CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(in millions, expect per share amounts)~~

(Unaudited)

October 31,

November 2,

February 1,


2020

2019

2020


(Unaudited)

(Unaudited)

*

ASSETS







Current assets:







Cash and cash equivalents

$
1,393

$
744

$
907

Merchandise inventories

1,193

1,304

1,208

Other current assets

237

299

271

2,823

2,347

2,386

Property and equipment, net

773

814

824

Operating lease right-of-use assets

2,752

2,956

2,899

Deferred taxes

69

93

81

Goodwill

158

156

156

Other intangible assets, net

18

21

20

Minority investments

340

151

142

Other assets

85

83

81

$
7,018

$
6,621

$
6,589

LIABILITIES AND SHAREHOLDERS’ EQUITY







Current liabilities:







Accounts payable

$
514

$
396

$
333

Accrued and other liabilities

451

333

343

Current portion of obligations under finance leases

2

—

—

Current portion of operating lease obligations

575

508

518

1,542

1,237

1,194

Long-term debt and obligations under finance leases

129

122

122

Long-term operating lease obligations

2,514

2,719

2,678

Other liabilities

181

116

122

Total liabilities

4,366

4,194

4,116

Shareholders’ equity

Common stock and paid-in capital: 104,451,566;

113,204,118; and 104,187,310 shares outstanding, respectively

777

832

764

Retained earnings

2,245

2,310

2,103

Accumulated other comprehensive loss

(365)

(382)

(394)

Less: Treasury stock at cost: 326,727;

8,139,520; and -- shares, respectively

(11)

(333)

—

Noncontrolling interest

6

—

—

Total shareholders' equity

2,652

2,427

2,473

$
7,018

$
6,621

$
6,589


	July 31,		August 1,		January 30,
($ in millions, except share amounts)	2021		2020		2021*
ASSETS

Current assets:
Cash and cash equivalents	$	1,845	$	1,373	$	1,680
Merchandise inventories		1,081		1,194		923
Other current assets		252		266		232
		3,178		2,833		2,835
Property and equipment, net		743		782		788
Operating lease right-of-use assets		2,569		2,810		2,716
Deferred taxes		108		70		101
Goodwill		158		158		159
Other intangible assets, net		16		19		17
Minority investments		728		150		337
Other assets		85		90		90
	$	7,585	$	6,912	$	7,043

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	539	$	630	$	402
Accrued and other liabilities		474		455		560
Current portion of debt and obligations under finance leases		102		—		102
Current portion of lease obligations		566		587		580
		1,681		1,672		1,644
Long-term debt and obligations under finance leases		10		124		8
Long-term lease obligations		2,363		2,579		2,499
Other liabilities		190		134		116
Total liabilities		4,244		4,509		4,267
Commitments and contingencies
Shareholders’ equity:
Common stock and paid-in capital: 104,515,702; 104,391,691; and 103,693,359 shares issued, respectively		799		774		779
Retained earnings		2,916		1,996		2,326
Accumulated other comprehensive loss		(338)		(367)		(331)
Less: Treasury stock at cost: 714,490; 426; and 74,236 shares, respectively		(41)		—		(3)
Noncontrolling interest		5		—		5
Total shareholders' equity		3,341		2,403		2,776
	$	7,585	$	6,912	$	7,043

The balance sheet at ~~February 1, 2020~~January 30, 2021 has been derived from the previously reported audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Foot Locker, Inc.’s Annual Report on Form 10-K for the year ended ~~February 1, 2020.~~January 30, 2021.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 1

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

~~(in millions, expect per share amounts)~~

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,


2020

2019

2020

2019

Sales

$
2,106

$
1,932

$
5,359

$
5,784

Cost of sales

1,456

1,312

3,900

3,941

Selling, general and administrative expenses

424

411

1,127

1,220

Depreciation and amortization

44

44

132

134

Impairment and other charges

4

1

58

16

Income from operations

178

164

142

473

Interest (expense) income, net

(2)

3

(5)

9

Other income, net

193

4

197

8

Income before income taxes

369

171

334

490

Income tax expense

104

46

134

133

Net income

$
265

$
125

$
200

$
357

Basic earnings per share

$
2.54

$
1.16

$
1.92

$
3.24

Weighted-average shares outstanding

104.4

106.9

104.4

110.0

Diluted earnings per share

$
2.52

$
1.16

$
1.91

$
3.23

Weighted-average shares outstanding, assuming dilution

105.3

107.2

105.1

110.5


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
($ in millions, except per share amounts)	2021		2020		2021		2020
Sales	$	2,275	$	2,077	$	4,428	$	3,253

Cost of sales		1,477		1,539		2,881		2,444
Selling, general and administrative expenses		450		387		868		703
Depreciation and amortization		48		44		93		88
Impairment and other charges		36		38		40		54
Income (loss) from operations		264		69		546		(36)

Interest expense, net		(2)		(2)		(4)		(3)
Other income, net		325		3		329		4
Income (loss) before income taxes		587		70		871		(35)
Income tax expense		157		25		239		30
Net income (loss)	$	430	$	45	$	632	$	(65)

Basic earnings (loss) per share	$	4.14	$	0.43	$	6.10	$	(0.62)
Weighted-average shares outstanding		103.8		104.5		103.7		104.4

Diluted earnings (loss) per share	$	4.09	$	0.43	$	6.02	$	(0.62)
Weighted-average shares outstanding, assuming dilution		105.2		105.1		105.1		104.4

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 2

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

~~(in millions)~~


		Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	October 31,		November 2,		October 31,		November 2,		July 31,		August 1,		July 31,		August 1,
	2020		2019		2020		2019
Net income	$	265	$	125	$	200	$	357
Other comprehensive income, net of income tax
($ in millions)									2021		2020		2021		2020
Net income (loss)									$	430	$	45	$	632	$	(65)
Other comprehensive income (loss), net of income tax

Foreign currency translation adjustment:
Translation adjustment arising during the period, net of income tax of $-, $2, $2, and $1, respectively		—		5		20		(16)
Translation adjustment arising during the period, net of income tax expense of $-, $4, $1, and $2, respectively										(14)		36		(10)		20

Cash flow hedges:
Change in fair value of derivatives, net of income tax expense of $-, $-, $1, and $- respectively		—		(5)		3		(2)
Change in fair value of derivatives, net of income tax expense of $-, $-, $-, and $1, respectively										—		—		—		3

Pension and postretirement adjustments:
Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $-, $-, $2 and $-, respectively		2		2		6		6
Comprehensive income	$	267	$	127	$	229	$	345
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, respectively										2		1		3		4
Comprehensive income (loss)									$	418	$	82	$	625	$	(38)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 3

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

~~(amounts in millions, share amounts in thousands)~~


	Additional Paid-In								Accumulated
	Capital &								Other				Total
Thirteen weeks ended	Common Stock			Treasury Stock			Retained		Comprehensive		Noncontrolling		Shareholders'
(shares in thousands, amounts in millions)	Shares	Amount		Shares	Amount		Earnings		Loss		interests		Equity
Balance at May 1, 2021	104,286	$	791	(887)	$	(47)	$	2,507	$	(326)	$	5	$	2,930
Restricted stock issued	11		—											—
Issued under director and stock plans	219		7											7
Share based compensation expense			8											8
Shares of common stock used to satisfy tax withholding obligations				(3)		(1)								(1)
Share repurchases				(125)		(7)								(7)
Reissued for Employee Stock Purchase Plan ("ESPP")			(7)	301		14								7
Net income								430						430
Cash dividends declared on common stock ($0.20 per share)								(21)						(21)
Translation adjustment, net of tax										(14)				(14)
Pension and postretirement adjustments, net of tax										2				2
Balance at July 31, 2021	104,516	$	799	(714)	$	(41)	$	2,916	$	(338)	$	5	$	3,341

