PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in millions, except shares)

October 28,

October 29,

January 28,

2017

2016

2017

(Unaudited)

(Unaudited)

*
ASSETS

Current assets:

Cash and cash equivalents
$
890

$
865

$
1,046
Merchandise inventories

1,313

1,361

1,307
Other current assets

295

291

280

2,498

2,517

2,633
Property and equipment, net

835

732

765
Deferred taxes

164

171

161
Goodwill

158

156

155
Other intangible assets, net

45

43

42
Other assets

113

75

84

$
3,813

$
3,694

$
3,840

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable
$
241

$
215

$
249
Accrued and other liabilities

326

327

363
Current portion of capital lease obligations

—

1

—

567

543

612
Long-term debt and obligations under capital leases

126

127

127
Other liabilities

463

391

391
Total liabilities

1,156

1,061

1,130
Shareholders’ equity:

Common stock and paid-in capital: 133,336,171; 174,687,964; and 132,616,087 shares outstanding, respectively

921

1,168

900
Retained earnings

2,467

3,546

2,254
Accumulated other comprehensive loss

(286)

(353)

(363)
Less: Treasury stock at cost: 10,730,582; 42,326,538; and 1,120,466 shares, respectively

(445)

(1,728)

(81)
Total shareholders' equity

2,657

2,633

2,710

$
3,813

$
3,694

$
3,840



	August 4,		July 29,		February 3,
	2018		2017		2018
	(Unaudited)		(Unaudited)		*
ASSETS

Current assets:
Cash and cash equivalents	$	950	$	1,043	$	849
Merchandise inventories		1,254		1,290		1,278
Other current assets		320		311		424
		2,524		2,644		2,551
Property and equipment, net		842		821		866
Deferred taxes		108		167		48
Goodwill		158		158		160
Other intangible assets, net		41		45		46
Other assets		159		111		290
	$	3,832	$	3,946	$	3,961

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	408	$	162	$	258
Accrued and other liabilities		313		308		358
		721		470		616
Long-term debt		124		126		125
Other liabilities		505		456		701
Total liabilities		1,350		1,052		1,442
Shareholders’ equity:
Common stock and paid-in capital: 121,497,470; 133,134,411; and 121,262,456 shares outstanding, respectively		857		916		842
Retained earnings		2,232		2,403		2,019
Accumulated other comprehensive loss		(340)		(284)		(279)
Less: Treasury stock at cost: 5,869,122; 2,034,408; and 1,433,433 shares, respectively		(267)		(141)		(63)
Total shareholders' equity		2,482		2,894		2,519
	$	3,832	$	3,946	$	3,961

See Accompanying Notes to Condensed Consolidated Financial Statements.

* The balance sheet at ~~January 28, 2017~~February 3, 2018 has been derived from the previously reported audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Foot Locker, Inc.’s Annual Report on Form 10-K for the year ended ~~January 28, 2017.~~February 3, 2018.

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in millions, except per share amounts)



	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	October 28,		October 29,		October 28,		October 29,		August 4,		July 29,		August 4,		July 29,
	2017		2016		2017		2016		2018		2017		2018		2017

Sales	$	1,870	$	1,886	$	5,572	$	5,653	$	1,782	$	1,701	$	3,807	$	3,702

Cost of sales		1,290		1,246		3,809		3,730		1,243		1,198		2,602		2,519
Selling, general and administrative expenses		368		366		1,078		1,077		380		339		765		710
Depreciation and amortization		44		40		127		118		44		42		89		83
Litigation and other charges		13		6		63		6		3		50		15		50
Income from operations		155		228		495		722		112		72		336		340

Interest (income) / expense, net		—		1		(1)		2
Interest income, net										(1)		(1)		(3)		(1)
Other income		(1)		—		(2)		(3)		(2)		—		(5)		(1)
Income before income taxes		156		227		498		723		115		73		344		342
Income tax expense		54		70		165		248		27		22		91		111
Net income	$	102	$	157	$	333	$	475	$	88	$	51	$	253	$	231

Basic earnings per share	$	0.81	$	1.18	$	2.57	$	3.53	$	0.76	$	0.39	$	2.15	$	1.76
Weighted-average shares outstanding		126.0		132.9		129.6		134.6		116.6		131.3		117.7		131.3

Diluted earnings per share	$	0.81	$	1.17	$	2.55	$	3.50	$	0.75	$	0.39	$	2.14	$	1.74
Weighted-average shares outstanding, assuming dilution		126.4		134.0		130.3		135.7		117.1		132.0		118.1		132.3

FOOT LOCKER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

($ in millions)



	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	October 28,		October 29,		October 28,		October 29,		August 4,		July 29,		August 4,		July 29,
	2017		2016		2017		2016		2018		2017		2018		2017
Net income	$	102	$	157	$	333	$	475	$	88	$	51	$	253	$	231

Other comprehensive income, net of income tax:

Foreign currency translation adjustment:
Translation adjustment arising during the period, net of income tax		(4)		(14)		70		3
Translation adjustment arising during the period, net of income tax (benefit)/expense of $1, $5, $(7), and $5 million, respectively										(20)		70		(58)		74

Cash flow hedges:
Change in fair value of derivatives, net of income tax		—		1		1		4		—		2		1		1

Available for sale securities:
Unrealized gain on available for sale securities		—		—		1		1		—		1		—		1

Pension and postretirement adjustments:
Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $1, $1, $3 and $3 million, respectively, and foreign currency fluctuations		2		3		5		5
Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $-, $1, $1, and $2 million, respectively										2		—		4		3
Pension remeasurement and foreign currency fluctuations arising during the year, net of income tax benefit of $3, $-, $3, and $- million, respectively										(9)		—		(8)		—
Comprehensive income	$	100	$	147	$	410	$	488	$	61	$	124	$	192	$	310

FOOT LOCKER, INC.

NOTES TO 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 of the fiscal year ending February ~~3, 2018~~2, 2019 and of the fiscal year ended ~~January 28, 2017.~~February 3, 2018. Certain items included in these statements are based on management’s estimates. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in Foot Locker, Inc.’s (the “Company”) Form 10-K for the year ended ~~January 28, 2017,~~February 3, 2018, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March ~~23, 2017.~~29,2018.

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

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of ~~this amendment~~Topic 606 is ~~that an entity should~~to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ~~ASU~~ 2014-09, as amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein. These ASUs can be adopted either retrospectively to each prior reporting period presented or ~~as a cumulative-effect adjustment as of the date of adoption~~.The Company ~~expects a change in~~adopted ASU 2014-09 during the ~~timing~~first quarter of recognizing gift card breakage, sales relating to shipping and handling for undelivered orders, and a change in timing for the recognition of expenses related to direct-response advertising costs. In addition, we expect a balance sheet reclassification from inventory to other current assets relating to our right to recover products for our sales returns, as well as a change to the accounting for our unredeemed rewards for our loyalty program as a reduction to sales instead of recording the charge to cost of goods sold. Although we are in the process of finalizing the quantification of the effects on the areas discussed above, we currently do not expect the adoption will significantly affect our consolidated statements of operations, financial position or cash flows. The Company expects to adopt the provisions of this standard2018 using the modified retrospective ~~method, which requires a~~method. We recognized $5 million, or $4 million net of tax, as the cumulative effect ~~adjustment~~of initially applying the new revenue standard as an increase to the opening balance of retained ~~earnings on the date of adoption.~~

~~In February 2016, the~~ ~~FASB~~ ~~issued~~ ~~ASU~~ ~~2016-02,~~ ~~Leases~~. This ASU requires lessees to recognize a lease liability and a right-of-use asset for all leases, as well as additional disclosure regarding leasing arrangements. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods therein, and requires a modified retrospective adoption, with earlier adoption permitted. The Company does not expect to adopt this ASU until required and is evaluating the effect of this guidance. The Company has historically presented a non-GAAP measure to adjust its balance sheet to present operating leases as if they were capital leases. Based upon that analysis and preliminary evaluation of the standard, we estimate the adoption will result in the addition of $3 billion to $4 billion of assets and liabilities to our consolidated balance sheet, with no significant change to our consolidated statements of operations or cash flows.earnings.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ~~This~~The Company adopted this ASU ~~is effective and will be adopted by~~during the ~~Company for annual reporting periods beginning after December 15, 2017, including interim periods therein. The amendments in this update should be applied on a~~first quarter of 2018 using the modified retrospective ~~basis through~~method, and as a ~~cumulative-effect~~result increased deferred income tax assets by $37 million. The Company recorded an adjustment ~~directly~~ to opening retained earnings ~~as of the beginning of the period of adoption. Upon adoption, a company would~~to write off ~~any~~the income tax effects that had been deferred from past intercompany transactions involving non-inventory ~~assets to opening retained earnings. In addition, an entity would record~~assets. The Company also recorded deferred tax assets with an offset to opening retained earnings for amounts that ~~entity had~~were not previously ~~not~~ recognized under ~~existing~~the previous guidance but ~~would~~are recognized under this ASU.

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

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize ~~under~~a lease liability, on a discounted basis, and a right-of-use asset for all leases, as well as additional disclosure regarding leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method of applying the new ~~guidance.~~lease standard. Topic 842 can be applied using either a modified retrospective approach at the beginning of the earliest period presented, or as permitted by ASU 2018-11, at the beginning of the period in which it is adopted. These new leasing standards are effective for fiscal years beginning after December 15, 2018, including interim periods therein. The Company intends to adopt Topic 842 during the first quarter of 2019 using the optional transition method provided by ASU 2018-11. The Company has historically presented a non-GAAP measure to adjust its balance sheet to present operating leases as if they were capital leases. Based ~~on deferred tax amounts related to applicable past intercompany transactions~~upon that analysis and our current evaluation of the ~~foreign exchange rates as of October 28, 2017,~~standard, we ~~expect~~estimate the adoption will result in ~~an increase in deferred income tax~~the addition of $3 billion to $4 billion of assets and liabilities to our consolidated balance sheet, with no significant change to our consolidated statements of ~~approximately $40 million to $45 million.~~operations or cash flows.

Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Recently Adopted Accounting Pronouncements~~Revenue Recognition

Store revenue is recognized at the point of sale and includes merchandise, net of returns, and excludes taxes. Revenue from layaway sales is recognized when the customer receives the product, rather than when the initial deposit is paid.

