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Table of Contents

s

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: May 1, 2021

OR

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

For the transition period from __________ to __________

Commission File Number: 1-10299

Graphic

(Exact name of registrant as specified in its charter)

New York

13-3513936

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

330 West 34th Street, New York, New York 10001

(Address of principal executive offices, Zip Code)

(212-720-3700)

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

Preferred Stock Purchase Rights

FL

New York Stock Exchange

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

Number of shares of Common Stock outstanding as of June 4, 2021: 103,544,361

Table of Contents

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TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive Income (Loss)

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

17

Item 4.

Controls and Procedures

27

PART II

OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 6.

Exhibits

29

SIGNATURE

30

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks,” “continues,” “feels,” “forecasts,” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” These statements include statements relating to trends in or expectations relating to the expected effects of our initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, tax rates, business opportunities and expansion, strategic acquisitions or investments, expenses, dividends, share repurchases, and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, investments, borrowing capacity and use of proceeds, repatriation of cash to the U.S., and the effects of the coronavirus pandemic (COVID-19), supply chain issues, and social unrest on our financial results. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak to our views only as of the date of this filing. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties, many of which are unforeseeable and beyond our control, such as the ongoing uncertainty caused by the COVID-19 pandemic. Additional risks and uncertainties that we do not presently know about or that we currently consider to be insignificant may also affect our business operations and financial performance.

Please refer to “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this report or any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Graphic

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

*

The balance sheet at January 30, 2021 has been derived from the previously reported audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Foot Locker, Inc.’s Annual Report on Form 10-K for the year ended January 30, 2021.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2021 Form 10-Q Page 1

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Graphic

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Thirteen weeks ended

    

May 1,

May 2,

($ in millions, expect per share amounts)

    

2021

    

2020

    

Sales

$

2,153

$

1,176

Cost of sales

 

1,404

 

905

Selling, general and administrative expenses

 

418

 

316

Depreciation and amortization

 

45

 

44

Impairment and other charges

 

4

 

16

Income (loss) from operations

 

282

 

(105)

Interest expense, net

 

(2)

 

(1)

Other income, net

 

4

 

1

Income (loss) before income taxes

 

284

 

(105)

Income tax expense

 

82

 

5

Net income (loss)

$

202

$

(110)

Basic earnings (loss) per share

$

1.95

$

(1.06)

Weighted-average shares outstanding

 

103.6

 

104.3

Diluted earnings (loss) per share

$

1.93

$

(1.06)

Weighted-average shares outstanding, assuming dilution

 

105.0

 

104.3

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2021 Form 10-Q Page 2

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Thirteen weeks ended

    

May 1,

May 2,

($ in millions)

    

2021

    

2020

    

Net income (loss)

$

202

$

(110)

Other comprehensive income (loss), net of income tax

 

  

 

  

Foreign currency translation adjustment:

 

  

 

  

Translation adjustment arising during the period, net of income tax expense (benefit) of $1 and $(2), respectively

 

4

 

(16)

Cash flow hedges:

 

  

 

  

Change in fair value of derivatives, net of income tax expense of $- and $1, respectively

 

 

3

Pension and postretirement adjustments:

 

  

 

  

Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $1 and $1, respectively

 

1

3

Comprehensive income (loss)

$

207

$

(120)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2021 Form 10-Q Page 3

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Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

   

Additional Paid-In

   

   

   

   

Accumulated

   

   

Capital &

Other

Total

Common Stock

Treasury Stock

Retained

Comprehensive

Noncontrolling

Shareholders'

(shares in thousands, amounts in millions)

Shares

Amount

Shares

Amount

Earnings

Loss

interests

Equity

Balance at January 30, 2021

 

103,693

$

779

 

(74)

$

(3)

$

2,326

$

(331)

$

5

$

2,776

Restricted stock units issued

 

468

Issued under director and stock plans

 

125

4

4

Share-based compensation expense

 

8

8

Shares of common stock used to satisfy tax withholding obligations

 

(192)

(10)

(10)

Share repurchases

 

(621)

(34)

(34)

Net income

 

202

202

Cash dividends declared on common stock ($0.20 per share)

 

(21)

(21)

Translation adjustment, net of tax

 

4

4

Change in cash flow hedges, net of tax

 

Pension and postretirement adjustments, net of tax

 

1

1

Balance at May 1, 2021

 

104,286

$

791

 

(887)

$

(47)

$

2,507

$

(326)

$

5

$

2,930

   

Additional Paid-In

   

   

   

   

Accumulated

   

   

Capital &

Other

Total

Common Stock

Treasury Stock

Retained

Comprehensive

Noncontrolling

Shareholders'

(shares in thousands, amounts in millions)

Shares

Amount

Shares

Amount

Earnings

Loss

interests

Equity

Balance at February 1, 2020

 

104,188

$

764

 

$

$

2,103

$

(394)

$

$

2,473

Restricted stock units 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

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2021 Form 10-Q Page 4

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Thirteen weeks ended

May 1,

May 2,

($ in millions)

    

2021

    

2020

From operating activities:

 

  

 

  

Net income (loss)

$

202

$

(110)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Impairment charges

 

2

 

15

Depreciation and amortization

 

45

 

44

Deferred income taxes

 