Balance at May 2, 2020	104,245	$	767	(23)	$	—	$	1,951	$	(404)	$	—	$	2,314
Restricted stock issued	13		—											—
Issued under director and stock plans	134		3											3
Share-based compensation expense			4											4
Reissued for ESPP				23		—								—
Net income								45						45
Translation adjustment, net of tax										36				36
Pension and postretirement adjustments, net of tax										1				1
Balance at August 1, 2020	104,392	$	774	—	$	—	$	1,996	$	(367)	$	—	$	2,403

Additional Paid-In







Accumulated




Capital &

Other

Total

Common Stock

Treasury Stock

Retained
Comprehensive

Noncontrolling

Shareholders'
Thirteen weeks ended

Shares

Amount

Shares

Amount

Earnings
Loss

interest

Equity
Balance at August 1, 2020

104,392

$
774

—

$
—

$
1,996

$
(367)

$
—

$
2,403
Restricted stock issued

53

—
Issued under director and stock plans

7

1

1
Share-based compensation expense

2

2
Shares of common stock used to satisfy tax withholding obligations

(19)

(1)

(1)
Share repurchases

(308)

(10)

(10)
Net income

265

265
Cash dividends declared on common stock ($0.15 per share)

(16)

(16)
Noncontrolling interest acquired

6

6
Pension and postretirement adjustments, net of tax

2

2
Balance at October 31, 2020

104,452

$
777

(327)

$
(11)

$
2,245

$
(365)

$
6

$
2,652

Thirty-nine weeks ended

Balance at February 1, 2020

104,188

$
764

—

$
—

$
2,103

$
(394)

$
—

$
2,473
Restricted stock issued

120

—
Issued under director and stock plans

144

4

4
Share-based compensation expense

9

9
Shares of common stock used to satisfy tax withholding obligations

(42)

(1)

(1)
Share repurchases

(308)

(10)

(10)
Reissued - ESPP

23

—
Net income

200

200
Cash dividends declared on common stock ($0.55 per share)

(58)

(58)
Noncontrolling interest acquired

6

6
Translation adjustment, net of tax

20

20
Change in cash flow hedges, net of tax

3

3
Pension and postretirement adjustments, net of tax

6

6
Balance at October 31, 2020

104,452

$
777

(327)

$
(11)

$
2,245

$
(365)

$
6

$
2,652


	Additional Paid-In								Accumulated
	Capital &								Other				Total
Twenty-six weeks ended	Common Stock			Treasury Stock			Retained		Comprehensive		Noncontrolling		Shareholders'
(shares in thousands, amounts in millions)	Shares	Amount		Shares	Amount		Earnings		Loss		interests		Equity
Balance at January 30, 2021	103,693	$	779	(74)	$	(3)	$	2,326	$	(331)	$	5	$	2,776
Restricted stock issued	479		—											—
Issued under director and stock plans	344		11											11
Share based compensation expense			16											16
Shares of common stock used to satisfy tax withholding obligations				(195)		(11)								(11)
Share repurchases				(746)		(41)								(41)
Reissued for ESPP			(7)	301		14								7
Net income								632						632
Cash dividends declared on common stock ($0.40 per share)								(42)						(42)
Translation adjustment, net of tax										(10)				(10)
Pension and postretirement adjustments, net of tax										3				3
Balance at July 31, 2021	104,516	$	799	(714)	$	(41)	$	2,916	$	(338)	$	5	$	3,341

Balance at February 1, 2020	104,188	$	764	—	$	—	$	2,103	$	(394)	$	—	$	2,473
Restricted stock issued	67		—											—
Issued under director and stock plans	137		3											3
Share-based compensation expense			7											7
Shares of common stock used to satisfy tax withholding obligations				(23)		—								—
Reissued for ESPP				23		—								—
Net loss								(65)						(65)
Cash dividends declared on common stock ($0.40 per share)								(42)						(42)
Translation adjustment, net of tax										20				20
Change in cash flow hedges, net of tax										3				3
Pension and postretirement adjustments, net of tax										4				4
Balance at August 1, 2020	104,392	$	774	—	$	—	$	1,996	$	(367)	$	—	$	2,403

See Accompanying Notes to the Unaudited CondensedConsolidated Financial Statements.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 4

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN SHAREHOLDERS’ EQUITY~~CASH FLOWS

(Unaudited)

~~(amounts in millions, share amounts in thousands)~~

Additional Paid-In







Accumulated




Capital &

Other

Total

Common Stock

Treasury Stock

Retained
Comprehensive

Noncontrolling

Shareholders'
Thirteen weeks ended

Shares

Amount

Shares

Amount

Earnings
Loss

interest

Equity
Balance at August 3, 2019

113,200

$
825

(3,579)

$
(155)

$
2,226

$
(384)

$
—

$
2,512
Issued under director and stock plans

4

1

1
Share-based compensation expense

6

6
Share repurchases

(4,561)

(178)

(178)
Net income

125

125
Cash dividends declared on common stock ($0.38 per share)

(41)

(41)
Translation adjustment, net of tax

5

5
Change in cash flow hedges, net of tax

(5)

(5)
Pension and postretirement adjustments, net of tax

2

2
Balance at November 2, 2019

113,204

$
832

(8,140)

$
(333)

$
2,310

$
(382)

$
—

$
2,427

Thirty-nine weeks ended

Balance at February 2, 2019

112,933

$
809

(711)

$
(37)

$
2,104

$
(370)

$
—

$
2,506
Restricted stock issued

88

—
Issued under director and stock plans

183

4

4
Share-based compensation expense

19

19
Shares of common stock used to satisfy tax withholding obligations

(32)

(2)

(2)
Share repurchases

(7,493)

(300)

(300)
Reissued - ESPP

96

6

6
Retirement of treasury stock

—
Net income

357

357
Cash dividends declared on common stock ($1.14 per share)

(125)

(125)
Translation adjustment, net of tax

(16)

(16)
Change in cash flow hedges, net of tax

(2)

(2)
Pension and postretirement adjustments, net of tax

6

6
Cumulative effect of the adoption of Topic 842

(26)

(26)
Balance at November 2, 2019

113,204

$
832

(8,140)

$
(333)

$
2,310

$
(382)

$
—

$
2,427

~~See Accompanying Notes to the~~ ~~Unaudited~~ ~~Condensed Consolidated Financial Statements.~~

~~Third Quarter 2020 Form 10-Q Page 5~~

~~Table of Contents~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(in millions)~~


