period. ~~Lower sales~~This increase was primarily due to ~~the temporary store closures caused by the COVID-19 pandemic, along with reduced~~higher incentive compensation expense.

Operating Results


	Thirteen weeks ended
	May 1,			May 2,
($ in millions)	2021			2020
Division profit (loss)	$	315		$	(79)
Division profit (loss) margin		14.6	%		(6.7)	%

Division profit margin ~~rates and higher SG&A,~~ as a percentage of sales ~~decreased~~increased to 14.6 percent of sales for the thirteen weeks ended May 1, 2021, with both sales channels generating significant improvements in both gross margin and expense leverage. The results for prior year were negatively affected by the quarter as compared with the corresponding prior-year period. Management is continuing to monitor the results of each of the banners as the recovery from the COVID-19 pandemic continues. Due to the uncertainty surrounding the pandemic and assumptions around the continuing effects of the COVID-19 pandemic, we may be required to perform an impairment analysis over certain store long-lived tangible and right-of-use assets in future quarters.pandemic.

Interest ~~(Expense) Income,~~Expense, Net

Thirteen weeks ended

May 2,

May 4,

2020

2019

($ in millions)
Interest expense

$
(3)

$
(2)
Interest income

2

6
Interest (expense) income, net

$
(1)

$
4


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Interest expense	$	(3)	$	(3)
Interest income		1		2
Interest expense, net	$	(2)	$	(1)

We recorded $1$2 million of net interest expense for the thirteen weeks ended May ~~2, 2020,~~1, 2021, as compared with net interest ~~income~~expense of $4$1 million for the corresponding prior-year period. ~~Interest~~Net interest expense increased due to ~~the drawdown of the revolving credit facility~~a reduction in ~~March 2020. Additionally,~~ interest income, ~~decreased~~ primarily as a result of lower average interest rates on our cash and cash equivalents.

~~First Quarter 2020 Form 10-Q Page 24~~

Other Income, Net

Thirteen weeks ended

May 2,

May 4,

2020

2019

($ in millions)
Other income, net

$
1

$
2
$ Change

$
(1)

% Change

(50.0)
%


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Other income, net	$	4	$	1

Other income includes non-operating items, including franchise royalty income, changes in fair value of minority interests measured using the fair value measurement alternative, changes in the market value of our available-for-sale security, our share of earnings or losses related to our equity method investments, and net benefit expense related to our pension and postretirement programs excluding the service cost component.

The change in other income primarily represented higher franchise income and an improvement in our market value of our available-for-sale security.

First Quarter 2021 Form 10-Q Page 23

Table of Contents

Income Taxes


	Thirteen weeks ended						Thirteen weeks ended
	May 2,			May 4,			May 1,			May 2,
	2020			2019
	($ in millions)
($ in millions)							2021			2020
Provision for income taxes	$	5		$	62		$	82		$	5
Effective tax rate		(4.9)	%		26.4	%		28.8	%		(4.9)	%

Our current year interim provision for income taxes was measured using an estimated annual effective tax rate, which represented a blend of federal, state, and foreign taxes and included the effect of certain nondeductible items as well as changes in our mix of domestic and foreign earnings or losses, adjusted for discrete items that occur within the periods presented.

For the first quarter of 2020, in accordance with the authoritative guidance, we used a discrete effective tax rate method to calculate income taxes because small changes in the estimated level and mix of annual income or loss by jurisdiction would have resulted in significant changes in the estimated annual effective tax rate making the historical method unreliable.

We regularly assess the adequacy of our provisions for income tax contingencies in accordance with applicable authoritative guidance on accounting for income taxes. As a result, we 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 May ~~2, 2020,~~1, 2021, we recorded $1 million excess tax benefits from stock-based compensation.

The tax rate for the prior-year period was negatively affected by a $27 million tax charge related to the revaluation of certain intellectual property rights pursuant to a non-U.S. advance pricing agreement. In addition, we recognized a $2 million tax benefit for the reversal of a withholding tax accrual that iswas no longer required.