In ~~March 2016,~~conjunction with the ~~FASB issued ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting.~~ ~~ASU 2016-09 simplifies the accounting for share-based payment transactions, including tax consequences, forfeitures, and classifications~~adoption of ~~the tax related items in the statement of cash flows. The Company adopted ASU 2016-09~~Topic 606 during the first quarter of ~~2017. Amendments relating~~2018, we have determined that revenue for merchandise that is shipped to ~~accounting~~our customers from our distribution centers and stores will be recognized upon shipment date. Total revenue recognized includes shipping and handling fees. We have determined that control of the promised good is passed to the customer upon shipment date since the customer has legal title, the rewards of ownership, and paid for ~~excess tax benefits and deficiencies have been adopted prospectively. For~~ the ~~thirteen and thirty-nine weeks ended October 28,2017,~~merchandise as of the shipment date. This reflects a change in timing in how we previously recognized revenue for our direct-to-customer sales. Prior to the adoption of Topic 606, the Company ~~recorded excess tax benefits related to share-based compensation awards~~recognized such revenue upon date of $2 million and $9 million, respectively, to the income statement, within the income tax provision, whereas such benefits were previously recognized in equity. Also, in the diluted net earnings per share calculation, when applying the treasury stock method for shares that could be repurchased, the assumed proceeds no longer include the amount of excess tax benefits. This ASU also requires that we present excess tax benefits or deficiencies as operating activities in our condensed consolidated statement of cash flow.delivery. As a result of ~~adopting~~ this change, ~~retrospectively, we reclassified excess~~the Company recorded $1 million, net of tax, ~~benefits of $16 million which were previously classified~~ as ~~cash flows from financing activities~~an increase to ~~operating activities for~~opening retained earnings to reflect the thirty-nine weeks ended October 29, 2016. Additionally, the presentation of employee taxes paid to taxing authorities for share-based transactions of $6 million, previously classified as cash flows from operating activities, were reclassified to financing activities for the thirty-nine weeks ended October 29, 2016. The Company has made a policy election of recording forfeitures as they occur instead of estimating forfeitures using a modified retrospective approach. The cumulative effect of adopting this ~~change was not significant.~~change. We have elected to account for shipping and handling as a fulfillment activity. The Company accrues the cost and recognized revenue for these activities upon shipment date.

Gift Cards

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash.~~ ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. This ASU is effective for annual reporting periods beginning after December 15, 2017 including interim periods therein. The Company ~~has adopted this ASU~~sells gift cards, which do not have expiration dates to its customers. Revenue from gift card sales is recorded when the gift cards are redeemed. Effective as of the first quarter of ~~2017.~~ 2018 with the adoption of Topic 606, gift card breakage is recognized as revenue in proportion to the pattern of rights exercised by the customer, unless there is a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions. This reflects a change in our accounting for gift card breakage from the remote method to the proportional method. As a result of adopting Topic 606, the Company recorded $4 million, or $3 million net of tax, as an increase to opening retained earnings to reflect the cumulative effect of this change based upon historical redemption patterns~~Accordingly, we restated our cash~~. Additionally, breakage income was previously recorded within selling, general and ~~cash equivalents balances~~administrative expenses; however, with the adoption of this standard in the ~~condensed consolidated statements~~first quarter of ~~cash flows to include restricted cash~~2018, this income is reported as part of ~~$28 million as of October29,2016 and $27 million as of both January 30, 2016, and January 28, 2017. Please see Note 5,~~ ~~Restricted Cash~~, for a reconciliation of cash and cash equivalents as presented on our condensed consolidated balance sheets to cash, cash equivalents, and restricted cash as reported on our condensed consolidated statements of cash flows.

2~~. Segment Information~~sales. This change in classification is not considered significant.

~~The Company has determined that its reportable segments~~2. Revenue

Sales disaggregated based upon sales channel is presented below.


	Thirteen weeks ended				Twenty-six weeks ended
	August 4,		July 29,		August 4,		July 29,
	2018		2017		2018		2017
	($ in millions)
Stores	$	1,542	$	1,485	$	3,285	$	3,207
Direct-to-customers		240		216		522		495
Total sales	$	1,782	$	1,701	$	3,807	$	3,702

Sales disaggregated based upon geographic area is presented in the below table. Sales are those that are based on its method of internal reporting. The Company has two reportable segments, Athletic Stores and Direct-to-Customers. The Company evaluates performance based on several factors, ofattributable to the geographic area in which the ~~primary financial measure~~sales transaction is ~~division results. Division profit reflects income before income taxes, pension litigation charge, reorganization charge, corporate expense, non-operating income, and net interest (income) / expense.~~fulfilled.

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016
Sales

($ in millions)
Athletic Stores

$
1,612

$
1,644

$
4,819

$
4,955
Direct-to-Customers

258

242

753

698
Total sales

$
1,870

$
1,886

$
5,572

$
5,653
Operating Results

Athletic Stores (1)

$
154

$
213

$
504

$
683
Direct-to-Customers

26

32

88

92
Division profit

180

245

592

775
Less: Pension litigation and reorganization charges (2), (3)

13

—

63

—
Less: Corporate expense

12

17

34

53
Operating profit

155

228

495

722
Interest (income) / expense, net

—

1

(1)

2
Other income (4)

1

—

2

3
Income before income taxes

$
156

$
227

$
498

$
723



	Thirteen weeks ended				Twenty-six weeks ended
	August 4,		July 29,		August 4,		July 29,
	2018		2017		2018		2017
	($ in millions)
United States	$	1,220	$	1,146	$	2,721	$	2,646
International		562		555		1,086		1,056
Total sales	$	1,782	$	1,701	$	3,807	$	3,702

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract Liabilities

The table below presents the activity of our gift card liability balance:

~~(1)~~	Included in the thirteen and thirty-nine weeks ended October 29, 2016 is a $6 million pre-tax non-cash impairment charge to write down long-lived store assets of Runners Point and Sidestep. See Note 3, ~~Litigation and Other Charges~~ ~~for additional information.~~
~~(2)~~	~~Included~~	($ in ~~the thirty-nine weeks ended October 28, 2017 is a pre-tax charge of $50 million relating to a pension litigation matter described further in Note 14, Legal Proceedings.~~millions)
~~(3)~~Balance at February 4, 2018	Included in the thirteen and thirty-nine weeks ended October 28, 2017 is $13 million in pre-tax reorganization costs related to the reduction and reorganization of division and corporate staff that occurred in the third quarter of 2017, described more fully in Note 3, Litigation and Other Charges. $	38
~~(4)~~Redemptions	~~Other income includes non-operating items, such as lease termination gains, royalty income, insurance recoveries, and~~	(43)
Cumulative catch-up adjustment to retained earnings from the ~~changes in fair value, premiums paid, and realized gains and losses associated with foreign~~adoption of Topic 606		(4)
Breakage recognized		(3)
Activations		39
Foreign currency ~~option contracts.~~fluctuations		(1)
Balance at August 4, 2018	$	26

~~3. Litigation and Other Charges~~

Thirteen weeks ended

Thirty-nine weeks ended

October 28,

October 29,

October 28,

October 29,

2017

2016

2017

2016

($ in millions)
Pension litigation charge

$
—

$
—

$
50

$
—
Reorganization costs

13

—

13

—
Impairment of long-lived assets

—

6

—

6
Total litigation and other charges

$
13

$
6

$
63

$
6

~~During~~Due to the ~~third quarter of 2017,~~fact that most gift cards are redeemed within 12 months, the Company ~~reorganized its organizational structure by adjusting certain divisional responsibilities between our various businesses. As a result of this, as well as certain corporate staff reductions taken~~elected not to improve corporate efficiency, the Company recorded a charge of $13 million. The charge consisted primarily of severance payments and benefit continuation costs for approximately 190 associates. The following is a reconciliation of the accrual for the quarter ended October 28,~~2017:~~

Severance and

Other Related

Benefit Costs

Charges

Total

($ in millions)
Balance at January 28, 2017

$
—

$
—

$
—
Amounts charged to expense

11

2

13
Cash payments

(2)

—

(2)
Balance at October 28, 2017

$
9

$
2

$
11

~~As more fully discussed in Note 14,~~ ~~Legal Proceedings,~~ ~~during the second quarter of 2017 the Company recorded a $50 million pension litigation charge.~~

Included in the thirteen and thirty-nine weeks ended October 29, 2016 is a non-cash charge of $6 million to write down store fixtures and leasehold improvements related to the Runners Point and Sidestep businesses.

~~4. Hurricane-Related Costs~~disclose information about remaining performance obligations.

Hurricanes Harvey, Irma, and Maria adversely affected the Company’s third quarter of 2017 operations and resulted in the closure of approximately 450 of the Company’s retail stores for varying periods of time. As of October328, 2017, 22 of these stores remain closed in Puerto Rico. The Company expects to re-open 8 of the remaining stores during the fourth quarter of 2017 and an additional 7 stores during the early part of 2018, dependent on timing of repairs and mall openings. Currently, we do not expect to re-open the balance of the stores.. Segment Information

The Company ~~recorded~~has integrated all available shopping channels including stores, websites, 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 ~~$7 million charge associated with~~different store location if an item is not available at the original store. Direct-to-customer orders are primarily shipped to our customers through our distribution centers but may also be shipped from any store or a combination of our distribution centers and stores depending on the availability of particular items.

Our operating segments are identified according to how our business activities are managed and evaluated by our chief operating decision maker, our CEO. Prior to fiscal 2018, the Company had two reportable segments: Athletic Stores and Direct-to-Customers. Beginning in fiscal 2018, the Company has changed its ~~retail~~organizational and internal reporting structure in order to execute our omni-channel strategy. In light of these changes, the Company has re-evaluated its operating segments, which now reflect the combination of stores and direct-to-customer by geography. The Company has determined that ~~were damaged by~~it has two operating segments, North America and International. Our North America operating segment includes the ~~hurricanes. This charge was recorded as a component~~results of ~~selling, general and administrative expenses~~the following banners operating in the ~~Consolidated Statements~~U.S. and Canada: Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, and SIX:02, including each of ~~Operations for~~their related e-commerce businesses, as well as our Eastbay business that includes internet, catalog, and team services and sales. Our International operating segment includes the ~~thirteen~~results of the following banners operating in Europe, Australia, and ~~thirty-nine weeks ended October 28, 2017. The charge reflects estimated property damages~~New Zealand: Foot Locker, Runners Point, Sidestep, and ~~other costs~~Kids Foot Locker, including each of ~~$2 million~~their related e-commerce businesses. We have further aggregated these operating segments into one reportable segment based upon their shared customer base and ~~inventory write-offs of $5 million.~~ similar economic characteristics. Prior-year information has been restated to reflect this change.

The Company evaluates performance based on several factors, of which the primary financial measure is ~~working with its insurance providers~~the banner’s financial results referred to ~~determine if any of the losses can be recovered.~~as division profit. Division profit reflects income before income taxes, pension litigation charge, corporate expense, non-operating income, and net interest income. The following table summarizes our results:



	Thirteen weeks ended				Twenty-six weeks ended
	August 4,		July 29,		August 4,		July 29,
	2018		2017		2018		2017
	($ in millions)
Sales	$	1,782	$	1,701	$	3,807	$	3,702

Operating Results
Division profit		131		129		378		412
Less: Pension litigation (1)		3		50		15		50
Less: Corporate expense (2)		16		7		27		22
Income from operations		112		72		336		340
Interest income, net		(1)		(1)		(3)		(1)
Other income (3)		2		—		5		1
Income before income taxes	$	115	$	73	$	344	$	342

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1)	Included in the thirteen and twenty-six weeks ended August 4, 2018 are pre-tax charges of $3 million and $15 million, respectively, relating to a pension litigation matter described further in Note 14, Legal Proceedings. Included in the thirteen and twenty-six weeks ended July 29, 2017 are pre-tax charges of $50 million in both periods relating to the same matter.
(2)	Corporate expense consists of unallocated selling, general and administrative expenses as well as depreciation and amortizationrelated to the Company’s corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items.
(3)	Other income includes non-operating items, such as lease termination gains, royalty income, changes in fair value, premiums paid, realized gains and losses associated with foreign currency option contracts, changes in the market value of our available-for-sale security, and net benefit expense related to our pension and postretirement programs excluding the service cost component.