	Thirty-nine weeks ended				Twenty-six weeks ended
	October 31,		November 2,		July 31,		August 1,
	2020		2019
($ in millions)					2021		2020
From operating activities:
Net income	$	200	$	357
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)					$	632	$	(65)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash impairment and other charges						45		31
Non-cash gains		(190)		(4)		(314)		—
Non-cash impairment and other charges		32		—
Depreciation and amortization		132		134		93		88
Deferred income taxes		73		(5)		67		22
Share-based compensation expense		9		19		16		7
Qualified pension plan contributions		—		(55)
Change in assets and liabilities:
Merchandise inventories		13		(42)		(163)		12
Accounts payable		177		12		139		291
Accrued and other liabilities		122		(36)		(12)		142
Insurance receivable for inventory loss						8		—
Other, net		104		17		(109)		78
Net cash provided by operating activities		672		397		402		606
From investing activities:
Capital expenditures		(116)		(126)		(87)		(83)
Minority investments		(8)		(48)		(78)		(8)
Proceeds from sale of property						3		—
Insurance proceeds related to loss on property and equipment						3		—
Net cash used in investing activities		(124)		(174)		(159)		(91)
From financing activities:
Dividends paid on common stock						(42)		(42)
Purchase of treasury shares						(41)		—
Proceeds from exercise of stock options						10		—
Treasury stock reissued under employee stock plan						7		—
Shares of common stock repurchased to satisfy tax withholding obligations						(11)		—
Payment of obligations under finance leases						(1)		—
Payment of revolving credit agreement costs						(1)		(4)
Proceeds from common stock issued under employee stock plan						—		2
Proceeds from the revolving credit facility		330		—		—		330
Repayment of the revolving credit facility		(330)		—		—		(330)
Payment of revolving credit agreement costs		(4)		—
Contribution from non-controlling interest		6		—
Purchase of treasury shares		(10)		(300)
Dividends paid on common stock		(58)		(125)
Proceeds from exercise of stock options		—		5
Treasury stock reissued under employee stock plan		—		3
Proceeds from common stock issued under employee stock plans		2		—
Shares of common stock repurchased to satisfy tax withholding obligations		(1)		(2)
Net cash used in financing activities		(65)		(419)		(79)		(44)
Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash		5		(6)		(1)		(3)
Net change in cash, cash equivalents, and restricted cash		488		(202)		163		468
Cash, cash equivalents, and restricted cash at beginning of year		942		981		1,718		942
Cash, cash equivalents, and restricted cash at end of period	$	1,430	$	779	$	1,881	$	1,410

Cash paid during the year:
Interest	$	8	$	5	$	6	$	7
Income taxes	$	55	$	163	$	229	$	11

Non-cash investing and financing activities:
Non-cash investing activities:
Cash paid for amounts included in measurement of lease liabilities	$	445	$	506	$	358	$	279
Right-of-use assets obtained in exchange for operating lease obligations	$	212	$	211	$	171	$	135
Leases obtained in exchange for finance lease obligations	$	11	$	—
Assets obtained in exchange for finance lease obligations					$	4	$	4

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 65

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

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

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the accompanying Unaudited Condensed Consolidated Financial Statements and these Notes and related disclosures. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The results of operations for the ~~periods~~period ended ~~October~~July 31, ~~2020~~2021 are not necessarily indicative of the results to be expected for the full fiscal year due to the continued uncertainty of general economic conditions that may affect us for the remainder of ~~2020.~~2021. Specifically, ~~we are uncertain of~~ the ~~extent to which the coronavirus~~ongoing pandemic (“COVID-19”) ~~pandemic will~~including the dissemination and adoption of COVID-19 vaccines and their effectiveness against COVID-19 and its evolving strains, some of which may be more transmissible or virulent than the initial strain or additional widespread resurgences in COVID-19 infections, including evolving safety protocols including requirements for proof of vaccination, are significant uncertainties. COVID-19, as well as port delays, may affect our sales, traffic to our stores, our distribution capabilities, and distribution capabilities of our suppliers.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in ~~Foot Locker, Inc.’s~~our Form 10-K for the year ended ~~February 1, 2020,~~January 30, 2021, as filed with the U.S. Securities and Exchange Commission on March ~~27, 2020.~~25, 2021.

~~Other than the changes to the~~ ~~Goodwill~~ ~~policies as a result of the recently adopted accounting standards discussed below, there~~There were no significant changes to the policies disclosed in Note 1, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the year ended ~~February 1, 2020.~~January 30, 2021.

Recent Accounting Pronouncements

On February 2, 2020, we adopted FASB guidance on the accounting for implementation costs of a cloud computing arrangement that is considered to be a service contract, that requires companies to follow the guidance for internal-use software to determine which costs to capitalize in a cloud computing arrangement that is a service contract. Under this guidance, such implementation costs will be capitalized in Other assets on the Condensed Consolidated Balance Sheet, with the related amortization presented in Selling, general and administrative expenses on the Condensed Consolidated Statement of Operations. This guidance was applied prospectively to implementation costs incurred after February 2, 2020. The adoption of this guidance did not have a significant effect on our condensed consolidated financial statements.

On February 2, 2020, we adopted FASB’s updated guidance on the accounting for performing goodwill impairment tests. This update eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. In testing goodwill for impairment, an entity may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Refer to our updated accounting policy in Note 6, ~~Goodwill.~~

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

2. Revenue

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


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
($ in millions)	2021		2020		2021		2020
Sales by Channel
Stores	$	1,817	$	1,388	$	3,437	$	2,202
Direct-to-customers		458		689		991		1,051
Total sales	$	2,275	$	2,077	$	4,428	$	3,253

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 76

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~2. Revenue~~

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

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,
($ in millions)

2020

2019

2020

2019
Sales by Channel

Stores

$
1,656

$
1,636

$
3,858

$
4,915
Direct-to-customers

450

296

1,501

869
Total sales

$
2,106

$
1,932

$
5,359

$
5,784

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


	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	October 31,		November 2,		October 31,		November 2,		July 31,		August 1,		July 31,		August 1,
($ in millions)	2020		2019		2020		2019		2021		2020		2021		2020
Sales by Geography
United States	$	1,534	$	1,361	$	3,974	$	4,122	$	1,623	$	1,529	$	3,336	$	2,440
International		572		571		1,385		1,662		652		548		1,092		813
Total sales	$	2,106	$	1,932	$	5,359	$	5,784	$	2,275	$	2,077	$	4,428	$	3,253

Contract Liabilities

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

October 31,

November 2,
($ in millions)

2020

2019
Gift card liability at beginning of year

$
35

$
35
Redemptions

(70)

(70)
Breakage recognized in sales

(5)

(4)
Activations

69

66
Foreign currency fluctuations

1

(1)
Gift card liability

$
30

$
26


	July 31,		August 1,
($ in millions)	2021		2020
Gift card liability at beginning of year	$	41	$	35
Redemptions		(122)		(37)
Breakage recognized in sales		(9)		(3)
Activations		128		36
Gift card liability	$	38	$	31

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

3. Segment Information

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

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

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 87

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Thirteen weeks ended
Thirty-nine weeks ended

October 31,

November 2,
October 31,

November 2,
($ in millions)

2020

2019
2020

2019
Sales

$
2,106

$
1,932
$
5,359

$
5,784

Operating Results








Division profit

198

184

244

549
Less: Impairment and other charges ⁽¹⁾

4

1

58

16
Less: Corporate expense ⁽²⁾

16

19

44

60
Income from operations

178

164

142

473
Interest (expense) income, net

(2)

3

(5)

9
Other income, net ⁽³⁾

193

4

197

8
Income before income taxes

$
369

$
171
$
334

$
490


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
($ in millions)	2021		2020		2021		2020
Sales	$	2,275	$	2,077	$	4,428	$	3,253

Operating Results
Division profit		332		125	$	647	$	46
Less: Impairment and other charges ⁽¹⁾		36		38		40		54
Less: Corporate expense ⁽²⁾		32		18		61		28
Income (loss) from operations		264		69		546		(36)
Interest expense, net		(2)		(2)		(4)		(3)
Other income, net		325		3		329		4
Income (loss) before income taxes	$	587	$	70	$	871	$	(35)

(1)	During the ~~thirteen and thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020 and November 2, 2019,~~2021, we recorded pre-tax charges as detailed in Note 4, Impairment and Other Charges.

