FOOT LOCKER, INC.Large Accelerated Filerfalse0000850209--01-292021Q1http://fasb.org/us-gaap/2021-01-31#OtherNonoperatingIncomeExpensehttp://fasb.org/us-gaap/2021-01-31#OtherNonoperatingIncomeExpensehttp://fasb.org/us-gaap/2021-01-31#OtherNonoperatingIncomeExpensehttp://fasb.org/us-gaap/2021-01-31#OtherNonoperatingIncomeExpensehttp://fasb.org/us-gaap/2021-01-31#OtherNonoperatingIncomeExpensehttp://fasb.org/us-gaap/2021-01-31#OtherNonoperatingIncomeExpense0000000000000850209us-gaap:TreasuryStockMember2022-04-300000850209us-gaap:RetainedEarningsMember2022-04-300000850209us-gaap:NoncontrollingInterestMember2022-04-300000850209us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-300000850209us-gaap:TreasuryStockMember2022-01-290000850209us-gaap:RetainedEarningsMember2022-01-290000850209us-gaap:NoncontrollingInterestMember2022-01-290000850209us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-290000850209us-gaap:TreasuryStockMember2021-05-010000850209us-gaap:RetainedEarningsMember2021-05-010000850209us-gaap:NoncontrollingInterestMember2021-05-010000850209us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-05-010000850209us-gaap:TreasuryStockMember2021-01-300000850209us-gaap:RetainedEarningsMember2021-01-300000850209us-gaap:NoncontrollingInterestMember2021-01-300000850209us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-300000850209fl:RangeTwoMember2022-01-302022-04-300000850209fl:RangeThreeMember2022-01-302022-04-300000850209fl:RangeOneMember2022-01-302022-04-300000850209fl:RangeFourMember2022-01-302022-04-300000850209fl:RangeTwoMember2022-04-300000850209fl:RangeThreeMember2022-04-300000850209fl:RangeOneMember2022-04-300000850209fl:RangeFourMember2022-04-300000850209fl:TwoThousandAndThirteenEmployeeStockPurchasePlanMember2022-01-302022-04-300000850209fl:ShareBasedCompensationStockOptionPlansMember2022-01-302022-04-300000850209fl:TwoThousandAndThirteenEmployeeStockPurchasePlanMember2021-01-312021-05-010000850209fl:ShareBasedCompensationStockOptionPlansMember2021-01-312021-05-010000850209us-gaap:RestrictedStockUnitsRSUMember2021-01-312021-05-010000850209us-gaap:RestrictedStockUnitsRSUMember2022-01-290000850209us-gaap:RestrictedStockUnitsRSUMember2022-04-300000850209srt:ManagementMemberus-gaap:RestrictedStockUnitsRSUMember2022-01-302022-04-300000850209srt:DirectorMemberus-gaap:RestrictedStockUnitsRSUMember2022-01-302022-04-300000850209us-gaap:PerformanceSharesMember2022-01-302022-04-300000850209fl:StoresaleschannelMember2022-01-302022-04-300000850209fl:InternationalMember2022-01-302022-04-300000850209fl:DirectToCustomersSalesChannelMember2022-01-302022-04-300000850209country:US2022-01-302022-04-300000850209fl:StoresaleschannelMember2021-01-312021-05-010000850209fl:InternationalMember2021-01-312021-05-010000850209fl:DirectToCustomersSalesChannelMember2021-01-312021-05-010000850209country:US2021-01-312021-05-010000850209us-gaap:NoncontrollingInterestMember2022-01-302022-04-300000850209fl:AtmosMemberus-gaap:SubsequentEventMember2022-05-012022-06-070000850209fl:WssMember2022-01-302022-04-300000850209fl:AtmosMember2021-10-312022-01-290000850209fl:AtmosMember2021-01-312022-01-290000850209us-gaap:PensionPlansDefinedBenefitMember2022-01-302022-04-300000850209us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-312021-05-010000850209us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-302022-04-300000850209us-gaap:AccumulatedTranslationAdjustmentMember2022-01-302022-04-300000850209us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-01-302022-04-300000850209us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-302022-04-3000008502092021-01-312022-01-290000850209us-gaap:FairValueInputsLevel3Memberus-gaap:CommitmentsMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300000850209us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-04-300000850209us