4. Litigation and Other Charges

As more fully discussed in Note 14, Legal Proceedings, the Company recorded charges related to the pension litigation of $3 million and $15 million for the thirteen and twenty-six weeks ended August 4, 2018. For the thirteen and twenty-six weeks ended August 4, 2018, the Company recorded charges of $2 million and $13 million, respectively, representing adjustments to the estimated cost of reformation and interest. Additionally, professional fees in connection with the plan reformation were incurred totaling $1 million and $2 million for the thirteen and twenty-six weeks ended August 4, 2018, respectively. During the second quarter of 2017, the Company recorded $50 million of charges related to the pension litigation.

During the third quarter of the prior year, the Company reorganized its organizational structure by adjusting certain divisional responsibilities between our various businesses. The following is a rollforward of the liability related to that event for the twenty-six weeks ended August 4, 2018:



		Severance and		Other Related
		Benefit Costs		Charges		Total
	($ in millions)
Balance at February 3, 2018	$	5	$	2	$	7
Cash payments		(4)		(1)		(5)
Balance at August 4, 2018	$	1	$	1	$	2

5. Restricted Cash

The following table provides a reconciliation of cash and cash equivalents, as reported on our condensed consolidated balance sheets, to cash, cash equivalents, and restricted cash, as reported on our condensed consolidated statements of cash flows.


	October 28,		October 29,		January 28,		August 4,		July 29,		February 3,
	2017		2016		2017		2018		2017		2018
	($ in millions)						($ in millions)
Cash and cash equivalents	$	890	$	865	$	1,046	$	950	$	1,043	$	849
Restricted cash included in other current assets		1		—		—		1		1		1
Restricted cash included in other non-current assets		29		28		27		88		29		181
Cash, cash equivalents, and restricted cash	$	920	$	893	$	1,073	$	1,039	$	1,073	$	1,031

Amounts included in restricted cash primarily relate to funds deposited to a qualified settlement fund in connection with the pension litigation and amounts held in escrow in connection with various leasing arrangements in Europe. In addition, restricted cash reflects deposits held in insurance trusts in order to satisfy the requirement to collateralize part of the self-insured workers’ compensation and liability claims.

6. Goodwill

Annually during the first quarter, or more frequently if impairment indicators arise, the Company reviews goodwill and intangible assets with indefinite lives for impairment. ~~The annual review~~

FOOT LOCKER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As a result of ~~goodwill and intangible assets with indefinite lives performed during~~ the first quarter 2018 change in our organizational and internal reporting structure, we have determined that we have one reportable segment. We have reassessed our reporting units in light of ~~2017 did not result~~this change and have deemed the collective omni-channel banners in North America and International to be the two reporting units at which goodwill is tested. Therefore, goodwill was re-allocated to these reporting units based on their relative fair values. As required, we conducted our annual impairment review both before and after this change. Neither review resulted in the recognition of ~~impairment. The following table provides a summary~~impairment, as the fair value of ~~goodwill by reportable segment. The change in the balance represents foreign currency exchange fluctuations.~~

October 28,

October 29,

January 28,


2017

2016

2017

($ in millions)
Athletic Stores

$
18

$
17

$
16
Direct-to-Customers

140

139

139
Total goodwill

$
158

$
156

$
155

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:



		October 28, 2017						October 29, 2016						January 28, 2017							August 4, 2018						July 29, 2017						February 3, 2018
		Gross		Accum.		Net		Gross		Accum.		Net		Gross		Accum.		Net			Gross		Accum.		Net		Gross		Accum.		Net		Gross		Accum.		Net
($ in millions)	($ in millions)	value		amort.		value		value		amort.		value		value		amort.		value		($ in millions)	value		amort.		value		value		amort.		value		value		amort.		value
Amortized intangible assets: (1)	Amortized intangible assets: (1)																			Amortized intangible assets: (1)
	Lease acquisition costs	$	129	$	(117)	$	12	$	118	$	(107)	$	11	$	116	$	(105)	$	11	Lease acquisition costs	$	125	$	(115)	$	10	$	128	$	(115)	$	13	$	135	$	(122)	$	13
	Trademarks / trade names		20		(13)		7		20		(13)		7		20		(13)		7	Trademarks / trade names		20		(14)		6		20		(13)		7		20		(14)		6
	Favorable leases		7		(6)		1		7		(5)		2		7		(5)		2	Favorable leases		7		(6)		1		7		(6)		1		7		(6)		1
		$	156	$	(136)	$	20	$	145	$	(125)	$	20	$	143	$	(123)	$	20		$	152	$	(135)	$	17	$	155	$	(134)	$	21	$	162	$	(142)	$	20
Indefinite life intangible assets: (1)	Indefinite life intangible assets: (1)																			Indefinite life intangible assets: (1)
	Runners Point Group trademarks / trade names					$	25					$	23					$	22	Runners Point Group trademarks / trade names					$	24					$	24					$	26
Other intangible assets, net	Other intangible assets, net					$	45					$	43					$	42	Other intangible assets, net					$	41					$	45					$	46

~~During~~The annual review of intangible assets with indefinite lives performed during the ~~thirty-nine week period ended~~ ~~October, 28 2017,~~first quarter of 2018 did not result in the ~~Company recorded $2~~ ~~million~~recognition of ~~lease acquisition additions, primarily related to our European businesses. These additions are being amortized over a weighted-average life of 10 years.~~impairment. Amortization expense recorded is as follows:

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

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

The changes in AOCL for the ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017~~August 4, 2018 were as follows:

Reclassifications from AOCL for the ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017~~August 4, 2018 were as follows:

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB 118”). This update provides guidance on income tax accounting implications under Public Law 115-97, informally known as the Tax Cuts and Jobs Act (the "Tax Act"), which was enacted on December 22, 2017. The ~~Company operates internationally~~Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35 percent to 21 percent, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and ~~utilizes~~changing how foreign earnings are subject to U.S. tax. SAB 118 addressed the application of GAAP to situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain ~~derivative financial instruments to mitigate its foreign currency exposures, primarily related to third-party and intercompany forecasted transactions. As a result~~income tax effects of the ~~use of derivative instruments, the Company is exposed to the risk that counterparties will fail to meet their contractual obligations. To mitigate this counterparty credit risk, the Company has a~~ ~~practice~~ of entering into contracts only with major financial institutions selected based upon their credit ratings and other financial factors. The Company monitors the creditworthiness of counterparties throughout the duration of the derivative instrument. Additional information is contained within Note 10, ~~Fair Value Measurements~~.Tax Act.

~~For a derivative to qualify as a hedge at inception and throughout~~As of the ~~hedged period,~~fourth quarter of 2017, the Company ~~formally documents~~had not completed the ~~nature~~determination of the ~~hedged~~accounting implications of the Tax Act on the Company’s tax accruals. However, we reasonably estimated the effects of the Tax Act and recognized a provisional net tax expense of $99 million associated with the Tax Act in the fourth quarter of 2017. During the second quarter of 2018, the Company reduced its provisional calculation by $1 million, which represented a revised estimate of foreign tax credits. Our accounting for the Tax Act is still incomplete as we have not finalized the deemed repatriation of deferred foreign income and prior-year deferred tax activity. We are continuing to gather additional information to complete our accounting for these items and expect to complete our accounting within the relationships between the hedging instruments and the hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions, and the methods of assessing hedge effectiveness and ineffectiveness. In addition, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction would occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss on the derivative instrument would be recognized in earnings immediately. The amount of such gains or losses that were recognized in earningsone-year time period provided by SAB 118. Any adjustment to these amounts during the ~~thirty-nine weeks ended October 28, 2017 was not significant and there were no such gains or losses~~measurement period will be recorded in income tax expense in the corresponding prior-year period. Derivative financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period ~~which management evaluates periodically.~~

~~The primary currencies to~~in which the ~~Company~~analysis is exposed are the euro, British pound, Canadian dollar, and Australian dollar. For the most part, merchandise inventories are purchased by each geographic area in their respective local currency. The most significant exception to this is the United Kingdom, whose merchandise inventory purchases are denominated in euros. For option and foreign exchange forward contracts designated as cash flow hedges of the purchase of inventory, the effective portion of gains and losses is deferred as a component of AOCL and is recognized as a component of cost of sales when the related inventory is sold. The amount reclassified to cost of sales related to such contracts was not significant for any of the periods presented. The effective portion of gains or losses associated with other forward contracts is deferred as a component of AOCL until the underlying transaction is reported in earnings. The ineffective portion of gains and losses related to cash flow hedges recorded to earnings was also not significant for any of the periods presented. When using a forward contract as a hedging instrument, the Company excludes the time value of the contract from the assessment of effectiveness. At quarter-end, substantially all of the Company’s hedged forecasted transactions were less than twelve months into the future, and the Company expects the derivative-related amounts reported in AOCL to be reclassified to earnings within twelve months.

The net change in the fair value of the foreign exchange derivative financial instruments designated as cash flow hedges was not significant for the thirteen weeks ended October 28, 2017 and was a $1 million gain for the thirty-nine weeks ended October 28, 2017. At October 28, 2017, a $2 million gain remained in AOCL. For the thirteen and thirty-nine weeks ended October 29, 2016, the net change in fair value was a $1 million and $4 million gain, respectively. The notional value of the foreign exchange contracts designated as hedges outstanding at October 28, 2017 was $138 million, and these contracts mature at various dates through January 2019.

The Company ~~enters into certain derivative contracts that are not designated as hedges, such as~~continues to evaluate the provisions of the Tax Act, including the global intangible low-taxed income (“GILTI”), the foreign ~~exchange forward contracts and currency option contracts. These derivative contracts are used to manage certain costs of foreign currency-denominated merchandise purchases, intercompany transactions,~~derived intangible income (“FDII”) provisions, and the base erosion and anti-abuse tax (“BEAT”). The Company has made an accounting policy election to treat GILTI taxes as a current period expense.

The ultimate effect of ~~fluctuating foreign exchange rates on~~ the ~~reporting of foreign currency-denominated earnings. Changes~~Tax Act may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the ~~fair value of derivative holdings not designated as hedges,~~Company has made, additional regulatory guidance that may be issued, as well as ~~realized gains and premiums paid, are recorded in earnings immediately within selling, general and administrative expenses or other income, depending on~~any related actions the ~~type of transaction. The net change in fair value was not significant for the thirteen and thirty-nine weeks ended October 28, 2017.~~Company may take.