Excluding the ~~charge related to the revaluation and the benefit from the withholding tax reversal,~~above-mentioned discrete items, the effective tax ~~rate~~rates for the thirteen weeks ended May ~~2, 2020 would have been approximately 20 percent, a decrease~~1, 2021 increased, as compared with the corresponding prior-year period, primarily due to the change in the mix of ~~loss in the various jurisdictions in which we operate.~~domestic and foreign earnings and losses.

~~During the thirteen weeks ended May 4, 2019, the Company recognized a tax benefit of $3 million due to an adjustment to a foreign tax credit valuation allowance.~~

We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to income, excluding unusual or infrequently occurring discrete items, for the reporting period. In accordance with the authoritative guidance, we used a discrete effective tax rate method to calculate taxes for the thirteen weeks ended May 2, 2020 because small changes in the estimated level and mix of annual income or loss by jurisdiction would result in significant changes in the estimated annual effective tax rate making the historical method unreliable. Due to this volatility, we cannot forecast the expectedcurrently expect our full-year tax rate ~~at this time.~~to approximate 29 percent excluding the effect of any nonrecurring items that may occur. The actual tax rate ~~could~~will vary ~~significantly~~ depending on the level and mix of income ~~or loss~~earned in the various ~~jurisdictions in which we operate.~~

~~First Quarter 2020 Form 10-Q Page 25~~

jurisdictions.

~~Net Income~~

For the thirteen weeks ended May 2, 2020, we reported a net loss of $110 million as compared to net income of $172 million in the corresponding prior-year period. Diluted loss per share was $1.06 as compared to diluted earnings per share of $1.52 for the thirteen weeks ended May 4, 2019.

Liquidity and Capital Resources

Liquidity

Our primary source of liquidity ~~continues to be~~has been cash flow from operations, while the principal uses of cash ~~are~~have been to fund inventory and other working capital requirements; finance capital expenditures related to store openings, store remodelings, 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 ~~also from time to time may make investments in other companies that we believe support our vision of serving youth culture. We~~ generally finance real estate with operating leases. We believe our cash, cash equivalents, ~~and~~ future cash flow from operations, and amounts available under our credit agreement will be adequate to fund these requirements.

First Quarter 2021 Form 10-Q Page 24

Table of Contents

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.

~~Due to the COVID-19 pandemic, and in an effort to conserve cash, we temporarily suspended our share repurchase program.~~ As of May ~~2, 2020, $867~~1, 2021, approximately $797 million remained available under ~~the~~our current ~~3-year~~$1.2 billion share repurchase program. ~~Also, after thoughtful consideration by our Board of Directors,~~

In January 2022, we ~~suspended our second quarter dividend distribution to preserve our balance sheet strength and flexibility. While returning capital to our shareholders continues to be one~~will repay the $98 million principal outstanding of our capital allocation priorities, given the current environment, we believe this is the prudent and responsible action to take at this time and one that will ultimately enable us to create more shareholder value over the long term. Our Board of Directors will continue to evaluate potential for future dividend distributions on a quarterly basis.8.5 percent debentures.

Any material adverse change in customer demand, fashion trends, competitive market forces, or customer acceptance of our merchandise mix, retail locations and websites, uncertainties related to the effect of competitive products and pricing, our reliance on a few key ~~vendors~~suppliers for a significant portion of our merchandise purchases and risks associated with global product sourcing, economic conditions worldwide, the effects of currency fluctuations, continued uncertainties caused by the COVID-19 pandemic, as well as other factors listed under the ~~heading~~headings “Disclosure Regarding Forward-Looking Statements,” and “Risk Factors” could affect our ability to continue to fund our needs from business operations.

Operating Activities

Thirteen weeks ended

May 2,

May 4,

2020

2019

($ in millions)
Net cash (used in) provided by operating activities

$
(116)

$
318
$ Change

$
(434)

$


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Net cash provided by (used in) operating activities	$	398	$	(116)
$ Change	$	514

Operating activities reflects net income (loss) ~~income~~ adjusted for non-cash items and working capital changes. Adjustments to net income (loss) ~~income~~ for non-cash items include gains, impairment charges, other charges, depreciation and amortization, deferred income taxes, and share-based compensation expense.