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel2Memberus-gaap:DerivativeFinancialInstrumentsLiabilitiesMemberus-gaap:FairValueMeasurementsRecurringMember2021-05-010000850209fl:WssMemberus-gaap:TrademarksAndTradeNamesMember2022-04-300000850209fl:AtmosMemberus-gaap:TrademarksAndTradeNamesMember2022-04-300000850209us-gaap:TrademarksAndTradeNamesMember2022-04-300000850209us-gaap:TrademarksAndTradeNamesMember2021-05-010000850209us-gaap:CustomerListsMember2022-01-302022-04-300000850209fl:WssMemberus-gaap:CustomerListsMember2022-04-300000850209fl:AtmosMemberus-gaap:CustomerListsMember2022-04-300000850209us-gaap:TrademarksAndTradeNamesMember2022-04-300000850209us-gaap:LeaseAgreementsMember2022-04-300000850209us-gaap:CustomerListsMember2022-04-300000850209us-gaap:TrademarksAndTradeNamesMember2021-05-010000850209us-gaap:LeaseAgreementsMember2021-05-010000850209fl:UnvestedOptionsMember2022-01-302022-04-300000850209fl:UnvestedOptionsMember2022-04-300000850209us-gaap:RetainedEarningsMember2022-01-302022-04-300000850209us-gaap:RetainedEarningsMember2021-01-312021-05-010000850209fl:SeniorNotesDue2029Member2022-04-300000850209fl:GiftCardRedemptionRevenueMember2022-01-302022-04-300000850209fl:GiftCardBreakageRevenueMember2022-01-302022-04-300000850209fl:GiftCardRedemptionRevenueMember2021-01-312021-05-010000850209fl:GiftCardBreakageRevenueMember2021-01-312021-05-010000850209us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2022-04-300000850209us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2022-01-290000850209us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2021-05-010000850209us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2021-01-3000008502092021-01-300000850209srt:MaximumMemberfl:AtmosMember2022-04-300000850209fl:AtmosMember2022-04-300000850209fl:AtmosMember2022-01-302022-04-300000850209fl:WssMember2021-01-312022-01-290000850209us-gaap:ForeignExchangeForwardMemberus-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-04-300000850209us-gaap:CommonStockMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-04-300000850209us-gaap:AvailableforsaleSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-04-300000850209us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-04-300000850209us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-04-300000850209us-gaap:ForeignExchangeForwardMemberus-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-05-010000850209us-gaap:AvailableforsaleSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-05-010000850209us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-05-010000850209us-gaap:EmployeeStockOptionMember2022-01-302022-04-300000850209us-gaap:EmployeeStockOptionMember2021-01-312021-05-010000850209us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2022-01-302022-04-300000850209us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2021-01-312021-05-010000850209us-gaap:TreasuryStockMember2022-01-302022-04-300000850209us-gaap:TreasuryStockMember2021-01-312021-05-010000850209us-gaap:AccumulatedTranslationAdjustmentMember2022-04-300000850209us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-04-300000850209us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-04-300000850209us-gaap:AccumulatedTranslationAdjustmentMember2022-01-290000850209us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-01-290000850209us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-2900008502092022-04-3000008502092022-01-2900008502092021-05-010000850209us-gaap:RestrictedStockUnitsRSUMember2022-01-302022-04-300000850209fl:GiftCardActivationsMember2022-01-302022-04-300000850209fl:GiftCardActivationsMember2021-01-312021-05-0100008502092021-01-312021-05-010000850209fl:WssMember2022-01-290000850209fl:AtmosMember2022-01-2900008502092022-05-2700008502092022-01-302022-04-30xbrli:sharesiso4217:USDiso4217:USDxbrli:sharesxbrli:purefl:agreement