~~The net change in fair value resulted in income of $1 million for~~For the thirteen and twenty-six weeks ended ~~October 29, 2016,~~August 4, 2018, the Company recorded income tax provisions of $27 million and ~~was not significant for~~$91 million, which represented effective tax rates of 23.6 percent and 26.4 percent, respectively. For the ~~thirty-nine~~thirteen and twenty-six weeks ended ~~October~~July 29, ~~2016. The notional value~~2017, the Company recorded income tax provisions of ~~the foreign exchange contracts not designated as hedges outstanding at October 28, 2017 was $2~~$22 million and ~~these contracts mature in November 2017.~~

~~From time to time, the Company mitigates the effect~~$111 million, which represented effective tax rates of fluctuating foreign exchange rates on the reporting of foreign-currency denominated earnings by entering into currency option contracts. Changes in the fair value of these foreign currency option contracts, which are not designated as hedges, are recorded in earnings immediately30.9 percent and 32.6 percent, respectively. The Company’s interim provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items that occur within ~~other income. The realized gains, premiums paid, and changes in the fair market value recorded were not significant for any of~~ the periods presented. ~~No such contracts were outstanding at October 28, 2017.~~

The following represents the fair value of the Company’s derivative contracts. Many of the Company’s agreements allow for a netting arrangement. The following is presented on a gross basis, by type of contract:

The Company’s financial assets recorded at fair value are categorized as follows:

The following tables provide a summary of the Company’s recognized assets and liabilities that are measured at fair value on a recurring basis:



	As of October 28, 2017						As of October 29, 2016						As of January 28, 2017						As of August 4, 2018						As of July 29, 2017						As of February 3, 2018
	($ in millions)																		($ in millions)
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Available-for-sale securities	$	—	$	7	$	—	$	—	$	7	$	—	$	—	$	6	$	—
Investment in equity securities																			$	—	$	15	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Available-for-sale security																				—		7		—		—		7		—		—		7		—
Foreign exchange forward contracts		—		2		—		—		8		—		—		3		—		—		2		—		—		3		—		—		1		—
Total Assets	$	—	$	9	$	—	$	—	$	15	$	—	$	—	$	9	$	—	$	—	$	24	$	—	$	—	$	10	$	—	$	—	$	8	$	—
Liabilities
Foreign exchange forward contracts		—		1		—		—		—		—		—		3		—		—		1		—		—		1		—		—		1		—
Total Liabilities	$	—	$	1	$	—	$	—	$	—	$	—	$	—	$	3	$	—	$	—	$	1	$	—	$	—	$	1	$	—	$	—	$	1	$	—

~~Securities~~Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The Company’s equity investment, under the practicability exception, is now measured at cost adjusted for changes in observable prices minus impairment. Additionally, our security classified as available-for-sale ~~are~~is now recorded at fair value with ~~unrealized~~ gains and losses reported ~~net~~to other income in our Statement of ~~tax,~~Operations, whereas previously it was recorded to AOCL. The adjustment recorded to retained earnings as a result of adopting ASU 2016-01 was not significant. The fair value of the Company’s investment in ~~other comprehensive income, unless unrealized gains~~equity securities is determined by using quoted prices for identical or ~~losses~~similar instruments in markets that are ~~determined to be other than temporary.~~not active and therefore are classified as Level 2. The fair value of the auction rate security is determined by using quoted prices for similar instruments in active markets and accordingly is classified as a Level 2 instrument.

The Company’s derivative financial instruments are valued using market-based inputs to valuation models. These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility and therefore are classified as Level 2 instruments.

There were no transfers into or out of Level 1, Level 2, or Level 3 assets and liabilities for any of the periods presented.

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

The fair value of long-term debt is determined by using model-derived valuations in which all significant inputs or significant value drivers are observable in active markets and therefore are classified as Level 2. The carrying values of cash and cash equivalents, and other current receivables and payables approximate their fair value.

The Company accounts for and discloses earnings per share using the treasury stock method. Basic earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding at the end of the period. Restricted stock awards, which contain non-forfeitable rights to dividends, are considered participating securities and are included in the calculation of basic earnings per share. Diluted earnings per share reflects the weighted-average number of common shares outstanding during the period used in the basic earnings per share computation plus dilutive common stock equivalents.

The Company adopted ASU 2016-09 during the first quarter of 2017. As a result, excess tax benefits and tax deficiencies are no longer included as assumed proceeds in the calculation of diluted shares outstanding. This change was adopted prospectively.

~~Contingently issuable~~Additionally, shares of 1.1 million and 0.4 million as of August 4, 2018 and ~~0.3 million~~July 29, 2017, respectively, have been excluded from diluted weighted-average shares as the number of shares that will be issued is contingent on the Company’s performance metrics as compared to the pre-established performance goals which have not been ~~included as the vesting conditions have not been satisfied~~achieved as of ~~October 28, 2017~~August 4, 2018 and ~~October~~July 29, ~~2016, respectively.~~2017. These shares relate to restricted stock units issued in connection with the Company’s long-term incentive program.

The Company has defined benefit pension plans covering certain of its North American employees, which are funded in accordance with the provisions of the laws where the plans are in effect. The Company also has a defined benefit pension plan covering certain employees of the Runners Point Group.

In addition to providing pension benefits, the Company sponsors postretirement medical and life insurance plans, which are available to most of its retired U.S. employees. These medical and life insurance plans are contributory and are not funded.

The following are the components of net periodic pension benefit cost and net periodic postretirement benefit ~~income, which are~~income. In conjunction with the adoption of ASU 2017-07, Compensation - Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, service cost continues to be recognized as part of SG&A ~~expense:~~

expense, while the remaining pension and postretirement expense components are now recognized as part of other income. Prior periods were not reclassified as required by this ASU as the amounts were not considered significant.

~~During the first quarter of 2017, the~~The Company ~~made a contribution of $25~~contributed $30 million in May 2018 and $98 million in early September 2018 to the U.S. qualified pension plan. The Company continually evaluates the amount and timing of any future contributions. ~~The Company currently does not expect to make any further~~

In connection with the pension ~~plan contributions during this year.Actual contributions are dependent on several factors, including the outcome of the ongoing U.S. pension litigation. See~~litigation more fully disclosed in Note 14, Legal Proceedings ~~for further information.~~, the Company reformed its U.S. qualified pension plan during the second quarter of 2018, which resulted in the reclassification of the accrued liability previously recorded and the remeasurement of the liability. The Company reclassified $194 million, after the payment of class counsel fees, to the U.S. qualified pension plan liability. After this reclassification, the remeasurement resulted in an increase to the benefit obligation of $12 million, with a corresponding charge to accumulated other comprehensive loss of $9 million, net of tax. The assumptions used to determine the remeasured benefit obligation did not change from the beginning of the year with the exception of the discount rate which increased from 3.7 percent to 4.0 percent.

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

The Company uses the Black-Scholes option-pricing model to estimate the fair value of share-based awards. The Black-Scholes option-pricing model incorporates various and ~~highly~~ subjective assumptions, including expected term and expected volatility.

During the first quarter of 2017, in connection with the adoption of ASU 2016-09, we have made the accounting policy election to discontinue estimating forfeitures and will account for forfeitures as they occur.

The following table shows the Company’s assumptions used to compute share-based compensation expense for awards granted during the ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017~~August 4, 2018 and ~~October~~July 29, ~~2016:~~

The information in the following table covers option activity under the Company’s stock option plans for the ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017:~~August 4, 2018:

The total fair value of options vested as of ~~October 28,~~August 4, 2018 and July 29, 2017 ~~and October 29, 2016~~ was $8 million and $9$7 million, respectively. The cash received from option exercises was $4 million for both the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017 was $2 million and $12 million, respectively.~~August 4, 2018. The ~~cash received~~total tax benefit realized from option exercises was $1 million for both the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 29, 2016 was $10 million and $24 million, respectively.~~August 4, 2018.

The total intrinsic value of options exercised (the difference between the market price of the Company’s common stock on the exercise date and the price paid by the optionee to exercise the option) is presented below:

The total tax benefit realized from option exercises was $2 million and $8 million for the thirteen and thirty-nine weeks ended October 28, 2017. The total tax benefit realized from option exercises was $7 million and $17 million for the corresponding prior-year periods.

The aggregate intrinsic value for stock options outstanding, and outstanding and exercisable ~~and vested and expected to vest~~ (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) is presented below:

As of ~~October 28, 2017~~August 4, 2018 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 1.5 years.

The following table summarizes information about stock options outstanding and exercisable at ~~October 28, 2017:~~August 4, 2018:

Restricted shares of the Company’s common stock and restricted stock units (“RSU”) may be awarded to certain officers and key employees of the Company. Additionally, RSU awards are made to employees in connection with the Company’s long-term incentive program and to nonemployee directors. Each RSU represents the right to receive one share of the Company’s common stock provided that the ~~performance and~~ vesting conditions are satisfied. There were ~~361,137~~842,768 and ~~678,466~~668,120 RSU awards outstanding as of ~~October 28,~~ August 4, 2018 and July 29,2017, ~~and October 29, 2016,~~ respectively.

Generally, awards fully vest after the passage of time, typically three years. However, RSU awards made in connection with the Company’s performance-based long-term incentive program are earned after the attainment of certain performance metrics and vest after the passage of time. Restricted stock is considered outstanding at the time of grant and the holders have voting rights. Dividends are paid to holders of restricted stock that vest with the passage of time. With regard to performance-based restricted stock, dividends will be accumulated and paid after the performance criteria are met. No dividends are paid or accumulated on RSU awards. Compensation expense is recognized using the market value at the date of grant and is amortized over the vesting period, provided the recipient continues to be employed by the Company.

Restricted stock and RSU activity for the twenty-six weeks ended August 4, 2018 is summarized as follows:

~~Restricted stock and RSU activity for the thirty-nine weeks ended October 28, 2017 is summarized as follows:~~

The total value of awards for which restrictions lapsed during the ~~thirty-nine~~twenty-six weeks ended ~~October 28,~~August 4, 2018 and July 29, 2017 ~~and October 29, 2016~~ was ~~$14~~$6 million and $8$14 million, respectively. As of ~~October 28, 2017,~~August 4, 2018, there was ~~$10~~$29 million of total unrecognized compensation cost related to nonvested restricted awards.

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

~~The~~For the last several years, the Company and the Company’s U.S. retirement plan ~~are~~have been defendants in a class action (Osberg v. Foot Locker Inc.et ano., filed in the U.S. District Court for the Southern District of New York) in which the plaintiff ~~alleges~~alleged that, in connection with the 1996 conversion of the retirement plan to a defined benefit plan with a cash balance formula, the Company and the retirement plan failed to properly advise plan participants of the “wear-away” effect of the conversion. Plaintiff’s claims were for breach of fiduciary duty under the Employee Retirement Income Security Act of 1974, as amended, and violation of the statutory provisions governing the content of the Summary Plan Description. During the third quarter of 2015, the trial court ruled that the retirement plan be reformed. ~~As a result of this development,~~In early 2018, the Company ~~recorded a charge~~exhausted all of ~~$100 million pre-tax ($61 million after-tax) during~~its legal remedies and is required to reform the ~~third quarter of 2015.~~

~~The Company appealed~~pension plan consistent with the trial court’s decision and ~~the judgment was stayed pending the outcome of the appeal process.~~judgment. During the second quarter of ~~2017,~~2018, the ~~Second Circuit Court~~court entered its final judgment, including the ruling on the fairness of ~~Appeals affirmed~~ the ~~trial court’s decision.~~class counsel fees. The amount accrued as of February 3, 2018 was $278 million. During the first quarter of 2018 the amount of the accrual was increased by $7 million related to a change in the estimated value of the judgment, based on additional facts as to how the reformation should be calculated. Additionally, interest was accrued as mandated by the provisions of the required plan reformation of $2 million and $6 million for the thirteen and twenty-six weeks ended August 4, 2018, respectively, bringing the total amount accrued to $291 million. In ~~light of this development,~~June 2018, the Company ~~reassessed its estimate~~paid $97 million to class counsel representing the court-approved fees. The remaining balance of $194 million was reclassified to the liability. The Company’s updated reasonable estimate of this liability is a range between $150 million and $260 million. The high end of the range reflects the estimated cost to reform the retirementpension plan obligation in ~~accordance~~connection with the court ruling; however, it excludes any legal fees that may be awarded to plaintiff’s counsel. No amount within that range is more probable than any other amount and therefore, in accordance with U.S. GAAP, the Company recorded a charge of $50 million pre-tax ($30 million after-tax) during the second quarter of 2017, bringing the cumulative amount accrued for this matter to $150 million. The accrual has been classified as a long-term liability. The Company will continue to vigorously defend itself in this case and on November 8, 2017 filed a Petition for Writ of Certiorari with the U.S. Supreme Court. In light of the uncertainties involved in this matter, there is no assurance that the ultimate resolution will not differ from the amount currently accrued by the Company.reformation.