(2)

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

~~(3)~~

One of our minority investments, which is measured using the fair value measurement alternative, received additional funding in the third quarter at a higher valuation than our initial investment. As a result, we recorded a $190 million non-cash gain during the third quarter of 2020.

4. Impairment and Other Charges


	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	October 31,		November 2,		October 31,		November 2,		July 31,		August 1,		July 31,		August 1,
($ in millions)	2020		2019		2020		2019		2021		2020		2021		2020
Losses related to social unrest	$	1	$	—	$	19	$	—
Impairment of long-lived assets and right-of-use assets									$	39	$	—	$	39	$	15
Lease termination costs										4		—		4		—
Impairment of investments										—		—		2		—
Reorganization costs										—		3		2		3
(Insurance recovery)/ losses related to social unrest										(7)		18		(7)		18
Runners Point shut down		3		—		19		—		—		16		—		16
Impairment of long-lived assets and right-of-use assets		—		—		15		—
Eastbay reorganization		—		—		3		—
Pension litigation related charges		—		1		2		3		—		1		—		2
Lease termination costs		—		—		—		13
Total impairment and other charges	$	4	$	1	$	58	$	16	$	36	$	38	$	40	$	54

~~Costs~~During the thirteen weeks ended July 31, 2021, we conducted an impairment review of certain Footaction stores as a result of the Company’s decision to convert many of the stores to other existing banner concepts and ~~losses~~close the remaining stores, either through natural lease expiration or early termination. We evaluated the long-lived assets, including the right-of-use assets and recorded non-cash charges of $39 million to write down store fixtures, leasehold improvements, and right-of-use assets for approximately 60 locations. Additionally, we recorded charges of $4 million primarily in other lease-related termination costs.

Partially offsetting these charges was $11 million of additional insurance recovery related to the prior year social unrest ~~represented inventory~~ losses ~~damages to store property, repairs,~~of $18 million. We recorded $7 million of the insurance recovery within impairment and other costs incurred in connection with the riots that affected certain parts of the United States and Canada during the second quarter of 2020. During the third quarter, social unrest continued and resulted in an additional loss of $1 million. Approximately 140 stores were damaged duecharges as it relates to the ~~unrest. Substantially all~~book value of ~~the damaged stores reopened during the third quarter. The total charge for the year-to-date period included inventory~~ losses ~~of $15~~recorded in 2020, with $4 million ~~damages to store property of $2 million, and repairs and~~recorded in other ~~costs of $2 million.~~income. We are ~~currently working~~continuing to work with our insurers to determine ~~the amount of our covered~~if additional incurred losses under our property insurance ~~policy. Insurance recovery for losses in excess~~policy will be covered; however, we do not expect that future recoveries will be significant.

During the first quarter of 2021, we recorded an impairment charge of $2 million related to the underperformance of one of our ~~deductible will be~~minority investments. Additionally, in connection with the reorganization of certain support functions, we recorded ~~in the period in which we conclude our settlement discussions with our insurance providers.~~

severance charges of $2 million.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 98

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In May 2020, we made the strategic decision to shut down our Runners Point business and to consolidate our Sidestep support staff into our other operations in Europe. Also, as part of the next phase of the Champs Sports and Eastbay strategic initiative, we restructured positions and aligned several functions across the banners and consolidated certain Eastbay operations into the Champs Sports headquarters. We recorded charges of $19 million related to the shutdown of the Runners Point business and $3 million related to the reorganization associated with Eastbay. As part of the decision to close the Runners Point banner, certain Runners Point stores have been converted into other banners and approximately 40 Runners Point and Sidestep stores closed prior to their natural lease expirations.

The table below presents a rollforward of our restructuring liability, which is recorded in Accrued and other liabilities on the Condensed Consolidated Balance Sheets. The remaining restructuring liability at October 31, 2020, which primarily relates to severance payments, is expected to be substantially paid within the next twelve months.

($ in millions)

Runners Point

Eastbay

Total
Balance as of February 1, 2020

$
0

$
0

$
0
Charges

19

3

22
Payments

(9)

(2)

(11)
Balance as of October 31, 2020

$
10

$
1

$
11

Due to the COVID-19 pandemic and its effect on our actual and projected results, during the first quarter of 2020 we determined that a triggering event occurred for certain underperforming stores operating in Europe and, therefore, we conducted an impairment review. We evaluated the long-lived assets, including the right-of-use assets, of 70 stores and recorded non-cash charges of $15 million to write down store fixtures, leasehold improvements, and right-of-use assets.

~~The Company~~In May 2020, we made the strategic decision to shut down our Runners Point business and ~~its U.S. pension plan were involved~~to consolidate our Sidestep support staff into our other operations in ~~litigation related to the conversion~~Europe. Also, as part of the ~~plan~~next phase of the Champs Sports and Eastbay strategic initiative, we restructured positions and aligned several functions across the banners and planned to ~~a cash balance plan. The court entered its final judgment~~consolidate certain Eastbay operations from Wausau, Wisconsin into the Champs Sports headquarters in ~~2018, which required the plan to be reformed as directed by the court order.~~Bradenton, Florida. We recorded charges of $2$16 million related to the shutdown of the Runners Point business and $3 million related to the reorganization associated with Eastbay.

We recorded charges of $1 million and $2 million for the ~~thirty-nine~~thirteen and twenty-six weeks ended ~~October 31,~~August 1, 2020, ~~and November 2, 2019,~~ respectively, related to administrative expenses in connection with the pension plan reformation. ~~For the thirty-nine weeks ended November 2, 2019, we also incurred $13 million of lease termination costs related to the closure of our SIX:02 locations.~~

5. Cash, Cash Equivalents, and Restricted Cash

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


	October 31,		November 2,		February 1,		July 31,		August 1,
($ in millions)	2020		2019		2020		2021		2020
Cash and cash equivalents	$	1,393	$	744	$	907	$	1,845	$	1,373
Restricted cash included in other current assets		8		5		6		7		7
Restricted cash included in other non-current assets		29		30		29		29		30
Cash, cash equivalents, and restricted cash	$	1,430	$	779	$	942	$	1,881	$	1,410

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

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

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

6. Goodwill

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

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

Second Quarter 2021 Form 10-Q Page 9

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

We use a discounted cash flow approach to determine the fair value of a reporting unit. The determination of discounted cash flows of the reporting units and assets and liabilities within the reporting units requires significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the discount rate, terminal growth rates, earnings before depreciation and amortization, and capital expenditures forecasts. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the reporting units, as well as the fair values of the corresponding assets and liabilities within the reporting units.

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

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

7. Other Intangible Assets, net

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


		October 31, 2020						November 2, 2019						February 1, 2020						July 31, 2021						August 1, 2020
	Gross		Accum.		Net		Gross		Accum.		Net		Gross		Accum.		Net		Gross		Accum.		Net		Gross		Accum.		Net
($ in millions)	value		amort.		value		value		amort.		value		value		amort.		value		value		amort.		value		value		amort.		value
Amortized intangible assets: ⁽¹⁾
Lease acquisition costs	$	119	$	(113)	$	6	$	117	$	(109)	$	8	$	115	$	(108)	$	7	$	116	$	(112)	$	4	$	119	$	(113)	$	6
Trademarks / trade names		20		(17)		3		20		(16)		4		20		(16)		4		20		(17)		3		20		(16)		4
	$	139	$	(130)	$	9	$	137	$	(125)	$	12	$	135	$	(124)	$	11	$	136	$	(129)	$	7	$	139	$	(129)	$	10

Indefinite life intangible assets: ⁽¹⁾
Trademarks / trade names					$	9					$	9					$	9					$	9					$	9
Other intangible assets, net					$	18					$	21					$	20					$	16					$	19

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

The annual review of intangible assets with indefinite lives performed during the first quarter of ~~2020~~2021 did not result in the recognition of impairment.