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: April 30, 2022

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

FL

New York Stock Exchange

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer  

Smaller reporting company

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 May 27, 2022: 94,510,269

Table of Contents

Graphic

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets (Unaudited)

1

Condensed Consolidated Statements of Operations (Unaudited)

2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

3

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

4

Condensed Consolidated Statements of Cash Flows (Unaudited)

5

Notes to the Unaudited Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 4.

Controls and Procedures

28

PART II

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 6.

Exhibits

30

SIGNATURE

31

Table of Contents

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.” Statements may be forward looking even in the absence of these particular words.

Examples of forward-looking statements include, but are not limited to, statements regarding our financial position, business strategy, and other plans and objectives for our future operations, and generation of free cash flow. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. The forward-looking statements contained in this Annual Report are largely based on our expectations for the future, which reflect certain estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions, operating trends, and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. As such, management’s assumptions about future events may prove to be inaccurate.

We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events, changes in circumstances, or otherwise. These cautionary statements qualify all forward-looking statements attributable to us, or persons acting on our behalf. Management cautions you that the forward-looking statements contained herein are not guarantees of future performance, and we cannot assure you that such statements will be realized or that the events and circumstances they describe will occur. Factors that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements herein include, but are not limited to a change in the relationship with any of our key suppliers, including the unavailability of premium products at competitive prices, a change in negotiated volume discounts, cooperative advertising, markdown allowances, or the ability to cancel orders and return excess or unneeded merchandise; our ability to fund our planned capital investments; volatility in the financial markets or other global economic factors; difficulties in appropriately allocating capital and resources among our strategic opportunities; our ability to realize the expected benefits from recent or future acquisitions; business opportunities and expansion; investments; expenses; dividends; share repurchases; liquidity; cash flow from operations; use of cash and cash requirements; borrowing capacity and use of proceeds; repatriation of cash to the United States; supply chain issues, including delays in merchandise receipts and increasing cost pressure caused by higher oceanic shipping and freight costs; labor shortages; expectations regarding increased wages; inflation; consumer spending levels; the effect of governmental assistance programs; social unrest; the direct and indirect effects of all variants of the coronavirus pandemic (COVID-19) on our business, including any adverse effects of COVID-19 vaccine mandates or other safety protocols; expectations regarding increasing global taxes; the effect of government regulation, including changes in law; the effect of the adverse outcome of any material litigation against us or judicial decisions that affect us or our industry generally; the effects of weather; climate change; increased competition; geopolitical events; the financial effect of accounting regulations and critical accounting policies; credit risk relating to the risk of loss as a result of non-performance by our counterparties; and any other factors set forth in the section entitled “Risk Factors” of our most recent Annual Report on Form 10-K.

All written and oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement. 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. 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. The Company does not undertake to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report for a discussion of certain risks relating to our business and any investment in our securities. 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.

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 predictions 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)

April 30,

May 1,

January 29,

($ in millions, except share amounts)

    

2022

    

2021

    

2022*

ASSETS

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

Cash and cash equivalents

$

551

$

1,963

$

804

Merchandise inventories

 

1,401

 

1,021

 

1,266

Other current assets

 

281

 

283

 

293

 

2,233

 

3,267

 

2,363

Property and equipment, net

 

899

 

769

 

917

Operating lease right-of-use assets

2,566

2,700

2,616

Deferred taxes

 

79

 

101

 

86

Goodwill

 

783

 

159

 

797

Other intangible assets, net

 

441

 

16

 

454

Minority investments

759

342

781

Other assets

 

118

 

88

 

121

$

7,878

$

7,442

$

8,135

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

Current liabilities:

 

 

  

 

  

Accounts payable

$

565

$

658

$

596

Accrued and other liabilities

 

428

 

572

 

561

Current portion of debt and obligations under finance leases

6

101

6

Current portion of lease obligations

557

582

572

 

1,556

 

1,913

 

1,735

Long-term debt and obligations under finance leases

 

450

 

8

 

451

Long-term lease obligations

2,323

2,470

2,363

Other liabilities

 

334

 

121

 

343

Total liabilities

 

4,663

 

4,512

 

4,892

Commitments and contingencies

 

Shareholders’ equity:

Common stock and paid-in capital: 99,233,112; 104,286,151; and 99,070,796 shares issued, respectively

779

791

770

Retained earnings

2,995

2,507

2,900

Accumulated other comprehensive loss

(384)

(326)

(343)

Less: Treasury stock at cost: 4,731,931; 886,661; and 2,050,000 shares, respectively

(178)

(47)

(88)

Noncontrolling interest

3

5

4

Total shareholders' equity

3,215

2,930

3,243

$

7,878

$

7,442

$

8,135

*

The balance sheet at January 29, 2022 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 29, 2022.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2022 Form 10-Q Page 1

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Thirteen weeks ended

April 30,

May 1,

($ in millions, except per share amounts)

    

2022

    

2021

Sales

$

2,175

$

2,153

Cost of sales

 

1,435

 

1,404

Selling, general and administrative expenses

 

463

 

418

Depreciation and amortization

 

54

 

45

Impairment and other charges

 

6

 

4

Income from operations

 

217

 

282

Interest expense, net

 

(5)

 

(2)

Other (expense) / income, net

 

(22)

 

4

Income before income taxes

 

190

 

284

Income tax expense

 

58

 

82

Net income

132

202

Net loss attributable to noncontrolling interests

1

Net income attributable to Foot Locker, Inc.