Management does not believe that the outcome of any such legal proceedings pending against the Company or its consolidated subsidiaries, as described above, would have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations, taken as a whole, based upon current knowledge and taking into consideration current accruals. Litigation is inherently ~~unpredictable, and judgments~~unpredictable. Judgments could be rendered or settlements ~~entered into~~made that could adversely affect the Company’s operating results or cash flows in a particular period.

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

Disclosure Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. Other than statements of historical facts, all statements which address activities, events, or developments that the Company anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, financial objectives, dividend payments, stock repurchases, growth of the Company’s business and operations, including future cash flows, revenues, and earnings, and other such matters, are forward-looking statements. These forward-looking statements are based on many assumptions and factors which are detailed in the Company’s filings with the U.S. Securities and Exchange Commission.

These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control. For additional discussion on risks and uncertainties that may affect forward-looking statements, see “Risk Factors” disclosed in the ~~2016~~2017 Annual Report on Form 10-K. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.

Business Overview

Foot Locker, Inc., through its subsidiaries, ~~operates in two reportable segments – Athletic Stores and Direct-to-Customers. The Athletic Stores segment~~ is one of the largest athletic footwear and apparel retailers in the world, with formats that include Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. The Direct-to-Customers segment includes Footlocker.com, Inc. and other affiliates, including Eastbay, Inc., and our international ecommerce businesses, which sell to customers through their Internet and mobile sites and catalogs.

world. The Foot Locker brand is one of the most widely recognized names in the markets in which we operate, epitomizing premium quality for the active lifestyle customer. This brand equity has aided our ability to successfully develop and increase our portfolio of complementary retail store formats, such as Lady Foot Locker and Kids Foot Locker, as well as Footlocker.com, part of our direct-to-customer business. Through various marketing channels and experiences, including social, digital, broadcast, and print media, as well as various sports sponsorships and events, we reinforce our image with a consistent message — namely, that we are ~~the~~a destination for premium athletically-inspired shoes and apparel with a wide selection of merchandise in a full-service environment.

We identify our operating segments according to how our business activities are managed and evaluated by our chief operating decision maker, our CEO. Prior to fiscal 2018, we had two reportable segments, Athletic Stores and Direct-to-Customers. Beginning in fiscal 2018, the Company has changed its organizational and internal reporting structure in order to execute our omni-channel strategy. This change resulted in the combination of our stores and direct-to-customer financial results.

The Company has determined that it has two operating segments, North America and International. 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, Footaction, and SIX:02, including each of their related e-commerce businesses, as well as our Eastbay business that includes internet, catalog, and team services and sales. Our International operating segment includes the results of the following banners operating in Europe, Australia, and New Zealand: Foot Locker, Runners Point, Sidestep, and Kids Foot Locker, including each of their related e-commerce businesses. We have further aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics. Please see Item 1. “Financial Statements,” Note 3, Segment Information for further information on this change.

Store Count

At ~~October 28, 2017,~~August 4, 2018, we operated ~~3,349~~3,276 stores as compared with ~~3,363~~3,310 and ~~3,394~~3,359 stores at ~~January 28,~~February 3, 2018 and July 29, 2017, ~~and October 29, 2016,~~ respectively.

During the first quarter of 2017, the Company entered into a franchise agreement with Fox-Wizel Ltd, for franchised stores operating in Israel. There are 13 franchised stores operating in Israel as of October 28, 2017. Also, during the second quarter of 2017, the Company terminated its franchise agreement with the third party that operated stores in the Republic of Korea.

A total of 97117 franchised stores were operating at ~~October 28, 2017,~~August 4, 2018, as compared with 74112 and 7182 stores at ~~January 28,~~February 3, 2018 and July 29, 2017, ~~and October 29, 2016,~~ respectively. Revenue from the franchised stores was not significant for any of the periods presented. These stores are not included in the operating store count above.

Reconciliation of Non-GAAP Measures

The Company presents certain non-GAAP measures, such as sales changes excluding foreign currency fluctuations, adjusted net income before income taxes, adjusted net income, and adjusted diluted earnings per share. Throughout the following discussions, where amounts are expressed as excluding the effects of foreign currency fluctuations, such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates.

We present these non-GAAP measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that are not indicative of our core business. Presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our businesses that are not related to currency movements. In addition, these non-GAAP measures are useful in assessing the Company’s progress in achieving its long-term financial objectives.

The non-GAAP financial information is provided in addition to, and not as an alternative to, the Company’s reported results prepared in accordance with GAAP. The Company estimates the tax effect of the non-GAAP adjustments by applying its marginal rate to each of the respective items.

Presented below is a reconciliation of GAAP and non-GAAP results for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 28,~~August 4, 2018 and July 29, 2017, ~~and October 29, 2016,~~ respectively.



	Thirteen weeks ended				Thirty-nine weeks ended
	October 28,		October 29,		October 28,		October 29,		Thirteen weeks ended				Twenty-six weeks ended
	2017		2016		2017		2016		August 4, 2018		July 29, 2017		August 4, 2018		July 29, 2017
	($ in millions)								($ in millions)
Pre-tax income:
Income before income taxes	$	156	$	227	$	498	$	723	$	115	$	73	$	344	$	342
Pre-tax amounts excluded from GAAP:
Reorganization costs		13		—		13		—
Pension litigation charge		—		—		50		—		3		50		15		50
Impairment charge		—		6		—		6
Adjusted income before income taxes (non-GAAP)	$	169	$	233	$	561	$	729	$	118	$	123	$	359	$	392

After-tax income:
Net income	$	102	$	157	$	333	$	475	$	88	$	51	$	253	$	231
After-tax adjustments excluded from GAAP:
Reorganization costs, net of income tax benefit of $5 million		8		—		8		—
Pension litigation charge, net of income tax benefit of $20 million		—		—		30		—
Impairment charge, net of income tax benefit of $1 million		—		5		—		5
Tax benefit related to intellectual property reassessment		—		(10)		—		(10)
Pension litigation charge, net of income tax benefit of $1, $20, $4, and $20 million										2		30		11		30
U.S. tax reform										(1)		—		(1)		—
Tax benefit related to enacted change in foreign branch currency regulations										(1)		—		(1)		—
Adjusted net income (non-GAAP)	$	110	$	152	$	371	$	470	$	88	$	81	$	262	$	261

Earnings per share:
Diluted EPS	$	0.81	$	1.17	$	2.55	$	3.50	$	0.75	$	0.39	$	2.14	$	1.74
Diluted EPS amounts excluded from GAAP:
Reorganization costs		0.06		—		0.06		—
Pension litigation charge		—		—		0.23		—		0.02		0.23		0.09		0.23
Impairment charge		—		0.03		—		0.03
Tax benefit related to intellectual property reassessment		—		(0.07)		—		(0.07)
U.S. tax reform										(0.01)		—		(0.01)		—
Tax benefit related to enacted change in foreign branch currency regulations										(0.01)		—		(0.01)		—
Adjusted diluted EPS (non-GAAP)	$	0.87	$	1.13	$	2.84	$	3.46	$	0.75	$	0.62	$	2.21	$	1.97

During the third quarter ended October 28, 2017, the Company reduced and reorganized its division and corporate staff which resulted in a charge of $13 million, $8 million after-tax or $0.06 per share. The substantial majority of the charge is for severance and related costs.

During the ~~second quarter~~thirteen and twenty-six weeks ended August 4, 2018, the Company recorded pre-tax charges of $3million and $15 million, respectively, in connection with its U.S. retirement plan litigation and required plan reformation. These charges represented $2 million after-tax ($0.02 per share) and $11 million after-tax ($0.09 per share), respectively. During the thirteen and twenty-six weeks ended July 29, 2017, the Company recorded a charge related to the same litigation of $50 million, $30 million after-tax or $0.23 per ~~share, related to pension litigation.~~share. Please see Item 1. “Financial Statements,” Note 14, Legal Proceedings for further information on ~~this charge.~~these charges.

During the fourth quarter of 2017, the United States enacted tax reform legislation that included a broad range of business tax provisions. During the second quarter of 2018, we revised the provisional amount that was originally recorded which resulted in a benefit of $1 million. We revised our estimate of the amount of foreign tax credits that we expect to utilize. Our accounting for tax reform is still incomplete as we have not finalized the deemed repatriation of deferred foreign income and prior-year deferred tax activity. We are continuing to gather additional information to complete our accounting for these items and expect to complete our accounting within the one-year time period provided by SAB 118. Any adjustment to these amounts during the measurement period will be recorded in income tax expense in the period in which the analysis is complete.

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. These regulations, which were promulgated in December 2016, 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 the third quarter of 2016, the Company recorded a $6 million, $5 million after-tax or $0.03 per share, impairment charge associated with underperforming store assets of Runners Point and Sidestep. Also during the third quarter of 2016, the Company’s scheduled triennial reassessment of the value of intellectual property provided to our European business by Foot Locker in the U.S. resulted in a $10 million tax reduction.

We evaluate performance based on several factors, of which the primary financial measure is the banner’s financial results referred to as division profit. Division profit reflects income before income taxes, pension litigation charge, corporate expense, non-operating income, and net interest income. The following table summarizes our results:

All references to comparable-store sales for a given period relate to sales of stores that were open at the period-end and had been open for more than one year. The computation of consolidated comparable-store sales also includes ~~the sales of the Direct-to-Customers segment.~~our direct-to-customer channel. Stores opened or closed during the period are not included in the comparable-store base; however, stores closed temporarily for relocation or remodeling are included. Computations exclude the effect of foreign currency fluctuations.

Sales ~~decreased~~increased by ~~$16~~$81 million, or ~~0.8~~4.8 percent, to ~~$1,870~~$1,782 million for the thirteen weeks ended ~~October 28, 2017,~~August 4, 2018, from ~~$1,886~~$1,701 million for the thirteen weeks ended ~~October~~July 29, ~~2016.~~2017. For the ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017,~~August4,2018, sales ~~decreased by 1.4~~of $3,807 million increased 2.8 percent ~~to $5,572 million~~ from sales of ~~$5,653~~$3,702 million in the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, total sales ~~decreased~~increased by ~~2.3~~3.9 percent and ~~1.5~~0.9 percent for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017,~~August 4, 2018, respectively. ~~Comparable-store~~Total comparable sales ~~decreased~~increased by ~~3.7 and 2.9~~0.5 percent for the thirteen ~~and thirty-nine~~ weeks ended ~~October 28,~~August 4, 2018 and decreased 1.2 percent for the twenty-six weeks ended August 4, 2018 as compared with the corresponding prior-year periods. The main difference between the change in comparable sales and the total change in sales represented the shift caused by the 53rd week of 2017, ~~respectively.~~ which caused more of the higher-volume back-to-school selling period to be included in this quarter’s results.