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

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

Amortization expense recorded is as follows:


	Thirteen weeks ended					Thirty-nine weeks ended			Thirteen weeks ended					Twenty-six weeks ended
	October 31,		November 2,			October 31,	November 2,		July 31,		August 1,		July 31,		August 1,
($ in millions)	2020		2019			2020	2019		2021		2020		2021		2020
Amortization expense	$	—	$	1	$	2	$	3	$	1	$	1	$	2	$	2

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


	($ in millions)
Remainder of 2020	$	1
2021		2
($ in millions)
Remainder of 2021			$	1
2022		2		3
2023		2		1
2024		1		1
2025		1		1

8. Revolving Credit Facility

~~In the first quarter of 2020,~~On May 19, 2021, we borrowed $330 million under our revolving credit facility and subsequently repaid, during the second quarter, the amount borrowed in full. On July 14, 2020, we amended our credit agreement with the lendersentered into an amendment to ~~provide for a $600 million asset-based revolving credit facility maturing on July 14, 2025 (as amended, “2020 Credit Agreement”).~~

~~Under~~ the 2020 Credit Agreement (“Amended Credit Agreement”). The amendment provides for, among other things, (i) reducing the interest rates and commitment fees applicable to the loans and commitments, respectively, as described below, and (ii) reducing the “floor” applicable. The amendment provides that the interest rate applicable to loans drawn under the credit facility will be equal to, at our option, ~~interest is determined by~~ either ~~(1) the eurodollar rate, determined by reference to LIBOR, plus~~ a ~~margin of 1.75 percent to 2.25 percent per annum, or (2) the~~ base rate, determined by reference to the federal funds rate, plus a margin of 0.25 percent to 0.75 percent per annum, or a Eurodollar rate, determined by reference to LIBOR, plus a margin of 1.25 percent to 1.75 percent per annum, in each case, depending on availability under the ~~2020~~Amended Credit Agreement. In addition, we ~~are paying~~will pay a commitment fee of ~~0.50~~0.25 percent per annum on the unused portion of the commitments under the ~~2020~~Amended Credit Agreement.

If certain specified events of default have occurred and are continuing, or if availability under the 2020 Credit Agreement is less than or equal to the greater of $60 million and 10 percent of the Loan Cap (as defined in the 2020 Credit Agreement), we are required to test compliance with a minimum consolidated fixed charge coverage ratio of 1.00 as of the end of each fiscal quarter.

~~9. Long-Term Debt and Obligations Under Finance Leases~~

~~The components of long-term debt and obligations under finance leases are as follows:~~

October 31,

November 2,

February 1,
($ in millions)

2020

2019

2020
8.5% debentures payable 2022

$
118

$
118

$
118
Unamortized gain related to interest rate swaps⁽¹⁾

2

4

4
Obligations under finance leases

11

—

—

$
131

$
122

$
122
Less: current portion of obligations under finance leases

2

—

—

$
129

$
122

$
122

~~(1)~~

~~In 2009, we terminated an interest rate swap at a gain. This gain is being amortized as part of interest expense over the remaining term of the debt using the effective-yield method.~~

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 1210

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~10.~~9. Accumulated Other Comprehensive Loss

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


	October 31,		November 2,		February 1,		July 31,		August 1,		January 30,
($ in millions)	2020		2019		2020		2021		2020		2021
Foreign currency translation adjustments	$	(84)	$	(100)	$	(104)	$	(74)	$	(84)	$	(64)
Cash flow hedges		—		(2)		(3)		(1)		—		(1)
Unrecognized pension cost and postretirement benefit		(281)		(280)		(287)		(263)		(283)		(266)
	$	(365)	$	(382)	$	(394)	$	(338)	$	(367)	$	(331)

The changes in AOCL for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020~~2021 were as follows:


	Foreign				Items Related				Foreign				Items Related
	Currency				to Pension and				Currency				to Pension and
	Translation		Cash Flow		Postretirement				Translation		Cash Flow		Postretirement
($ in millions)	Adjustments		Hedges		Benefits		Total		Adjustments		Hedges		Benefits		Total
Balance as of February 1, 2020	$	(104)	$	(3)	$	(287)	$	(394)
Balance as of January 30, 2021									$	(64)	$	(1)	$	(266)	$	(331)

OCI before reclassification		20		3		(1)		22		(10)		—		(1)		(11)
Amortization of pension actuarial loss, net of tax		—		—		7		7		—		—		4		4
Other comprehensive income		20		3		6		29		(10)		—		3		(7)
Balance as of October 31, 2020	$	(84)	$	—	$	(281)	$	(365)
Balance as of July 31, 2021									$	(74)	$	(1)	$	(263)	$	(338)

Reclassifications from AOCL for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020~~2021 were as follows:


	($ in millions)
($ in millions)
Amortization of actuarial loss:
Pension benefits	$	9	$	5
Income tax benefit		(2)		(1)
Total, net of tax	$	7	$	4

~~11.~~10. Fair Value Measurements

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

Level 1 –

Quoted prices for identical instruments in active markets.

Level 2 –

Observable inputs other than quoted prices included within Level 1, including quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.

Level 3 –

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

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

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

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 1311

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the second quarter of 2021, we invested $68 million to acquire a common stock minority stake in a public entity, Retailors, Ltd, which is traded on the Tel Aviv stock exchange. Our investment was at a discount to the initial public offering price. This investment is classified as a Level 1 instrument since the fair value is readily available in an active market. The fair value of the auction rate security, classified as available-for-sale, is determined by using quoted prices for similar instruments in active markets and accordingly is classified as a Level 2 instrument.

Assets and Liabilities Measured at Fair Value on a Recurring Basis


($ in millions)																			As of July 31, 2021						As of August 1, 2020

	As of October 31, 2020						As of November 2, 2019						As of February 1, 2020						Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
($ in millions)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Minority investment in common stock																				92		—		—		—		—		—
Available-for-sale security		—		7		—		—		6		—		—		7		—		—		7		—		—		7		—
Foreign exchange forward contracts																				—		1		—		—		1		—
Total Assets	$	—	$	7	$	—	$	—	$	6	$	—	$	—	$	7	$	—	$	92	$	8	$	—	$	—	$	8	$	—

Liabilities
Foreign exchange forward contracts		—		—		—		—		2		—		—		4		—		—		2		—		—		4		—
Total Liabilities	$	—	$	—	$	—	$	—	$	2	$	—	$	—	$	4	$	—	$	—	$	2	$	—	$	—	$	4	$	—

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

Minority ~~interests~~investments measured using the fair value measurement alternative had a carrying value of ~~$326 million, $133~~$612 million and ~~$134~~$137 million as of ~~October~~July 31, ~~2020, November 2, 2019,~~2021 and ~~February~~August 1, 2020, respectively. ~~One~~During the second quarter of ~~these~~2021, we recorded a $290 million increase in the fair value of our minority ~~investments~~investment in GOAT. GOAT received additional funding ~~in the third quarter of 2020,~~ at a higher valuation than the investment amount previously on our ~~initial investment. As a result, we recorded a $190 million non-cash gain reported in Other income.~~balance sheet. During the ~~fourth~~first quarter of ~~2019,~~2021, we recorded a non-cash charge of $7$2 million related to the write-down of ~~certain~~one of our minority ~~investments.~~investments, resulting in $13 million of cumulative impairments.