$

133

$

202

Basic earnings per share

$

1.38

$

1.95

Weighted-average shares outstanding

 

96.1

 

103.6

Diluted earnings per share

$

1.37

$

1.93

Weighted-average shares outstanding, assuming dilution

 

97.2

 

105.0

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2022 Form 10-Q Page 2

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Thirteen weeks ended

April 30,

May 1,

($ in millions)

    

2022

    

2021

Net income attributable to Foot Locker, Inc.

$

133

$

202

Other comprehensive income (loss), net of income tax

 

  

 

  

Foreign currency translation adjustment:

 

  

 

  

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

 

(44)

 

4

Cash flow hedges:

 

  

 

  

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

 

1

 

Pension and postretirement adjustments:

 

  

 

  

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

 

2

1

Comprehensive income

$

92

$

207

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2022 Form 10-Q Page 3

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

   

Additional Paid-In

   

   

   

Accumulated

Capital &

Other

Total

Thirteen weeks ended

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 29, 2022

 

99,071

$

770

(2,050)

$

(88)

$

2,900

$

(343)

$

4

$

3,243

Restricted stock issued

 

88

Issued under director and stock plans

 

74

2

2

Share-based compensation expense

 

7

7

Shares of common stock used to satisfy tax withholding obligations

 

(32)

(1)

(1)

Share repurchases

 

(2,650)

(89)

(89)

Net income

 

133

(1)

132

Cash dividends declared on common stock ($0.40 per share)

 

(38)

(38)

Translation adjustment, net of tax

 

(44)

(44)

Change in cash flow hedges, net of tax

 

1

1

Pension and postretirement adjustments, net of tax

 

2

2

Balance at April 30, 2022

 

99,233

$

779

 

(4,732)

$

(178)

$

2,995

$

(384)

$

3

$

3,215

   

Additional Paid-In

   

   

   

Accumulated

Capital &

Other

Total

Thirteen weeks ended

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 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

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

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2022 Form 10-Q Page 4

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Thirteen weeks ended

April 30,

May 1,

($ in millions)

    

2022

    

2021

From operating activities:

 

  

 

  

Net income

$

132

$

202

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

 

 

Non-cash impairment and other charges

 

3

 

2

Fair value adjustments to minority investments

25

Depreciation and amortization

 

54

 

45

Deferred income taxes

 

3

 

7

Share-based compensation expense

 

7

 

8

Change in assets and liabilities:

 

 

Merchandise inventories

 

(150)

 

(94)

Accounts payable

 

(25)

 

255

Accrued and other liabilities

 

(80)

 

(25)

Insurance recovery received for inventory loss

 

 

8

Other, net

 

10

 

(10)

Net cash (used in) provided by operating activities

 

(21)

 

398

From investing activities:

 

  

 

  

Capital expenditures

 

(95)

 

(51)

Purchase of business, net of cash acquired

 

(7)

 

Minority investments

 

(3)

 

(8)

Proceeds from sale of property

3

Insurance proceeds related to loss on property and equipment

 

 

2

Net cash used in investing activities

 

(105)

 

(54)

From financing activities:

 

  

 

  

Purchase of treasury shares

(89)

 

(34)

Dividends paid on common stock

(38)

 

(21)

Payment of obligations under finance leases

(2)

Proceeds from exercise of stock options

2

 

4

Shares of common stock repurchased to satisfy tax withholding obligations

(1)

 

(10)

Net cash used in financing activities

 

(128)

 

(61)

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

 

(1)

 

Net change in cash, cash equivalents, and restricted cash

 

(255)

 

283

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

 

850

 

1,718

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

$

595

$

2,001

Cash paid during the year:

 

  

 

  

Interest

$

8

$

1

Income taxes

$

18

$

32

Cash paid for amounts included in measurement of operating lease liabilities

$

174

$

179

Non-cash investing activities:

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

$

138

$

114

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

First Quarter 2022 Form 10-Q Page 5

Table of Contents

Graphic

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 April 30, 2022 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 2022. Specifically, the ongoing COVID-19 pandemic and its continuing effect on our operations and traffic to our stores, as well as port delays, 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 2021 Form 10-K.