Effective with the first quarter of 2018, the Company discloses one reportable segment and, accordingly, the following discussion describes the changes in sales by banner on an omni-channel basis, meaning that each banner’s results are inclusive of its store and e-commerce activity.

Excluding the effect of foreign currency, the increase in sales for both the thirteen and twenty-six weeks ended August 4, 2018 primarily reflects sales gains in our Champs Sports, Foot Locker in the U.S., and Kids Foot Locker banners. Our e-commerce businesses in Europe and the U.S. contributed to the sales gains for both the quarter and year-to-date periods. These increases were partially offset by the continued sales decline in our international banners including Foot Locker, Runners Point, and Sidestep. Footaction’s results for the second quarter were essentially flat with the corresponding prior-year period, although for the year-to-date period sales declined.

For both ~~periods, this reflected~~the thirteen and twenty-six weeks ended August 4, 2018, our direct-to-customers channel generated positive comparable sales results and was offset by a decline experienced in the stores channel. From a product perspective for the combined channels, the increase in the quarter was driven by gains in the apparel category, partially offset by a decline in ~~our Athletic Stores segment,~~the footwear category. The year-to-date decline in comparable sales was attributable to a decrease in footwear sales.

The increase in the apparel category for both the quarter and year-to-date periods reflected the continued success in men’s and children’s branded apparel, which was offset, in part, by declines in men’s private-label apparel.

The comparable sales decline in footwear for the thirteen weeks ended August 4, 2018 reflected decreases in women’s and children’s footwear sales, partially offset by angains in sales of men’s footwear. All of these wearer segments experienced comparable declines for the year-to-date period of 2018. For both the quarter and year-to-date periods, the comparable sales decline in women’s footwear primarily reflected decreases in sales of women’s running and court styles. This was the result of our prior-year success of certain women’s offerings with no comparable offerings in the current year. The increase in ~~our Direct-to-Customers segment.~~men’s footwear for the thirteen weeks ended August 4, 2018 primarily represented gains in sales of running styles, which was partially offset by declines in sales of men’s basketball styles. For the year-to-date period, sales of men’s footwear posted a slight comparable sales decline as the gains in sales of running footwear styles were not enough to compensate for the decline in sales of basketball styles.

Gross margin is calculated as sales minus cost of sales. Cost of sales includes: the cost of merchandise, freight, distribution costs including related depreciation expense, shipping and handling, occupancy and buyers’ compensation. Occupancy costs include rent, common area maintenance charges, real estate taxes, general maintenance, and utilities.

The gross margin rate ~~decreased~~increased by ~~290 and 240~~60 basis points for the thirteen ~~and thirty-nine~~ weeks ended ~~October 28, 2017, respectively.~~

August 4, 2018 and decreased by 30 basis points for the twenty-six weeks ended August 4, 2018, as compared with the corresponding prior-year periods. The merchandise margin rate ~~decline~~improvement for the thirteen weeks ended August 4, 2018 primarily reflected lower markdown rates as we increased full-price selling during the current quarter. For the twenty-six weeks ended August 4, 2018, the gross margin rate was lower primarily due to additional promotional activity during the first quarter to maintain appropriate inventory levels. For both the quarter and year-to-date periods, primarily reflected a higher markdown rate in both our Athletic Stores and Direct-to-Customers segments as the Company was more promotional. Additionally, our Direct-to-Customers segment was also somewhat affected by higher shipping and handling ~~expense. The increased promotional activity was necessary to stimulate sales and ensure that inventory levels remained current and in line with~~revenue declined as a result of higher free shipping offers, which negatively affected the ~~pace of sales.~~merchandise margin rate.

The ~~higher~~ occupancy and ~~buyers’~~buyer’s compensation expense rate decreased for ~~both~~the thirteen weeks ended August 4, 2018, which reflected the higher sales, in part due to the shift that resulted due to the 53rd week of 2017, during the quarter ~~and year-to-date periods reflected higher~~as compared with a relatively fixed rent cost. However, the rate increased for the twenty-six weeks ended August 4, 2018 as the increase in sales was not enough to compensate for the increased rent-related costs ~~coupled with a decrease in sales. Higher occupancy costs are~~ primarily attributed to several high-profile location leases entered into ~~recently, partially offset by rent reductions in certain other stores.~~recently.

~~For~~SG&A increased by $41 million, or by 140 basis points, to $380 million for the thirteen weeks ended ~~October 28, 2017, excluding~~August 4,2018, as compared with the ~~effect of foreign currency fluctuations,~~corresponding prior-year period. For the twenty-six weeks ended August 4, 2018, SG&A ~~expense decreased~~increased by $4$55 million, or by 90 basis points, to $765 million, as compared with the corresponding prior-year period. The effect of foreign currency fluctuations for the ~~thirty-nine weeks ended October 28, 2017~~current quarter and year-to-date periods was not significant.~~Comparing the SG&A expense rate with the prior-year periods, the rate increased by 30 and 20 basis points for the thirteen and thirty-nine weeks ended October 28, 2017, respectively~~.

The higher SG&A expense rate for both the quarter and year-to-date periods ~~as compared~~reflected higher wages, higher incentive compensation expense, and an increase in costs incurred in connection with ~~the corresponding prior-year periods, was driven by the Athletic Stores segment~~our ongoing investment in various technology and was primarily related to higher store-related compensation costs and hurricane-related expenses. Wages were higher primarily due to minimum wage increases, as well as related payroll taxes and benefits. As a percentageinfrastructure projects. Corporate expense (a component of ~~sales, store wages and associated costs~~SG&A) increased due to the decline in sales as we were not able to reduce staffing levels commensurate with the rate of decline in sales. In addition, included in SG&A was $7 million of hurricane-related expenses, including lost inventory, damage to fixed assets, and repair and maintenance expenses. These hurricane-related expenses negatively affected the SG&A expense rate for the quarter by 40 basis points. Our Direct-to-Customers segment’s SG&A expense rate declined for bothduring the quarter and year-to-date periods also reflecting ~~decreased publicity and~~increased incentive compensation ~~expenses. Additionally, corporate expense significantly declined during the third quarter and year-to-date periods reflecting primarily reduced~~expense. The increase in incentive compensation ~~expense.~~expense was the result of a reduction in the prior year due to the underperformance of our results. The increase for the year-to-date period was partially offset by a benefit of $5 million recorded in the first quarter relating to insurance recoveries for damaged inventory and fixed assets for losses incurred last year during Hurricane Maria.

Depreciation and amortization increased by $4$2 million and $9$6 million for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017,~~August 4, 2018, respectively, as compared with the corresponding prior-year ~~periods.~~period. The increase in depreciation and amortization reflected ongoing capital spending on store projects, enhancing our digital capabilities, and various other technologies and infrastructure.

Division profit increased by 1.6 percent for the thirteen weeks ended August 4, 2018 and decreased 8.3 percent for the twenty-six weeks ended August 4, 2018, as compared with the corresponding prior-year periods. The increase in division profit for the thirteen weeks ended August 4, 2018 reflects an increase in the gross margin rate as compared with the corresponding prior-year period. For the twenty-six weeks ended August 4, 2018, both the decline in our gross margin rate and the increase in our SG&A expense rate contributed to the decrease in division profit.

Net interest income was unchanged for the thirteen weeks ended August 4, 2018 and increased by ~~$1 million and $3~~$2 million for the twenty-six weeks ended August 4, 2018, as compared with the corresponding prior-year periods. Interest expense was unchanged for both the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017, respectively,~~August 4, 2018 as compared with the corresponding prior-year periods, while interest ~~expense was unchanged. The increase in interest~~ income ~~was~~increased primarily due to higher average interest rates ~~earned~~ on our cash investments.

The Company recorded income tax provisions of $54 million and $165 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, which represented effective tax rates of 34.7 percent and 33.2 percent. For the thirteen and thirty-nine weeks ended October 29, 2016, the Company recorded income tax provisions of $70 million and $248 million, which represented effective tax rates of 30.9 percent and 34.4 percent, respectively.

The Company’s interim provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items that occur within the periods presented.

The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with ~~the~~ applicable authoritative guidance on accounting for income taxes. As a result, the Company 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 effective tax rate for the thirteen weeks ended August 4, 2018 included a tax benefit of $3 million from a reserve release due to a settlement of an international tax examination. The changes in the tax reserves were not significant for ~~any~~the prior-year periods.

During the second quarter of fiscal 2018, the Company reduced its provisional net expense related to the mandatory deemed repatriation of foreign sourced net earnings by $1 million due to arevised estimate of the ~~periods presented.~~foreign tax credits the Company expected to utilize. Please see Item 1. “Financial Statements,” Note 9, Income Taxes for further information.

~~For~~Also during the second quarter of 2018, the U.S. Treasury issued a notice that delayed the effective date of Internal Revenue Code Section 987 regulations 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 of 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.

During 2017, the Company adopted ASU 2016-09 requiring excess tax benefits or deficiencies from share-based compensation to be recorded as a component of the income tax provision, rather than to equity. No significant excess tax benefits were recorded during the thirteen and twenty-six weeks ended August 4, 2018. Excess tax benefits recorded during the thirteen weeks ended ~~October 28,~~July 29, 2017 ~~the Company recorded excess tax benefits of $2~~were not significant; however we recognized $7 million ~~from stock-based compensation reflecting the change required by ASC 718 as well as a tax benefit of $5 million related to a staff reduction and reorganization charge of $13 million. Additionally,~~ for the ~~thirty-nine~~twenty-six weeks ended October 28, 2017, the Company recorded a pension-related litigation charge of $50 million with a related tax benefit of $20 million. The litigation charge and the reorganization costs reduced the overall effective rate because they reduced the proportion of the Company’s worldwide income taxed in jurisdictions where the tax rates are higher.

~~For the thirteen and thirty-nine weeks ended October~~July 29, 2016, due to a scheduled reassessment the Company increased the value of the intellectual property provided to its European business by Foot Locker in the U.S. The higher valuation resulted in catch-up deductions that reduced 2016’s tax expense by $10 million.2017.

Excluding the ~~effects of the excess tax benefits, the litigation charge, the reorganization costs, and the change in the value of the intellectual property, there was no significant change in~~above-mentioned discrete items, the effective tax rate for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017~~August 4, 2018 decreased as compared with the corresponding prior-year period, primarily due to the enactment of the Tax Act which reduced the statutory U.S. federal corporate income tax rate from 35 percent to 21 percent. This was offset, in part, by foreign taxes assessed at rates in excess of the U.S. federal rate for which no U.S. foreign tax credit is available, as well as valuation allowances for certain foreign operating loss carryforwards that the Company estimates it will not be able to utilize in future periods.

The Company currently expects its full-year tax rate to approximate 3427.5 percent excluding the effect of any nonrecurring items that may ~~occur and the effects of potential tax reform.~~occur. The actual tax rate will ~~vary depending on the level of stock option exercise activity and the stock price at exercise. Additionally, the actual tax rate will also~~ vary depending on the level and mix of income earned in the ~~United States,~~various jurisdictions as ~~compared with~~well as the finalization of our ~~international operations.~~accounting for the Tax Act. Please see Item 1. “Financial Statements,” Note 9, Income Taxes for further information.