Second Quarter 2021 Form 10-Q Page 12

Table of Contents

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt

The fair value of long-term debt is determined by using model-derived valuations in which all significant inputs or significant value drivers are observable in active markets and, therefore, are classified as Level 2.

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


	October 31,		November 2,		February 1,
($ in millions)	2020		2019		2020		July 31, 2021		August 1, 2020
Carrying value	$	120	$	122	$	122	$	99	$	121
Fair value	$	129	$	135	$	135	$	102	$	129

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

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

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

~~12.~~11. Earnings Per Share

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

The computation of basic and diluted EPS is as follows:


	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	October 31,		November 2,		October 31,		November 2,		July 31,		August 1,		July 31,		August 1,
(in millions, except per share data)	2020		2019		2020		2019		2021		2020		2021		2020
Net income	$	265	$	125	$	200	$	357
Net income (loss)									$	430	$	45	$	632	$	(65)

Weighted-average common shares outstanding		104.4		106.9		104.4		110.0		103.8		104.5		103.7		104.4
Dilutive effect of potential common shares		0.9		0.3		0.7		0.5		1.4		0.6		1.4		—
Weighted-average common shares outstanding assuming dilution		105.3		107.2		105.1		110.5		105.2		105.1		105.1		104.4

Earnings per share - basic	$	2.54	$	1.16	$	1.92	$	3.24
Earnings per share - diluted	$	2.52	$	1.16	$	1.91	$	3.23
Earnings (loss) per share - basic									$	4.14	$	0.43	$	6.10	$	(0.62)
Earnings (loss) per share - diluted									$	4.09	$	0.43	$	6.02	$	(0.62)

Anti-dilutive share-based awards excluded from diluted calculation		2.5		2.4		2.7		2.2		1.5		2.7		1.7		2.7

~~Restricted~~Performance stock units related to our long-term incentive programs of ~~0.5~~0.6 million and ~~0.7~~0.5 million have been excluded from diluted weighted-average shares for the periods ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019,~~August 1, 2020, respectively. The issuance of these shares are contingent on our performance metrics as compared to the pre-established performance goals, which have not been achieved.

Second Quarter 2021 Form 10-Q Page 13

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NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

~~13.~~12. Pension

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

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


	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Twenty-six weeks ended
		October 31,		November 2,		October 31,		November 2,		July 31,		August 1,		July 31,		August 1,
($ in millions)		2020		2019		2020		2019		2021		2020		2021		2020
Service cost	$	3	$	5	$	10	$	15	$	4	$	3	$	8	$	7
Interest cost		5		7		16		20		5		6		9		11
Expected return on plan assets		(9)		(9)		(28)		(27)		(8)		(10)		(17)		(19)
Amortization of net loss		3		3		9		9		2		3		5		6
Net benefit expense	$	2	$	6	$	7	$	17	$	3	$	2	$	5	$	5

13. Share-Based Compensation

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


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
($ in millions)	2021		2020		2021		2020
Options and shares purchased under the stock purchase plan	$	2	$	2	$	4	$	4
Restricted stock units and performance stock units		6		2		12		3
Total share-based compensation expense	$	8	$	4	$	16	$	7

Tax benefit recognized	$	1	$	1	$	2	$	1

Valuation Model and Assumptions

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

The table below shows assumptions used to compute share-based compensation expense for awards granted during the twenty-six weeks ended July 31, 2021 and August 1, 2020:


		Stock Option Plans						Stock Purchase Plan
	July 31,			August 1,			July 31,			August 1,
	2021			2020			2021			2020
Weighted-average risk free rate of interest		0.9	%		0.6	%		0.2	%		2.0	%
Expected volatility		47	%		42	%		48	%		48	%
Weighted-average expected award life (in years)		5.5			5.5			1.0			1.0
Dividend yield		1.5	%		4.9	%		5.0	%		4.0	%
Weighted-average fair value	$	20.22		$	5.03		$	7.84		$	15.03

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 1514

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~14. Share-Based Compensation~~

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

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,
($ in millions)

2020

2019

2020

2019
Options and shares purchased under stock purchase plan

$
1

$
1

$
5

$
5
Restricted stock units

1

5

4

14
Total share-based compensation expense

$
2

$
6

$
9

$
19

Tax benefit recognized

$
—

$
1

$
1

$
2

~~Valuation Model and Assumptions~~

~~The following table shows assumptions used to compute share-based compensation expense for awards granted during the thirty-nine weeks ended October 31, 2020 and November 2, 2019:~~

Stock Option Plans

Stock Purchase Plan

October 31,

November 2,

October 31,

November 2,


2020

2019

2020

2019

Weighted-average risk free rate of interest

0.5
%

2.2
%

1.8
%

2.3
%
Expected volatility

37
%

38
%

48
%

55
%
Weighted-average expected award life (in years)

4.9

5.5

1.0

1.0

Dividend yield

4.3
%

2.6
%

4.2
%

3.0
%
Weighted-average fair value

$
5.03

$
17.07

$
13.97

$
18.12

The information in the ~~following~~ table below provides activity under our stock option plans for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020:~~2021:


		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	2,881			$	54.21	3,540			$	47.17
Granted	1,069				21.61	183				53.82
Exercised	(10)				17.44	(302)				33.31
Expired or cancelled	(235)				34.34	(122)				52.43
Options outstanding at October 31, 2020	3,705		5.7	$	46.16
Options exercisable at October 31, 2020	2,560		4.2	$	53.90
Options available for future grant at October 31, 2020	6,171
Options outstanding at July 31, 2021						3,299		5.5	$	48.61
Options exercisable at July 31, 2021						2,497		4.4	$	53.74
Options available for future grant at July 31, 2021						5,491

The total fair value of options vested during the twenty-six weeks ended July 31, 2021 and August 1, 2020 was $4 million and $5 million, respectively. The cash received and related tax benefits realized from option exercises during the twenty-six weeks ended July 31, 2021 was $10 million and $2 million, respectively. The cash received and related tax benefits realized from option exercises during the twenty-six weeks ended August 1, 2020 were not significant.


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
($ in millions)	2021		2020		2021		2020
Exercised	$	5	$	—	$	8	$	—

The aggregate intrinsic value for stock options outstanding, and outstanding and exercisable (the difference between our closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) is presented below:

As of July 31, 2021, there was $4 million of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a remaining weighted-average period of 1.6 years.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 1615

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The total fair value of options vested was $6 million during each of the thirty-nine weeks ended October 31, 2020 and November 2, 2019. The cash received and related tax benefits realized from option exercises during the thirteen and thirty-nine weeks ended October 31, 2020 was not significant.

The total intrinsic value of options exercised (the difference between the market price of our common stock on the exercise date and the price paid by the optionee to exercise the option) for the thirteen and thirty-nine weeks ended October 31, 2020 was not significant. For the thirteen and thirty-nine weeks ended November 2, 2019, the intrinsic value of options exercised was not significant and $5 million, respectively.

Thirty-nine weeks ended
($ in millions)

October 31, 2020

November 2, 2019
Outstanding

$
18

$
8
Outstanding and exercisable

$
4

$
7

As of October 31, 2020, there was $4 million of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a remaining weighted-average period of 1.4 years.