7

 

24

Share-based compensation expense

 

8

 

3

Change in assets and liabilities:

 

 

Merchandise inventories

 

(94)

 

(257)

Accounts payable

 

255

 

138

Accrued and other liabilities

 

(25)

 

(44)

Insurance receivable for inventory loss

 

8

 

Other, net

 

(10)

 

71

Net cash provided by (used in) operating activities

 

398

 

(116)

From investing activities:

 

  

 

  

Capital expenditures

 

(51)

 

(52)

Minority investments

 

(8)

 

(6)

Proceeds from sale of property

3

Insurance proceeds related to loss on property and equipment

 

2

 

Net cash used in investing activities

 

(54)

 

(58)

From financing activities:

 

  

 

  

Purchase of treasury shares

(34)

 

Dividends paid on common stock

(21)

 

(42)

Proceeds from exercise of stock options

4

 

Shares of common stock repurchased to satisfy tax withholding obligations

(10)

 

Proceeds from the revolving credit facility

330

Net cash (used in) provided by financing activities

 

(61)

 

288

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

 

 

(9)

Net change in cash, cash equivalents, and restricted cash

 

283

 

105

Cash, cash equivalents, and restricted cash at beginning of year

 

1,718

 

942

Cash, cash equivalents, and restricted cash at end of period

$

2,001

$

1,047

Cash paid during the year:

 

  

 

  

Interest

$

1

$

1

Income taxes

$

32

$

4

Non-cash investing activities:

Cash paid for amounts included in measurement of lease liabilities

$

179

$

108

Right-of-use assets obtained in exchange for operating lease obligations

$

114

$

72

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2021 Form 10-Q Page 5

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all normal, recurring adjustments necessary for a fair presentation of the results for the interim periods presented. As used in these Notes to the Unaudited Condensed Consolidated Financial Statements the terms “Foot Locker,” “Company,” “we,” “our,” and “us” refer to Foot Locker, Inc. and its consolidated subsidiaries.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the accompanying Unaudited Condensed Consolidated Financial Statements and these Notes and related disclosures. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The results of operations for the period ended May 1, 2021 are not necessarily indicative of the results to be expected for the full fiscal year due to the continued uncertainty of general economic conditions that may affect us for the remainder of 2021. Specifically, the ongoing pandemic (“COVID-19”) including the dissemination and adoption of COVID-19 vaccines and their effectiveness against COVID-19 and its evolving strains, some of which may be more transmissible or virulent than the initial strain or additional widespread resurgences in COVID-19 infections are significant uncertainties. COVID-19, as well as port delays, may affect our sales, traffic to our stores, our distribution capabilities, and distribution capabilities of our suppliers.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in our Form 10-K for the year ended January 30, 2021, as filed with the U.S. Securities and Exchange Commission on March 25, 2021.

There were no significant changes to the policies disclosed in Note 1, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the year ended January 30, 2021.

Recent Accounting Pronouncements

Recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on our present or future consolidated financial statements.

2. Revenue

The table below presents sales disaggregated based upon sales channel. Sales are attributable to the channel in which the sales transaction is initiated.

Thirteen weeks ended

May 1,

May 2,

($ in millions)

    

2021

    

2020

Sales by Channel

Stores

$

1,620

$

814

Direct-to-customers

 

533

 

362

Total sales

$

2,153

$

1,176

First Quarter 2021 Form 10-Q Page 6

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Thirteen weeks ended

May 1,

May 2,

($ in millions)

    

2021

    

2020

Sales by Geography

United States

$

1,713

$

911

International

 

440

 

265

Total sales

$

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 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 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 2021 Form 10-Q Page 7

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 1, 2021, we recorded pre-tax charges as detailed in Note 4, Impairment and 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

May 1,

May 2,

($ in millions)

    

2021

    

2020

Impairment of investments

$

2

$

Reorganization costs

2

Impairment of long-lived assets and right-of-use assets

15

Pension litigation related charges

1

Total impairment and other charges

$

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. Certain Runners Point stores converted to other banners and approximately 40 Runners Point and Sidestep stores were closed. Also we 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 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 the thirteen weeks ended May 2, 2020 related to administrative expenses in connection with the reformation.

First Quarter 2021 Form 10-Q Page 8

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Cash, Cash Equivalents, and Restricted Cash

The table below provides a reconciliation of cash and cash equivalents, as reported on our Condensed Consolidated Balance Sheets, to cash, cash equivalents, and restricted cash, as reported on our Condensed Consolidated Statements of Cash Flows:

May 1,

May 2,

($ in millions)

    

2021

    

2020

Cash and cash equivalents

$

1,963

$

1,012

Restricted cash included in other current assets

8

7

Restricted cash included in other non-current assets

30

28

Cash, cash equivalents, and restricted cash

$

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.

The results of the first quarter analysis did not result in an impairment since the fair value of each reporting unit exceeded its carrying value.

7. Other Intangible Assets, net

The components of finite-lived intangible assets and 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 first quarter of 2021 did not result in the recognition of impairment.

First Quarter 2021 Form 10-Q Page 9

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense recorded is as follows:

Thirteen weeks ended

($ in millions)

May 1, 2021

May 2, 2020

Amortization expense

$

1

$

1

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