For the thirteen and twenty-six weeks ended ~~October 28, 2017,~~August 4, 2018, net income ~~decreased~~increased by ~~$55~~$37 million, or 3572.5 percent and ~~diluted earnings per share decreased~~ by ~~31 percent to $0.81 per share,~~ ~~as compared with the corresponding prior-year period. For the thirty-nine weeks ended October 28, 2017, net income decreased by $142~~$22 million, or 309.5 percent ~~and diluted earnings per share decreased by 27 percent to $2.55 per share, as compared with the corresponding prior-year period.~~

We have two reportable segments, Athletic Stores and Direct-to-Customers, which are based on our method of internal reporting. We evaluate performance based on several factors, the primary financial measure of which is division results. Division profit reflects income before income taxes, pension litigation charge, reorganization charge, corporate expense, non-operating income, and net interest (income) / expense. The following table summarizes results by segment:

~~Excluding the effect of foreign currency fluctuations, Athletic Stores segment sales decreased by 3.6 percent and 2.8 percent for the thirteen and thirty-nine weeks ended October 28, 2017,~~, respectively, as compared with the corresponding prior-year periods. ~~The sales decline for the current quarter~~Diluted earnings per share increased by 92.3 percent to $0.75 per share, and ~~year-to-date periods, excluding the effect of foreign currency fluctuations, was across almost all store banners, with the exception of Footaction and Foot Locker Canada, which~~ increased ~~sales.~~

~~Comparable-store sales decreased~~ by ~~5.1~~23.0 percent ~~and 4.5 percent~~to $2.14 per share for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017,~~August 4, 2018, respectively. Foot Locker Canada generated positive comparable-store sales for the quarter and year-to-date periods, while Footaction was positive for the third quarter but not the year-to-date period. All other store banners generated negative comparable-store sales for both periods. The overall decline in comparable-store sales was due to a decrease in footwear sales for both the quarter and year-to-date periods. The footwear sales decline in the quarter was across men’s, women’s, and children’s, whereas the year-to-date decline was related primarily to declines in children’ and men’s footwear. A comparable-sales increase in ~~men’s lifestyle running footwear~~diluted earnings per share for both the quarter and year-to-date periods ~~for the majority of our store banners was not enough to compensate for the comparable-store declines~~reflected an increase in basketball and court lifestyle footwear. The decline in most other footwear categories for both the quarter and year-to-date periods was the result of insufficient product availability of certain styles and the lack of product innovation in select categories to suit our customers’ quickly-changing style preferences. Women’s court styles mainly contributed to the comparable-store sales decline in women’s footwear both domestically and internationally for the quarter. The decline in women’s footwear was most significant in Foot Locker, Lady Foot Locker, and Foot Locker Europe. Sales of children’s footwear declined for the year-to-date period due primarily by declines in the basketball category.

The decline in footwear sales was partially offset by gains in apparel sales, as the majority of our store banners experienced apparel sales gains for both the thirteen and thirty-nine weeks ended October 28, 2017. Most of our banners benefited from gains in men’s branded apparel and outerwear, which was partially offset by declines in private label and licensed apparel for both the quarter and year-to-date periods. Additionally, women’s apparel performed well for our SIX:02 banner for both the quarter and year-to-date periods, although this was largely driven by increased markdowns. For the quarter and year-to-date periods, children’s apparel experienced both total and comparable-store sales increases as compared to the corresponding prior-year periods.

Athletic Stores division profit decreased by 27.7 percent and 26.2 percent for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, as compared with the corresponding prior-year periods. The decline in division profit margin for both the quarter and year-to-date periods was attributable primarily to a lower gross margin rate,net income coupled with a ~~higher SG&A expense rate.~~

Comparable-sales for the Direct-to-Customers segment increased by 6.1 percent and 8.1 percent for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, as compared with the corresponding prior-year periods. The increasereduction of in the ~~quarter was driven primarily by Eastbay and the continued growth~~number of ecommerce sales associated with our store-banner websites, both domestically and internationally. The increase for the year-to-date period was primarily related to the growth of our store-banner websites.

The footwear category continued to deliver the strongest gains during the current quarter and year-to-date periods. The footwear gains related to our domestic store-banner websites and Eastbay for both the quarter and year-to-date periods were driven by strong results in the children’s and men’s footwear categories. For the quarter, the women’s business softened primarily in the running category. Our international store-banner websites for both the quarter and year-to-date periods were primarily driven by sales from men’s and women’s lifestyle running styles.

Direct-to-Customers division profit for the thirteen and thirty-nine weeks ended October 28, 2017 decreased by $6 million and $4 million, respectively, as compared with the corresponding prior-year periods. Division profit,shares outstanding as a ~~percentage~~result of sales, declined by 310 basis points and 150 basis points for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, as compared with the corresponding prior-year periods. While sales increased, the gross margin rate declined due to increased markdowns in response to promotional activity in the market and, to a lesser degree, higher shipping and handling expense. Partially offsetting the gross margin decline was an expense rate improvement primarily related to lower publicity costs and incentive compensation expense in light of current performance as compared with our plan.

~~Corporate expense consists of unallocated SG&A, 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. Depreciation and amortization included in corporate expense was $4 million and $11 million for both the thirteen and thirty-nine weeks ended share repurchase program.~~October 28, 2017 and October 29, 2016, respectively~~.

The allocation of corporate expense to the operating divisions is adjusted annually based upon an internal study; accordingly, the allocation increased by $1 million and $4 million for the thirteen and thirty-nine weeks ended ~~October 28, 2017,~~ thus reducing corporate expense. Excluding the corporate allocation change, corporate expense decreased by $4 million and $15 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.

Incentive compensation declined by $4 million and $11 million for the thirteen weeks and thirty-nine weeks ended October 28, 2017, respectively, reflecting the Company’s underperformance compared to its plan. Share-based compensation declined by $3 million and $6 million for the thirteen weeks and thirty-nine weeks ended October 28, 2017, respectively, which primarily represented the portion of share-based compensation that is tied to Company performance. Additionally, the decline for the thirty-nine weeks ended October 28, 2017 was due to the prior-year corporate headquarters relocation costs of $4 million. These decreases were partially offset by a $2 million litigation settlement charge recorded during the third quarter of 2017 and increased corporate support costs such as information technology and real estate management.

Our primary source of liquidity has been cash flow from earnings, while the principal uses of cash have ~~been: to~~been to: fund inventory and other working capital requirements; to finance capital expenditures related to store openings, store remodelings, Internet and mobile sites, information systems, and other support facilities; to make retirement plan contributions, quarterly dividend payments, and interest payments; and to fund other cash requirements to support the development of our short-term and long-term operating strategies. We generally finance real estate with operating leases. We believe our cash, cash equivalents, and future cash flow from operations will be adequate to fund these requirements.

The Company may also from time to time repurchase its common stock or seek to retire or purchase outstanding debt through open market purchases, privately negotiated transactions, or otherwise. Share repurchases and retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. As of ~~October 28, 2017,~~August 4, 2018, approximately ~~$863~~$554 million remained available under the Company’s current $1.2 billion share repurchase program.

As discussed further in the Legal Proceedings note under “Item 1. Financial Statements,” during the ~~second quarter of 2017, in connection with our pension litigation,~~thirteen and twenty-six weeks ended August 4, 2018, we recorded a pre-tax charge of ~~$50~~$3 million ($30 2million after-tax or ~~$0.23~~$0.02 per diluted share)~~. The Company previously recorded a pre-tax charge of $100~~and $15 million ~~during 2015. The second quarter 2017 charge reflects the Company’s revised estimate of its exposure for the matter, bringing the total pre-tax amount accrued to $150 million.~~ ~~In light of the uncertainties involved in this matter, there is no assurance that the ultimate resolution will not differ from the amount currently accrued by us. The total accrual of $150~~($11 million has been classified as a long-term liability due to the uncertainty involved with the resolution of this litigation, as the appeal process may be lengthy. The pension plan is currently sufficiently funded to initially absorb a $150 million liability and, accordingly, we currently do not anticipate the need to make any pension contributions in the near term after-tax or $0.09 per diluted share), respectively, in connection with ~~this matter.~~the pension litigation. During the second quarter of 2018, the Company reformed its U.S. qualified pension plan, which required the remeasurement of the pension liabilities and payment to plaintiffs’ counsel of $97 million representing class counsel fees awarded in the judgment. The ~~timing~~Company contributed $30million to its U.S. qualified pension plan in May 2018 and intends make another contribution in the amount of $98 million in September 2018 to fund a portion of this liability. Future contributions to the pension plan are dependent on ~~the funded status of the plan and various other~~several factors, ~~such as interest rates and~~including the performance of the plan’s ~~assets.~~assets and interest rates.

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

The amount provided by operating activities reflects net income adjusted for non-cash items and working capital changes. Adjustments to net income for non-cash items include depreciation and amortization, and share-based compensation expense.

The increase from the prior year primarily reflects net income adjusted for working capital changes and a decrease of $26 million in cash paid for income taxes during the twenty-six weeks ended August 4, 2018. This was partially offset by an increase in pension contributions. During the ~~decline in net income~~twenty-six weeks ended August 4, 2018, we contributed $30 million to our U.S. qualified pension plan as compared with $25 million in the ~~prior year.~~corresponding prior-year period. In connection with the pension litigation and the associated court order, the Company paid class counsel $97 million during the second quarter of 2018.

Capital expenditures ~~were $11~~declined by $35 million ~~higher than~~compared with the ~~prior year. The increase was due to increased~~corresponding prior-year period. This represented a decline in spending on ~~technology~~store projects ~~and cash payments~~partially offset by an increase related to ~~the 2016 capital program.~~technology projects. The Company’s full-year capital spending is expected to be approximately ~~$269~~$229 million, which includes ~~$198~~$130 million related to the remodeling or relocation of approximately ~~180~~115 existing stores and the opening of approximately 9050 new stores, as well as ~~$71~~$99 million for the development of information systems, websites, and infrastructure, including supply chain initiatives. Additionally, investing activities for the twenty-six weeks ended August 4, 2018 includes the receipt of insurance proceeds of $2 million for fixed assets from an insurance claim relating to Hurricane Maria.

During the ~~thirty-nine~~twenty-six weeks ended ~~October 28, 2017,~~August 4, 2018, we repurchased ~~9,589,660~~4,452,405 shares of our common stock for ~~$362~~$205 million, as compared with ~~5,874,643~~896,100 shares repurchased for ~~$352~~$59 million in the corresponding prior-year period.

The Company also declared and paid dividends of $81 million and $82 million during the first ~~three~~two quarters of ~~2017~~2018 and ~~2016 of $120 million and $111 million,~~2017, respectively. This represented quarterly rates of ~~$0.31~~$0.345 and ~~$0.275~~$0.31 per share for ~~2017~~2018 and ~~2016,~~2017, respectively.

~~Additionally, we received proceeds from the issuance of common stock in connection with employee stock programs of $17 million and $28 million for the thirty-nine weeks ended October 28, 2017~~ ~~and October29,2016, respectively.~~ Also, during the ~~thirty-nine~~twenty-six weeks ended ~~October 28,~~August 4, 2018 and July 29, 2017, ~~and October29,2016, the Company~~we paid ~~$10~~$1 million and $6$9 million, respectively, to satisfy tax withholding obligations relating to the vesting of share-based equity awards.