~~The following~~ table below summarizes information about stock options outstanding and exercisable at ~~October~~July 31, ~~2020:~~2021:


	Options Outstanding				Options Exercisable			Options Outstanding				Options Exercisable
		Weighted-							Weighted-
		Average	Weighted-			Weighted-			Average	Weighted-			Weighted-
		Remaining	Average			Average			Remaining	Average			Average
Range of Exercise	Number	Contractual	Exercise		Number	Exercise		Number	Contractual	Exercise		Number	Exercise
Prices	Outstanding	Life	Price		Exercisable	Price		Outstanding	Life	Price		Exercisable	Price
	(in thousands, except prices per share and contractual life)							(in thousands, except prices per share and contractual life)
$18.84 to $23.09	1,035	8.2	$	21.31	150	$	19.57
$24.75 to $36.51	376	2.3		32.13	373		32.10
$44.78 to $45.75	554	5.1		44.91	464		44.94
$46.64 to $62.11	870	5.3		60.12	704		60.50
$63.33 to $73.21	870	5.0		68.60	869		68.61
$21.60 - $34.24								981	6.9	$	23.49	444	$	25.76
$34.75 - $52.13								504	4.5		44.41	496		44.42
$52.82 - $79.23								1,814	4.9		63.36	1,557		64.69
	3,705	5.7	$	46.16	2,560	$	53.90	3,299	5.5	$	48.61	2,497	$	53.74

Restricted Stock Units and Performance Stock Units

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

~~Third Quarter 2020 Form 10-Q Page 17~~

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

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

Compensation expense is recognized using the market value at the date of grant and is amortized over the vesting ~~period, provided the recipient continues to be employed by the Company.~~

period. RSU and PSU activity for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020~~2021 is summarized as follows:

Weighted-Average

Number
Remaining
Weighted-Average

of
Contractual
Grant Date

Shares
Life
Fair Value



(in thousands)


(in years)


(per share)
Nonvested at beginning of year

936

$
49.25
Granted

416

22.59
Vested

(120)

53.31
Performance adjustment ⁽¹⁾

(132)

Forfeited

(155)

38.56
Nonvested at October 31, 2020

945

1.2

$
37.78

Aggregate value ($ in millions)

$
36


			Weighted-Average
	Number		Remaining		Weighted-Average
	of		Contractual		Grant Date
	Shares		Life		Fair Value
		(in thousands)		(in years)		(per share)
Nonvested at beginning of year		1,348			$	38.48
Granted		424				54.20
Vested		(503)				43.81
Performance adjustment ⁽¹⁾		240
Forfeited		(39)				34.47
Nonvested at July 31, 2021		1,470		2.0	$	43.54

Aggregate value ($ in millions)	$	64

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

The total value of awards that vested during the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, 2021 and August 1, 2020 ~~and November 2, 2019~~ was $6$22 million and $5$4 million, respectively. As of ~~October~~July 31, ~~2020,~~2021, there was ~~$11~~$45 million of total unrecognized compensation cost related to nonvested awards.

~~15. Income Taxes~~

For the thirteen and thirty-nine weeks ended October 31, 2020, we recorded income tax expense of $104 million and $134 million, respectively, which represented effective tax rates of 28.2 percent and 40.1 percent, respectively. The effective tax rates were adversely affected by valuation allowances related to losses in certain foreign jurisdictions. Additionally, in the first quarter we recorded a $27 million tax charge related to the revaluation of certain intellectual property rights pursuant to a non-U.S. advance pricing agreement. During the second and third quarter of 2020, we performed quarterly valuations and due to the improved financial outlook we reduced the charge by $2 million and $1 million, respectively.

We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year income, excluding unusual or infrequently occurring discrete items, for the reporting period. In accordance with the authoritative guidance, we used a discrete effective tax rate method to calculate income taxes for the first quarter of 2020 because small changes in the estimated level and mix of annual income or loss by jurisdiction would result in significant changes in the estimated annual effective tax rate making the historical method unreliable. However, after the first quarter we returned to the historical practice of using an annual effective rate.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 1816

Table of Contents

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. We are required to recognize the effects of tax law changes in the period of enactment. We have assessed the applicability of the CARES Act and changes to income tax laws or regulations in other jurisdictions and determined there is no significant affect to our income tax provision for the thirty-nine weeks ended October 31, 2020. We continue to assess the effect of the CARES Act and ongoing government guidance related to COVID-19 that may be issued.

~~16.~~14. Legal Proceedings

Legal proceedings pending against the Company or its consolidated subsidiaries consist of ordinary, routine litigation, including administrative proceedings, incidental to the business of the Company or businesses that have been sold or discontinued by the Company in past years. These legal proceedings include commercial, intellectual property, customer, environmental, and employment-related claims.

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

~~17.~~15. Subsequent Events

Acquisition of WSS

On ~~December 7, 2020,~~August 1, 2021, we signed a definitive agreement to acquire Eurostar, Inc., a Delaware corporation (“WSS”). WSS is a U.S.-based athletic footwear and apparel retailer, which operates 93 stores primarily on the West Coast. Following the transaction, WSS will maintain its name, operating as a new banner in our ~~Board~~portfolio. The aggregate consideration in the transaction will consist of ~~Directors adopted a shareholder rights plan~~$750 million in cash, subject to customary adjustments to reflect changes in net working capital, cash, indebtedness, and ~~declared a dividend distribution of one right (a "Right") for each outstanding share of common stock~~transaction expenses. The transaction will be funded with available cash. The transaction is currently expected to ~~shareholders of record at~~close in September 2021, subject to the close of business on December 18, 2020. Each Right entitles the registered holder to purchase from the Company, when exercisable, a unit consisting of one 1-thousandth (1/1,000) of a share of Series C Junior Participating Preferred Stock, par value $1.00 per share,expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfaction of customary closing conditions.

Acquisition of atmos

On August 2, 2021, we announced that we entered into a definitive agreement to acquire Text Trading Company, atK.K. (“atmos”), which owns and licenses the atmos brand, a digitally led, premium, global retailer headquartered in Japan. atmos is a culturally connected brand featuring premium sneakers and apparel, an exclusive in-house label, collaborative relationships with leading vendors in the sneaker ecosystem, experiential stores, and a robust omni-channel platform. The purchase price is $360 million and additional contingent consideration of ~~$210.00 per unit,~~up to $111 million based on achieving certain revenue growth and EBITDA performance targets. The transaction will be funded with the Company’s available cash. atmos will maintain its name, operating as a new banner in our portfolio. The transaction is currently expected to close early in the fourth quarter of 2021, subject to ~~adjustment. The description and complete terms~~the satisfaction of ~~the Rights are set forth in a Rights Agreement (the "Rights Agreement"), dated as of December 7, 2020, between the Company and Computershare Trust Company, N.A., as rights agent.~~

Initially, the Rights will not be exercisable and will be attached to all outstanding shares of our common stock. In the event that a person, either individually or with or through certain affiliated or associated persons, acquires beneficial ownership of 20 percent or more of our then outstanding common stock, subject to certain exceptions, or following the commencement of a tender offer or exchange offer that would result in a person becoming an Acquiring Person (as defined in the Rights Agreement), the Rights will become exercisable. Once exercisable, each holder of a Right (other than the Acquiring Person, whose Rights will become null and void), will be entitled to purchase additional shares of our common stock at a 50 percent discount. The Board may redeem the Rights at a price of $0.001 per Right, subject to adjustment.