There were no significant changes to the policies disclosed in Note 1, Summary of Significant Accounting Policies of our 2021 Form 10-K.

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. Acquisitions

In 2021, we acquired WSS and atmos, two businesses that will allow us to further differentiate our product offerings, as well as our customer base, and diversify our retail store and omnichannel portfolio.

WSS

During the thirteen weeks ended April 30, 2022, we paid an additional $4 million upon the finalization of the value of net assets acquired, with a corresponding increase to goodwill as compared with the amounts presented in the most recent annual report. The aggregate purchase price for the acquisition has increased to $811 million ($741 million, net of cash acquired).

First Quarter 2022 Form 10-Q Page 6

Table of Contents

Graphic

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Acquisitions (continued)

The following table represents the final allocation of the purchase price for WSS.

($ in millions)

    

Assets acquired:

 

  

Cash and cash equivalents

$

70

Merchandise inventories

 

82

Other current assets

 

10

Property and equipment, net

 

133

Operating lease right-of-use assets

143

Tradenames

 

296

Customer relationships

13

Other assets

 

4

Liabilities assumed:

 

  

Accounts payable

$

(58)

Current portion of obligations under finance leases

(3)

Current portion of lease obligations

(19)

Long-term portion of obligations under finance leases

(50)

Long-term lease obligations

(127)

Deferred taxes

(84)

Other liabilities

 

(4)

Goodwill

405

Total purchase price

$

811

atmos

During the thirteen weeks ended April 30, 2022, we paid an additional $3 million in connection with the finalization of certain post-closing conditions. The aggregate purchase price for the acquisition has increased to $363 million, subject to adjustment for the finalization of the value of net assets acquired and other post-closing matters. The acquisition was funded with available cash. The preliminary purchase price includes contingent consideration initially measured at $35 million, which can reach up to $111 million based on achieving certain revenue growth and EBITDA performance targets. The fair value of the contingent consideration has not changed from the initial measurement. The preliminary purchase price does not yet reflect the finalization of the net working capital provisions and other post-closing adjustments. At closing, we placed $30 million in escrow, and an additional $11 million will be payable if certain post-closing conditions are satisfied. We made a payment of $5 million during the second quarter of 2022 and expect to finalize the other amounts by the end of this fiscal year.

The following table represents the preliminary allocation of the purchase price for atmos and includes fair value adjustments to certain assets and liabilities since our most recent annual report. Goodwill remained unchanged at $242 million from the amount reported at year end, however changes included the additional purchase price, revised downward valuation of the tradenames and the addition of the customer list intangible. The adjustments did not have a significant effect on the consolidated results of operations. We determined that the atmos tradenames will have an indefinite life and will not be amortized.

We are assessing the tax deductibility of the goodwill related to the acquisition.

First Quarter 2022 Form 10-Q Page 7

Table of Contents

Graphic

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Acquisitions (continued)

The following table represents the preliminary allocation of the purchase price for atmos.

($ in millions)

    

Assets acquired:

 

  

Cash and cash equivalents

$

6

Merchandise inventories

 

22

Other current assets

 

12

Property and equipment, net

 

7

Operating lease right-of-use assets

44

Tradenames

 

130

Customer relationships

9

Other assets

 

6

Liabilities assumed:

 

Accounts payable

$

(10)

Current portion of lease obligations

(10)

Other current liabilities

(8)

Long-term lease obligations

(35)

Deferred taxes

(44)

Other liabilities

 

(8)

Goodwill (1)

242

Total purchase price (2)

$

363

(1)Goodwill represented on this table is at the exchange rate in effect as of the date of acquisition.
(2)Total purchase price consists of $328 million in cash and $35 million of contingent consideration.

3. 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

April 30,

May 1,

($ in millions)

2022

    

2021

Sales by Channel

Stores

$

1,776

$

1,620

Direct-to-customers

 

399

 

533

Total sales

$

2,175

$

2,153

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

Thirteen weeks ended

April 30,

May 1,

($ in millions)

2022

    

2021

Sales by Geography

United States

$

1,632

$

1,713

International

 

543

 

440

Total sales

$

2,175

$

2,153

First Quarter 2022 Form 10-Q Page 8

Table of Contents

Graphic

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Revenue (continued)

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.