~~First Quarter 2020 Form 10-Q Page 26~~

The ~~decrease~~increase in cash provided by operating activities, as compared with the same period last year, reflected ~~a decrease in net income and higher inventories, which were partially offset by~~ higher accounts payable. Also, during the thirteen weeks ended May 4, 2019, we contributed $55 million to our U.S. qualified pension plan primarily representing the funds available in the qualified settlement fund established in connection with the pension matter.

payable and accrued and other liabilities, as well as higher net income. As of May ~~2, 2020,~~1, 2021, we have withheld approximately ~~$90~~$32 million of lease and lease-related payments as we continue to negotiate rent deferrals or abatements with our landlords for the period that our stores were closed due to the COVID-19 pandemic. ~~Also,~~

During the fourth quarter of 2020, we ~~extended payment terms~~were notified by our property insurance carrier that it had approved a $10 million partial settlement on our claim for losses sustained in connection with the social unrest of 2020. The cash received during the first quarter of 2021 from this partial settlement was classified in the statement of cash flows on the basis of the related insurance coverage. Accordingly, $8 million was related to inventory and was therefore classified in operating activities. The balance of $2 million was related to losses sustained on our property and equipment and was classified in investing activities. We are continuing to work with our ~~suppliers and vendors~~insurers to determine the remaining amount of our covered losses under our property insurance policies. Additional insurance recoveries will be recorded in ~~order to preserve liquidity.~~the period in which we conclude our settlement discussions with our insurance providers.

First Quarter 2021 Form 10-Q Page 25

Table of Contents

Investing Activities

Thirteen weeks ended

May 2,

May 4,

2020

2019

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

$
(58)

$
(90)
$ Change

$
32

$


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Net cash (used in) investing activities	$	(54)	$	(58)
$ Change	$	4

For the thirteen weeks ended May ~~2, 2020,~~1, 2021, capital expenditures ~~increased~~decreased by $7$1 million to ~~$52~~$51 million, as compared with the corresponding prior-year period. Our full-year capital spending is expected to be $143 million, which is $128 million lower than the target that was established at the beginning of the year and reflects changes in the timing of certain projects due to the COVID-19 pandemic. However, this is $5 million higher than the amount recently announced, a result of strategic decisions made to convert certain Runners Point stores to our other banners as well as to open and remodel additional stores in Australia.$275 million. The revised forecast includes ~~$83~~$180 million related to the remodeling or relocation of approximately 55120 existing stores and the opening of approximately 60160 new stores, as well as ~~$60~~$95 million for the development of information systems, websites, and infrastructure, including supply chain initiatives. The capital expenditures forecast includes the anticipated costs related to the conversion of the Footaction stores to our other banners, although the timing of these expenditures is being evaluated. Cash used in investing activities ~~is also lower this period as~~for the ~~thirteen weeks ended May 2, 2020~~first quarter included $6$8 million in minority investments as compared with ~~$45~~$6 million spent in the corresponding prior-year period.

In connection with the shutdown of the Runners Point banner completed last year, during the first quarter of 2021 we sold the former headquarters resulting in proceeds of $3 million.

As noted above, related to our insurance claim from the social unrest in 2020, we recorded proceeds of $2 million related to property and equipment loss.

Financing Activities

Thirteen weeks ended

May 2,

May 4,

May 1,

May 2,

2020

2019

($ in millions)

Net cash provided by (used in) financing activities

288

(43)

($ in millions)

2021

2020

Net cash (used in) provided by financing activities

(61)

288

$ Change

331

(349)

Cash used in financing activities consisted primarily of our return to shareholders initiatives, including our share repurchase program and cash dividends, as follows:


	Thirteen weeks ended
	May 1,		May 2,
($ in millions)	2021		2020
Share repurchases	$	34	$	—
Dividends paid on common stock		21		42
Total returned to shareholders	$	55	$	42

