Condensed Consolidated Statements of Operations

(unaudited)

Periods ended February 1, 2020 and February 2, 2019

(In millions, except per share amounts)

Fourth Quarter

Fiscal Year

2019

2018

2019

2018

Sales

$

2,221

$

2,272

$

8,005

$

7,939

Cost of sales

1,521

1,537

5,462

5,411

SG&A

430

451

1,650

1,614

Depreciation and amortization

45

45

179

178

Impairment and other charges

39

20

55

37

Income from operations

186

219

659

699

Interest income, net

2

4

11

9

Other income

4

—

12

5

Income before income taxes

192

223

682

713

Income tax expense

51

65

184

172

Net income

$

141

$

158

$

498

$

541

Diluted EPS

$

1.34

$

1.39

$

4.56

$

4.66

Weighted-average diluted shares outstanding

105.2

113.3

109.1

116.1

Non-GAAP Reconciliation

(unaudited)

Periods ended February 1, 2020 and February 2, 2019

(In millions, except per share amounts)

Reconciliation of GAAP to non-GAAP results:

Fourth Quarter

Fiscal Year

2019

2018

2019

2018

Pre-tax income:

Income before income taxes

$

192

$

223

$

682

$

713

Pre-tax adjustments excluded from GAAP:

Impairment and other charges ⁽¹⁾

39

20

55

37

Other income ⁽²⁾

—

—

(4)

—

Adjusted income before income taxes (non-GAAP)

$

231

$

243

$

733

$

750

After-tax income:

Net income

$

141

$

158

$

498

$

541

After-tax adjustments excluded from GAAP:

Impairment and other charges, net of income tax benefit of $9,
$1, $13 and $6 million, respectively ⁽¹⁾

30

19

42

31

Other income ⁽²⁾

—

—

(4)

—

U.S. tax reform ⁽³⁾

—

(4)

2

(28)

Tax expense (benefit) related to Dutch law rate changes ⁽⁴⁾

(2)

4

(2)

4

Income tax valuation allowance ⁽⁵⁾

2

—

2

—

Tax expense related to enacted change in foreign branch
currency regulations ⁽⁶⁾

—

—

—

(1)

Adjusted net income (non-GAAP)

$

171

$

177

$

538

$

547

Fourth Quarter

Fiscal Year

2019

2018

2019

2018

Earnings per share:

Diluted EPS

$

1.34

$

1.39

$

4.56

$

4.66

Diluted EPS amounts excluded from GAAP:

Impairment and other charges ⁽¹⁾

0.28

0.17

0.38

0.27

Other income ⁽²⁾

—

—

(0.04)

—

U.S. tax reform ⁽³⁾

—

(0.04)

0.02

(0.25)

Tax expense (benefit) related to Dutch law rate changes ⁽⁴⁾

(0.02)

0.04

(0.02)

0.04

Income tax valuation ⁽⁵⁾

0.03

—

0.03

—

Tax benefit related to enacted change in foreign branch
currency regulations ⁽⁶⁾

—

—

—

(0.01)

Adjusted diluted EPS (non-GAAP)

$

1.63

$

1.56

$

4.93

$

4.71

Notes on Non-GAAP Adjustments:

(1)

Impairment and other charges include impairment charges, SIX:02 lease termination costs, and administrative costs related to the pension plan reformation.

Impairment charges – During the fourth quarter of 2019, the Company recognized $38 million of impairment charges ($29 million after-tax) primarily related to our Footaction business. For the corresponding prior-year period, impairment charges were $19 million ($18 million after-tax) and primarily related to the impairment of the Runners Point tradename.

SIX:02 lease termination costs – During the second quarter of 2019, the Company incurred $13 million ($10 million after-tax) in connection with the termination and closure of certain SIX:02 leases.

Pension reformation – The Company recorded $1 million for both the thirteen weeks ended February 1, 2020 and February 2, 2019.  For the full year, total costs were $4 million ($3 after-tax) for 2019 and $18 million ($13 million after-tax) for 2018.

(2)

During 2019, the Company recognized a gain of $4 million in connection with the exchange of a note for a distribution center lease and related fixed assets. The tax expense was essentially offset by the release of a valuation allowance.

(3)

The items included for both the current and prior-year periods relate to finalization of the accounting for the enactment of tax reform. During 2019, the Company recorded a charge for $2 million, which reflected an adjustment to U.S. tax on foreign income. The benefit recorded in the prior year periods, reflected revisions to the provisional amount recorded during the fourth quarter of 2017.

(4)

The Company recognized a tax benefit of $2 million and a tax expense of $4 million during the fourth quarters of 2019 and 2018, respectively, in connection with tax law changes in the Netherlands.

(5)

During the fourth quarter of 2019, the Company established a valuation allowance to offset the deferred tax benefit of certain foreign tax losses.

(6)

During the second quarter of 2018, the U.S. Treasury issued a notice that delayed the effective date of regulations under Internal Revenue Code Section 987. The effective date was further delayed by a notice issued in the fourth quarter of 2019. These regulations changed our method for determining the tax effects of foreign currency translation gains and losses for our foreign businesses that are operated as branches and are reported in a currency other than the currency of their parent. As a result of the delay in the effective date, the Company updated its calculations for the effect of these regulations, which resulted in an increase to deferred tax assets and a corresponding reduction in our income tax provision in the amount of $1 million in 2018.  The 2019 tax effects were not significant.

Non-GAAP Reconciliation

(unaudited)

Periods ended February 1, 2020 and February 2, 2019

(In millions, except per share amounts)

Return on Invested Capital("ROIC")

ROIC is presented below and represents a non-GAAP measure. We believe it is a meaningful measure because it quantifies how efficiently we generated operating income relative to the capital we have invested in the business. ROIC, subject to certain adjustments, is also used as a measure in executive long-term incentive compensation.