~~Included in~~Offsetting the ~~prior year’s financing activities~~amounts above were ~~fees~~proceeds received from the issuance of ~~$2 million paid~~common stock and treasury stock in connection with employee stock programs of $4 million and $10 million for the ~~2016 Credit Agreement.~~twenty-six weeks ended August 4, 2018 and July 29, 2017, respectively.

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 ~~January 28, 2017.~~February 3, 2018.

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

The Company’s contractual cash obligations and commercial commitments at August 4, 2018 and the effects such obligations and commitments are expected to have on the Company’s liquidity and cash flows in future periods have not changed significantly since February 3, 2018 other than amounts related to tax reform. The Company had previously disclosed its plans to elect to pay the tax related to the mandatory deemed repatriation (“toll charge”) in annual installments over an eight year period. However, during the first quarter of 2018, the IRS issued a Q&A which indicated that a taxpayer may not receive a refund, or credit any portion of properly applied 2017 tax payments, unless the amount of payments exceeds the entire unpaid toll charge. Due to the Company’s prepayments with the IRS, the entire amount of the toll charge has been satisfied. Approximately $10 million related to tax reform remains payable; however, the timing of this payment is not determinable at this time.

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 point-of-sale software to a new platform. Approximately 1,200 stores have been converted to the new software platform as of August 4, 2018, and we expect to complete the implementation in spring 2019. In connection with this implementation and resulting business process changes, we may make changes to the design and operation to our internal control over financial reporting.

During the quarter ended ~~October 28, 2017,~~August 4, 2018, there were no changes in the Company’s internal control over financial reporting, other than the implementation of new point-of-sale software noted above, (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.

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

There were no material changes to the risk factors disclosed in the ~~2016~~2017 Annual Report on Form 10-K.

The following table provides information with respect to shares of the Company’s common stock that the Company repurchased during the thirteen weeks ended ~~October 28, 2017:~~ August 4, 2018:

~~The exhibits that are in~~Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report ~~immediately follow~~to be signed on its behalf by the ~~index.~~undersigned thereunto duly authorized.

~~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.~~


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



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐


		($ in millions)		($ in millions)
Remainder of 2017	$	1
2018		4
Remainder of 2018			$	2
2019		4		4
2020		3		3
2021		2		2
2022		2		2
2023				2



		($ in millions)
Amortization of actuarial (gain) loss:
Pension benefits- amortization of actuarial loss	$	106
Postretirement benefits- amortization of actuarial gain		(1)
Net periodic benefit cost (see Note 12)		95
Income tax benefit		~~(3)~~(1)
Net of tax	$	64


	Level 2 –	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

	Level 3 –	Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.


☑	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
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Comprehensive Income	3
		Condensed Consolidated Statements of Cash Flows	4
		Notes to Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1716
	Item 4.	Controls and Procedures	2625

PART II	OTHER INFORMATION
	Item 1.	Legal Proceedings	26
	Item 1A.	Risk Factors	26
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
	Item 6.	Exhibits	26

SIGNATURE			27

INDEX OF EXHIBITS			28


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



					Items Related										Items Related
	Foreign Currency				to Pension and		Unrealized Loss on				Foreign Currency				to Pension and
	Translation		Cash Flow		Postretirement		Available-For-				Translation		Cash Flow		Postretirement
($ in millions)	Adjustments		Hedges		Benefits		Sale Security		Total		Adjustments		Hedges		Benefits		Total
Balance as of January 28, 2017	$	(127)	$	1	$	(236)	$	(1)	$	(363)
Balance as of February 3, 2018											$	(9)	$	—	$	(270)	$	(279)
OCI before reclassification		70		1		(1)		1		71		(58)		1		1		(56)
Reclassified from AOCL		—		—		6		—		6
Amortization of pension actuarial (gain)/loss, net of tax												—		—		4		4
Pension remeasurement, net of tax												—		—		(9)		(9)
Other comprehensive income		70		1		5		1		77		(58)		1		(4)		(61)
Balance as of October 28, 2017	$	(57)	$	2	$	(231)	$	—	$	(286)
Balance as of August 4, 2018											$	(67)	$	1	$	(274)	$	(340)



	Balance Sheet	October 28,		October 29,		January 28,
($ in millions)	Caption	2017		2016		2017
Hedging Instruments:
Foreign exchange forward contracts	Current assets	$	2	$	7	$	3
Foreign exchange forward contracts	Current liabilities	$	1	$	—	$	3
Non-hedging Instruments:
Foreign exchange forward contracts	Current assets	$	—	$	1	$	—


	Level 1–	Quoted prices for identical instruments in active markets.



	Pension Benefits								Postretirement Benefits								Pension Benefits								Postretirement Benefits
	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Twenty-six weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	Oct. 28,		Oct. 29,		Oct. 28,		Oct. 29,		Oct. 28,		Oct. 29,		Oct. 28,		Oct. 29,		Aug. 4,		July 29,		Aug. 4,		July 29,		Aug. 4,		July 29,		Aug. 4,		July 29,
($ in millions)	2017		2016		2017		2016		2017		2016		2017		2016		2018		2017		2018		2017		2018		2017		2018		2017
Service cost	$	4	$	4	$	12	$	12	$	—	$	—	$	—	$	—	$	4	$	4	$	9	$	8	$	—	$	—	$	—	$	—
Interest cost		6		6		19		19		—		1		—		1		7		7		13		13		—		—		—		—
Expected return on plan assets		(9)		(9)		(28)		(27)		—		—		—		—		(9)		(10)		(19)		(19)		—		—		—		—
Amortization of net loss (gain)		3		4		10		11		—		(1)		(1)		(2)		3		4		6		7		(1)		(1)		(1)		(1)
Net benefit expense (income)	$	4	$	5	$	13	$	15	$	—	$	—	$	(1)	$	(1)	$	5	$	5	$	9	$	9	$	(1)	$	(1)	$	(1)	$	(1)



		Stock Option Plans						Stock Purchase Plan						Stock Option Plans						Stock Purchase Plan
		October 28,			October 29,			October 28,			October 29,			August 4,			July 29,			August 4,			July 29,
		2017			2016			2017			2016			2018			2017			2018			2017
Weighted-average risk free rate of interest		2.1	%		1.4	%		0.9	%		0.4	%		2.7	%		2.1	%		1.6	%		0.8	%
Expected volatility		25	%		30	%		29	%		27	%		37	%		25	%		41	%		29	%
Weighted-average expected award life (in years)		5.4			5.7			1.0			1.0			5.5			5.3			1.0			1.0
Dividend yield		1.9	%		1.7	%		2.0	%		1.7	%		3.1	%		1.7	%		2.3	%		2.0	%
Weighted-average fair value	$	14.74		$	15.71		$	10.84		$	14.04		$	12.37		$	15.56		$	14.89		$	10.61



		Weighted-		Weighted-			Weighted-		Weighted-
	Number	Average		Average		Number	Average		Average
	of	Remaining		Exercise		of	Remaining		Exercise
	Shares	Contractual Life		Price		Shares	Contractual Life		Price
	(in thousands)	(in years)		(per share)		(in thousands)	(in years)		(per share)
Options outstanding at the beginning of the year	2,806			$	42.61	2,739			$	52.45
Granted	547				69.58	380				44.82
Exercised	(536)				21.38	(134)				31.47
Expired or cancelled	(19)				61.01	(48)				57.91
Options outstanding at October 28, 2017	2,798		6.7	$	51.82
Options exercisable at October 28, 2017	1,729		5.4	$	42.91
Options available for future grant at October 28, 2017	10,759
Options outstanding at August 4, 2018						2,937		6.5	$	52.33
Options exercisable at August 4, 2018						2,054		5.4	$	50.00
Options available for future grant at August 4, 2018						8,323


(Mark One)



	Options Outstanding				Options Exercisable			Options Outstanding				Options Exercisable
		Weighted-							Weighted-
		Average		Weighted-			Weighted-		Average		Weighted-			Weighted-
		Remaining		Average			Average		Remaining		Average			Average
Range of Exercise	Number	Contractual		Exercise	Number		Exercise	Number	Contractual		Exercise	Number		Exercise
Prices	Outstanding	Life		Price	Exercisable		Price	Outstanding	Life		Price	Exercisable		Price
	(in thousands, except prices per share and contractual life)							(in thousands, except prices per share and contractual life)
$9.85 to $24.75	344	2.7	$	16.77	344	$	16.77
$30.92 to $45.75	787	5.5		38.33	747		38.50
$48.55 to $62.11	704	6.9		61.05	472		61.35
$9.85 to $18.84								240	2.2	$	17.10	240	$	17.10
$24.75 to $34.75								395	4.5		32.16	356		31.88
$44.78 to $45.75								663	7.7		44.92	299		45.08
$46.64 to $62.11								699	6.0		60.98	683		61.22
$63.79 to $73.21	963	8.8		68.60	166		64.35	940	7.9		68.57	476		67.13
	2,798	6.7	$	51.82	1,729	$	42.91	2,937	6.5	$	52.33	2,054	$	50.00


(1)	Approximately 0.4 million performance-based RSUs were granted during the first quarter of 2018 and are included as granted in the table above. The number of performance-based RSUs that are ultimately earned may vary from 0% to 200% of target depending on the achievement relative to the Company’s predefined financial performance targets.
(2)	In addition to forfeitures of restricted stock and RSUs, cancellations include adjustments that were made to performance-based RSUs previously granted. These adjustments reflect changes in estimates based upon the Company’s current performance against predefined financial targets.


~~(1)~~	~~Included in the thirteen and thirty-nine weeks ended October 29, 2016 is a $6 million pre-tax non-cash impairment charge to write-down long-lived store assets of Runners Point and Sidestep.~~
~~(2)~~	~~Included in the thirteen and thirty-nine weeks ended October 28, 2017 is a charge of $50 million relating to a pension litigation matter described further in Note 14,~~ ~~Legal Proceedings~~.
~~(3)~~	Included in the thirteen and thirty-nine weeks ended October 28, 2017 is a $13 million pre-tax charge related to the reduction and reorganization of division and corporate staff that occurred in the third quarter of 2017. The substantial majority of the charge is for severance and related costs.
~~(4)~~	Other income includes non-operating items, such as lease termination gains, royalty income, insurance recoveries and the changes in fair value, premiums paid, and realized gains and losses associated with foreign currency option contracts.



					Approximate
				Total Number of	Dollar Value of
	Total	Average		Shares Purchased as	Shares that may
	Number	Price		Part of Publicly	yet be Purchased
	of Shares	Paid Per		Announced	Under the
Date Purchased	Purchased (1)	Share (1)		Program (2)	Program (2)
July 30 - Aug. 26, 2017	3,002,574	$	35.17	3,000,000	$	1,061,038,524
Aug. 27 - Sept. 30, 2017	4,788,800		35.34	4,788,760		891,816,280
Oct. 1 - Oct. 28, 2017	904,800		31.85	904,800		862,996,130
	8,696,174	$	34.92	8,693,560

(a)	Exhibits
	The exhibits that are in this report immediately follow the index.