April 30,

May 1,

($ in millions)

2022

2021

Gift card liability at beginning of year

$

46

$

41

Redemptions

(65)

(56)

Breakage recognized in sales

(4)

(4)

Activations

60

62

Gift card liability

$

37

$

43

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

4. 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 availability.

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.

Thirteen weeks ended

April 30,

May 1,

($ in millions)

    

2022

    

2021

Sales

$

2,175

$

2,153

Operating Results

 

  

 

  

Division profit

260

315

Less: Impairment and other charges (1)

 

6

 

4

Less: Corporate expense (2)

 

37

 

29

Income from operations

 

217

 

282

Interest expense, net

 

(5)

 

(2)

Other (expense) / income, net (3)

 

(22)

 

4

Income before income taxes

$

190

$

284

(1)We recorded pre-tax charges of $6 million and $4 million during the first quarter of 2022 and 2021, respectively, as detailed in Note 5, 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.  
(3)Other (expense) income, net for the thirteen weeks ended April 30, 2022 primarily consisted of a $25 million loss on the change in fair value of our investment in Retailors, Ltd., a publicly-listed entity, which was partially offset by other income.

First Quarter 2022 Form 10-Q Page 9

Table of Contents

Graphic

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Impairment and Other Charges

Thirteen weeks ended

April 30,

May 1,

($ in millions)

    

2022

    

2021

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

$

3

$

Acquisition and integration costs

2

Other

1

Impairment of investments

2

Reorganization costs

2

Total impairment and other charges

$

6

$

4

During the first quarter of 2022, we recorded impairment charges of $3 million related to long-lived assets and right-of-use assets as well as accelerated tenancy charges, $2 million of acquisition and integration costs related to WSS and atmos, and $1 million of other expenses.

In 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.

6. 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.

April 30,

May 1,

($ in millions)

    

2022

    

2021

Cash and cash equivalents

$

551

$

1,963

Restricted cash included in other current assets

8

8

Restricted cash included in other non-current assets

36

30

Cash, cash equivalents, and restricted cash

$

595

$

2,001

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.

7. Goodwill

See footnote 2, Acquisitions, for additional information on our recent acquisitions. 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.

First Quarter 2022 Form 10-Q Page 10

Table of Contents

Graphic

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Other Intangible Assets, net

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

April 30, 2022

May 1, 2021

Gross

Accum.

Net

Gross

Accum.

Net

($ in millions)

value

amort.

value

value

amort.

value

Amortized intangible assets: (1)

 

Lease acquisition costs

$

101

$

(98)

$

3

$

119

$

(115)

$

4

Trademarks/tradenames (2)

18

(18)

20

(17)

3

Customer lists

20

(4)

16

$

139

$

(120)

$

19

$

139

$

(132)

$

7

Indefinite life intangible assets: (1)

Trademarks/tradenames

$

422

$

9

Other intangible assets, net

$

441

$

16

(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.
(2)During the fourth quarter of 2021, we recorded a non-cash impairment charge related to the Footaction tradename.  

In connection with the acquisitions of WSS and atmos, we recognized indefinite life intangible assets of $296 million for WSS related tradenames and $130 million for atmos related tradenames. Additionally, we recognized customer list intangible assets of $13 million for WSS and $9 million for atmos, both of which will be amortized over 3 years. The intangibles related to atmos were originally recorded at the exchange rate in effect as of the date of acquisition and are presented in the above table at current period exchange rates. Amortizing intangible assets primarily represent the WSS and atmos customer lists, lease acquisition costs, which are amounts that are required to secure prime lease locations and other lease rights, primarily in Europe.

Amortization expense recorded is as follows:

Thirteen weeks ended

April 30,

May 1,

($ in millions)

    

2022

    

2021

Amortization expense

$

3

$

1

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

($ in millions)

    

Remainder of 2022

$

6

2023

7

2024

 

5

2025

1

First Quarter 2022 Form 10-Q Page 11

Table of Contents

Graphic

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:

April 30,

May 1,

January 29,

($ in millions)

    

2022

    

2021

    

2022

Foreign currency translation adjustments

$

(151)

$

(60)

$

(107)

Cash flow hedges

 

1

 

(1)