The closest U.S. GAAP measure to ROIC is Return on Assets ("ROA") and is also represented below. ROA is calculated as net income in the fiscal year divided by two-year average of total assets. ROA decreased to 9.6 percent as compared with 13.9 percent in the prior year. This decrease primarily reflected the adoption of the new lease standard, which resulted in the recognition of right-of-use assets in the current year. Excluding the effect of the addition of right-of-use assets, ROA would have declined by 70 basis points.

Prior to the adoption of the new lease standard, we adjusted our results to reflect our operating leases as if they qualified for capital lease treatment or as if the property were purchased. This prior year presentation does not reflect the requirements of the new lease standard. With the adoption of this standard, leases are on the balance sheet and therefore certain adjustments are no longer required. Our ROIC increased to 12.5 percent in 2019, as compared to 12.0 percent in the prior year. The overall increase in ROIC reflected a decrease in average invested capital compared with the prior year and a higher adjusted return after taxes.

2019

2018

2017

ROA ⁽¹⁾

9.6

%

13.9

%

7.3

%

ROIC %

12.5

%

12.0

%

11.0

%

(1)  Represents net income of $498 million, $541 million, and $284 million divided by average total assets of $5,210 million, $3,891 million, and $3,901 million 
       for 2019, 2018, and 2017, respectively.

Calculation of ROIC:

2019

2018

2017

($ in millions)

Adjusted EBIT

$

722

$

741

$

762

+ Rent expense ⁽¹⁾

—

750

735

- Estimated depreciation on capitalized operating leases ⁽¹⁾

—

(603)

(593)

+ Interest component of straight-line rent expense ⁽²⁾

173

—

—

Adjusted net operating profit

895

888

904

- Adjusted income tax expense ⁽³⁾

(235)

(241)

(304)

= Adjusted return after taxes

$

660

$

647

$

600

Average total assets ⁽⁴⁾

$

3,760

$

3,891

$

3,901

- Average cash and cash equivalents

(899)

(870)

(948)

- Average non-interest bearing current liabilities

(720)

(690)

(614)

- Average merchandise inventories

(1,239)

(1,274)

(1,293)

+ Average estimated asset base of capitalized operating leases ⁽¹⁾

—

2,989

2,978

+ Average right-of-use assets ⁽⁵⁾

3,024

—

—

+ 13‑month average merchandise inventories

1,361

1,337

1,413

= Average invested capital

$

5,287

$

5,383

$

5,437

ROIC %

12.5

%

12.0

%

11.0

%

(1)

For 2018 and 2017, the determination of the capitalized operating leases and the adjustments to income were calculated on a lease-by-lease basis and represented the best estimate of the asset base that would be recorded for operating leases as if they had been classified as capital or as if the property were purchased. No such adjustments are required for 2019 since leases are accounted for on the balance sheet after the adoption of the new leasing standard.

(2)

Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense. Operating lease interest is added back to adjusted net operating profit in the ROIC calculation to control for differences in capital structure between us and our competitors.

(3)

The adjusted income tax expense represents the marginal tax rate applied to adjusted net operating profit for each of the periods presented.

(4)

The 2019 amount represents the average total assets for 2019 and 2018, excluding the 2019 right-of-asset of $2,899 million for comparability to prior periods.

(5)

The 2019 amount represents the average of the right-of-use assets as of February 1, 2020 and February 3, 2019 (the date of the adoption of the new lease standard) of $2,899 million and $3,148 million, respectively.

Condensed Consolidated Balance Sheets

(unaudited)

(In millions)

February 1,

February 2,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

907

$

891

Merchandise inventories

1,208

1,269

Other current assets

271

358

2,386

2,518

Property and equipment, net

824

836

Operating lease right-of-use assets

2,899

-

Deferred taxes

81

87

Other assets

409

379

$

6,599

$

3,820

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

333

$

387

Accrued and other liabilities

343

377

Current portion lease of obligations

518

-

1,194

764

Long-term debt

122

124

Long-term lease obligations

2,678

-

Other liabilities

125

426

Total liabilities

4,119

1,314

Total shareholders' equity

2,480

2,506

$

6,599

$

3,820

Store Count and Square Footage

(unaudited)

Store activity is as follows:

February 2,

February 1,

Relocations/

2019

Opened

Closed

2020

Remodels

Foot Locker US

886

10

29

867

37

Foot Locker Europe

642

14

20

636

46

Foot Locker Canada

107

—

2

105

12

Foot Locker Pacific

94

1

4

91

7

Foot Locker Asia   

5

9

—

14

—

Kids Foot Locker

428

12

9

431

11

Lady Foot Locker

57

—

11

46

—

Champs Sports

535

8

7

536

26

Footaction

250

3

8

245

7

Runners Point

107

1

27

81

2

Sidestep

80

9

12

77

—

SIX:02

30

—

30

—

—

Total

3,221

67

159

3,129

148

Selling and gross square footage are as follows:

February 2, 2019

February 1, 2020

(in thousands)

Selling

Gross

Selling

Gross

Foot Locker US

2,404

4,184

2,403

4,191

Foot Locker Europe

1,002

2,158

1,016

2,181

Foot Locker Canada

263

426

263

432

Foot Locker Pacific

139

230

148

240

Foot Locker Asia

19

34

42

76

Kids Foot Locker

738

1,267

740

1,278

Lady Foot Locker

79

133

66

110

Champs Sports

1,913

2,974

1,930

2,999

Footaction

799

1,360

777

1,317

Runners Point

138

238

105

185

Sidestep

74

133

75

137

SIX:02

60

102

—

—

Total

7,628

13,239

7,565

13,146