During the thirteen weeks ended ~~weeks ended~~ May ~~2, 2020,~~1, 2021, we ~~did not repurchase~~repurchased 620,544 shares of ~~our~~ common stock ~~as compared with 32,100 shares repurchased~~ for $2$34 million ~~in the corresponding prior-year period.~~under our share repurchase program. We also declared and paid dividends ~~of $42 million and $43 million during the first quarter of 2020 and 2019, respectively. This represented~~representing quarterly rates of ~~$0.40~~$0.20 and ~~$0.38~~$0.40 per share for the thirteen weeks ended May 1, 2021 and May 2, 2020, ~~and 2019,~~ respectively. ~~The first quarter dividend was declared prior~~

We paid $10 million to satisfy tax withholding obligations relating to the ~~COVID-19 pandemic.~~ vesting of share-based equity awards during the thirteen weeks ended May 1, 2021. Partially offsetting this amount were proceeds received from the issuance of common stock in connection with employee stock programs of $4 million.

In the first quarter of 2020, ~~in order to increase our cash position and help preserve our financial flexibility~~ we ~~have drawn~~borrowed $330 million of our then-existing revolving credit ~~facility.~~

~~Restructuring~~

~~In May 2020, we announced that after a comprehensive assessment~~facility, which was repaid in full during the second quarter of ~~our operations and the competitive landscape in Germany, we decided to consolidate the Runners Point business into our other operations in Europe.~~2020.

First Quarter ~~2020~~2021 Form 10-Q Page 2726

Table of Contents

As part of this plan, select Runners Point stores will be converted to either Sidestep or Foot Locker stores, with approximately 40 remaining Runners Point stores and certain Sidestep stores expected to close prior to lease expiration.

In addition, we plan to restructure and consolidate the Runners Point and Sidestep support and logistics functions into Foot Locker Europe's headquarters in the Netherlands, in compliance with local legislation. We expect this transition to occur largely over the remainder of fiscal 2020 and to wind down the Runners Point business by yearend. We look forward to continuing to serve our Runners Point customers through our Sidestep and Foot Locker stores, as well as through our online channels. Also, as part of the next phase of the Champs Sports and Eastbay strategic initiative, we are restructuring positions and aligning several functions across the brands and plan to consolidate select Eastbay operations from Wausau, Wisconsin into the Champs Sports headquarters in Bradenton, Florida. These actions will not significantly affect our financial position or cash flows.

Critical Accounting Policies and Estimates

~~Other than the adoption of ASU 2017-04~~~~, Simplifying the test for Goodwill Impairment~~~~, on February 2, 2020 as discussed in Note 1,~~ ~~Summary of Significant Accounting Policies~~~~, and Note 6,~~ ~~Goodwill~~~~, to the Condensed Consolidated Financial Statements, there~~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 for the fiscal year ended ~~February 1, 2020.~~January 30, 2021.

Recent Accounting Pronouncements

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

Item 4. 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) and 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 e-commerce order management ~~system beginning with our~~system. All North American ~~websites throughout 2020 with two of our smaller volume~~ e-commerce ~~sites~~apps and certain European countries were live on the new system as of May ~~2, 2020.~~1, 2021. In connection with this implementation and resulting business process changes, we may make changes to the design and operation of our internal control over financial reporting. ~~Also, during the first quarter of 2020 we substantially completed the rollout of our new point-of-sale software.~~

During the quarter ended May ~~2, 2020,~~1, 2021, there were no changes in the Company’s internal control over financial reporting, other than the implementation of the new e-commerce order management system (as defined in Rules 13a-15(f) of the Exchange Act), that materially affected or are reasonably likely to affect the Company’s internal control over financial reporting.

~~First Quarter 2020 Form 10-Q Page 28~~

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information discussed in this report, the factors described in Part I, Item 1A. “Risk Factors” in our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on March ~~27, 2020~~25, 2021 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 ~~2019~~2020 Form ~~10-K, other than the item noted below.~~

Riots, vandalism, and other crimes and acts of violence may affect the markets in which we operate, our customers, delivery of our products and customer service, and could have a material adverse effect on our business, results of operations, or financial condition.

Our business may be adversely affected by instability, disruption, or destruction, regardless of cause, including riots, civil insurrection or social unrest, and manmade disasters or crimes. Such events may result in property damage and loss and may also cause customers to suspend their decisions to shop in our stores, interrupt our supply chain, and cause restrictions, postponements, and cancellations of events that attract large crowds and public gatherings, such as store marketing events.

~~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.~~10-K.

First Quarter 2021 Form 10-Q Page 27

Table of Contents

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

The ~~following~~ table below provides information with respect to shares of the Company’s common stock for the thirteen weeks ended May ~~2, 2020:~~1, 2021:

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 2 to February 29, 2020

—

$
—

—

$
867,215,222
March 1 to April 4, 2020

22,879

19.38

—

867,215,222
April 5 to May 2, 2020

—

—

—

867,215,222

22,879

$
19.38

—


				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⁾
January 31 to February 27, 2021	—	$	—	—	$	830,547,018
February 28 to April 3, 2021	580,611		53.41	392,716		809,884,743
April 4 to May 1, 2021	231,814		56.40	227,828		797,046,348
	812,425	$	54.26	620,544

(1)

These columns reflect shares acquired in satisfaction of the tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter. 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 current $1.2 billion share repurchase program extends through January 2022.

First Quarter ~~2020~~2021 Form 10-Q Page 2928

Table of Contents

Item 6. Exhibits


Exhibit No.		Description
10.1		Amendment No. 2 to Credit Agreement, dated as of May 19, 2021, among Foot Locker, Inc., a New York corporation, the guarantors party thereto, the lenders party thereto, and Wells Fargo, National Association, as administrative agent, letter of credit issuer, and swing line lender (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by Foot Locker, Inc. on May 20, 2021).
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*		Inline XBRL Instance Document.
101.SCH*		Inline XBRL Taxonomy Extension Schema.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase.
104*		~~The cover page from~~Cover Page Interactive Data File (embedded within the ~~Company’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2020, formatted, in~~ Inline XBRL ~~(included in Exhibit 101)~~datafile).

* Filed herewith.

** Furnished herewith.

First Quarter ~~2020~~2021 Form 10-Q Page 3029

Table of Contents

SIGNATURE

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


Date: June ~~10, 2020~~9, 2021	FOOT LOCKER, INC.


	/s/ ~~Lauren B. Peters~~Andrew E. Page
	~~LAUREN B. PETERS~~ANDREW E. PAGE
	Executive Vice President and Chief Financial Officer

First Quarter ~~2020~~2021 Form 10-Q Page 3130


New York	13-3513936
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


Large accelerated filer þ☒	Accelerated filer ◻	Non-accelerated filer ◻	Smaller reporting company ◻
Emerging growth company ◻


	May 2,		May 4,		February 1,
	2020		2019		2020
		(Unaudited)		(Unaudited)		*
		($ in millions)
ASSETS

Current assets:
Cash and cash equivalents	$	1,012	$	1,126	$	907
Merchandise inventories		1,458		1,211		1,208
Other current assets		268		255		271
		2,738		2,592		2,386
Property and equipment, net		787		810		824
Operating lease right-of-use assets		2,807		3,025		2,899
Deferred taxes		63		89		81
Goodwill		156		156		156
Other intangible assets, net		19		22		20
Other assets		226		234		223
	$	6,796	$	6,928	$	6,589

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Revolving credit facility	$	330	$	—	$	—
Accounts payable		468		451		333
Accrued and other liabilities		264		340		343
Current portion of lease obligations		581		499		518
		1,643		1,290		1,194
Long-term debt		121		123		122
Long-term lease obligations		2,591		2,804		2,678
Other liabilities		127		109		122
Total liabilities		4,482		4,326		4,116
Shareholders’ equity
Common stock and paid-in capital: 104,245,181;
113,161,373; and 104,187,310 shares outstanding, respectively		767		820		764
Retained earnings		1,951		2,207		2,103
Accumulated other comprehensive loss		(404)		(384)		(394)
Less: Treasury stock at cost: 22,879; 774,355;
and -- shares, respectively		—		(41)		—
Total shareholders' equity		2,314		2,602		2,473
	$	6,796	$	6,928	$	6,589


	May 1,		May 2,		January 30,
($ in millions, except share amounts)	2021		2020		2021*
ASSETS

Current assets:
Cash and cash equivalents	$	1,963	$	1,012	$	1,680
Merchandise inventories		1,021		1,458		923
Other current assets		283		268		232
		3,267		2,738		2,835
Property and equipment, net		769		787		788
Operating lease right-of-use assets		2,700		2,807		2,716
Deferred taxes		101		63		101
Goodwill		159		156		159
Other intangible assets, net		16		19		17
Minority investments		342		147		337
Other assets		88		79		90
	$	7,442	$	6,796	$	7,043

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	658	$	468	$	402
Accrued and other liabilities		572		264		560
Current portion of debt and obligations under finance leases		101		—		102
Current portion of lease obligations		582		581		580
Revolving credit facility		—		330		—
		1,913		1,643		1,644
Long-term debt and obligations under finance leases		8		121		8
Long-term lease obligations		2,470		2,591		2,499
Other liabilities		121		127		116
Total liabilities		4,512		4,482		4,267
Commitments and contingencies
Shareholders’ equity:
Common stock and paid-in capital: 104,286,151;
104,245,181; and 103,693,359 shares issued, respectively		791		767		779
Retained earnings		2,507		1,951		2,326
Accumulated other comprehensive loss		(326)		(404)		(331)
Less: Treasury stock at cost: 886,661; 22,879;
and 74,236 shares, respectively		(47)		—		(3)
Noncontrolling interest		5		—		5
Total shareholders' equity		2,930		2,314		2,776
	$	7,442	$	6,796	$	7,043


	Additional Paid-In								Accumulated
	Capital &								Other		Total
	Common Stock			Treasury Stock			Retained		Comprehensive		Shareholders'
(shares in thousands, amounts in millions)	Shares	Amount		Shares	Amount		Earnings		Loss		Equity
Balance at February 1, 2020	104,188	$	764	—	$	—	$	2,103	$	(394)	$	2,473
Restricted stock issued	54											—
Issued under director and stock plans	3											—
Share-based compensation expense			3									3
Shares of common stock used to satisfy tax withholding obligations				(23)								—
Net loss								(110)				(110)
Cash dividends declared on common stock ($0.40 per share)								(42)				(42)
Translation adjustment, net of tax										(16)		(16)
Change in cash flow hedges, net of tax										3		3
Pension and postretirement adjustments, net of tax										3		3
Balance at May 2, 2020	104,245	$	767	(23)	$	—	$	1,951	$	(404)	$	2,314


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


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

			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 (Loss) ~~Income~~	3
		Condensed Consolidated Statements of Changes in Shareholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to the Unaudited Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817
	Item 4.	Controls and Procedures	2827

PART II	OTHER INFORMATION		2927
	Item 1.	Legal Proceedings	2927
	Item 1A.	Risk Factors	2927
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2928
	Item 6.	Exhibits	3029

SIGNATURE			3130


		May 2, 2020						May 4, 2019
	Gross		Accum.		Net		Gross		Accum.		Net
($ in millions)	value		amort.		value		value		amort.		value
Amortized intangible assets: ⁽¹⁾
Lease acquisition costs	$	113	$	(106)	$	7	$	116	$	(108)	$	8
Trademarks / trade names		20		(16)		4		20		(15)		5
	$	133	$	(122)	$	11	$	136	$	(123)	$	13

Indefinite life intangible assets: ⁽¹⁾
Trademarks / trade names					$	8					$	9
Other intangible assets, net					$	19					$	22

Thirteen weeks ended

($ in millions)

May 1, 2021

May 2, 2020

Amortization expense