~~The Rights will expire on December 7, 2021, unless the Rights are earlier redeemed, exchanged or terminated.~~customary closing conditions.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 1917

Table of Contents

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

Business Overview

Foot Locker, Inc. leads the celebration of sneaker and youth culture around the globe through a portfolio of banners including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Eastbay, Footaction, and Sidestep. Foot Locker, Inc. and its subsidiaries hereafter are referred to as the “Company,” “we,” “our,” or “us.” We operate primarily mall-based stores, as well as stores in high-traffic urban retail areas and high streets, in 27 countries including the United States, Canada, Europe, Australia, New Zealand, and Asia. Our purpose is to inspire and empower youth culture around the world, by fueling a shared passion for self-expression and creating unrivaled experiences at the heart of the global sneaker community.

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

Store Count

At ~~October~~July 31, ~~2020,~~2021, we operated ~~3,032~~2,911 stores as compared with ~~3,129~~2,998 and ~~3,160~~3,100 stores at ~~February~~January 30, 2021 and August 1, 2020, ~~and November 2, 2019,~~ respectively.

Franchise Operations

A total of ~~126~~134 franchised stores were operating at ~~October~~July 31, ~~2020,~~2021, as compared with ~~139~~127 and 138 stores at ~~February~~January 30, 2021 and August 1, 2020, ~~and November 2, 2019,~~ respectively. Revenue from franchised stores was not significant for any of the periods presented. These stores are not included in the operating store count above.

COVID-19 Update

In ~~December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. In~~ March 2020, the World Health Organization designated COVID-19 a pandemic. COVID-19 ~~is having~~had a significant effect on overall economic conditions in ~~nearly all regions around~~ the ~~world and resulted~~various geographic areas in ~~travel restrictions and business slowdowns or shutdowns. In March,~~which we closed all our stores in North America, EMEA (Europe, Middle East, and Africa), and most of Asia Pacific. We also transitioned to a work-from-home environment for all our office team members and temporarily closed certain of our distribution centers.have operations. Our stores remained closed for a significant portion of the first quarter. We continue to monitor our openings in accordance with local government guidelines and operated for approximately 95 percent of the operating days during the third quarter and approximately 70 percent for the year-to-date period. As of December 8, 2020, approximately 100 stores are closed and additional temporary closures may be required. We will continue to operate in-store fulfillment activities to mitigate the effect of the temporary closures.

~~We established a special COVID-19 management committee which~~top priority is ~~taking the necessary precautionary measures~~ to protect the health and safety of our team members, as well as following the guidance provided by local health authorities. We have been highly focused on the changes we are making to operate more safely in light of the COVID-19 pandemic. We implemented newly-established health protocols, including providing personal protective equipment to our team members and ~~implementing social distancing work practices. Prior~~their families, our customers, and our operations. We have made best efforts to ~~reopening~~comply with all precautionary measures as directed by health authorities and local, state, and national governments.

Beginning in March 2020 and through the remainder of the first quarter of 2020, we temporarily closed substantially all of our retail store locations in response to governmental orders related to the COVID-19 outbreak. Throughout 2020, the pandemic and the shelter in place orders negatively affected customer traffic into the stores that were operating, and certain stores required additional closures during the remainder of the year. For the second quarter of this year, we operated approximately 94 percent of the possible operating days, as compared with 70 percent in the second quarter of 2020. Our stores in Canada, Sidestep stores and our stores ~~we implemented various protocols including: occupancy limits, installing protective shields at registers, encouraging social distancing, providing distance markers~~operating in queue lines and throughout our stores, implementing new processes for handling merchandise returns, and instituting new cleaning regimens, including enhanced cleaning of high-touch surfaces throughout the day.

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

We have taken numerous steps to protect the health and well-being of our team members, customers, and communities, while also focusing on further strengthening our financial liquidity and flexibility. On April 21, 2020, we communicated to our United States, Canadian, and Australian employees that weAustralia were temporarily furloughing (or its equivalent under applicable local law) the majority of our hourly store and certain of our hourly distribution centers team members. We continued to pay all active employees through the week ended April 26, 2020. Generally, all team members were called back to workadversely affected during the second quarter. ~~Additionally, other measures~~Our distribution centers have been operating relatively unaffected during this time. In order to ~~preserve our financial position were taken, such as temporarily reducing executive salaries, temporarily suspending~~mitigate the cash element of director compensation, temporarily suspending share repurchases and dividends, and significantly reducing planned capital expenditures. In July 2020, we amended our credit facility and increased it to $600 million with a 5-year maturity. Due to the positive performance of the Company’s business, strong liquidity position, and more stable cash outlook, these measures were reversed during the third quarter.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law and provided opportunities for additional liquidity, emergency assistance for individuals, families and businesses affected by COVID-19. During the first quarter, we recognized benefits from the CARES Act, including federal retention tax credits of up to $5,000 per employee for the wages and health insurance we continued to provide to team members not providing services, a deferral of employer social security taxes for the remainder of 2020, 50 percent of which is payable by December 2021 and the remainder payable by December 2022. Additionally, various jurisdictions in which we operate implemented similar legislation to encourage the continued employment of team members. We intend to continue to review and consider any available potential benefits under the CARES Act or other governmental support for which we qualify. During the thirty-nine weeks ended October 31, 2020, we recognized benefits of $62 million from the various governmental support programs. We also deferred $24 million of U.S. employer social security taxes through October 31, 2020.

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

The continuation of the COVID-19 outbreak may cause prolonged or additional intermittent periods of store closures, modified operating schedules, and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores. We are experiencing an increase in operating costs for health and safety protocols for both our team members and customers and increased freight costs. Due to the continued effects of the ~~COVID-19 pandemic, our results may be further negatively affected and may lead~~temporary closures, we have been operating in-store fulfillment activities while stores were closed to increased asset recovery and valuation risks, such as long-lived tangible and right-of-use asset impairments and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy will likely affect the financial viability of some number of our vendors and may require other changes to our operations.customers. Given the dynamic nature of these circumstances, the duration of business disruption, ~~and~~ reduced customer traffic in our stores, and potential effects related to evolving safety protocols and requirements for proof of vaccination, the related financial ~~affect~~effect cannot be reasonably estimated at this time but ~~are expected to~~may materially affect our business for the remainder of ~~2020. Due to these unprecedented conditions, we have withdrawn our financial guidance for 2020.~~2021.

Second Quarter 2021 Form 10-Q Page 18

Table of Contents

Reconciliation of Non-GAAP Measures

In addition to reporting our financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), we report certain financial results that differ from what is reported under GAAP. We have presented certain financial measures identified as non-GAAP, such as sales changes excluding foreign currency fluctuations, adjusted income before income taxes, adjusted net income, and adjusted diluted earnings per share.

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

We present certain amounts as excluding the effects of foreign currency fluctuations, which are also considered non-GAAP measures. Where amounts are expressed as excluding the effects of foreign currency fluctuations, such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates. Presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our business that are not related to currency movements.

These non-GAAP measures are presented because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core business or affect comparability. In addition, these non-GAAP measures are useful in assessing our progress in achieving our long-term financial objectives. We estimate the tax effect of all non-GAAP adjustments by applying a marginal tax rate to each of the respective items. The income tax items represent the discrete amount that affected the period. The non-GAAP financial information is provided in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Presented below is a reconciliation of GAAP and ~~non-GAAP results for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019.~~non-GAAP.

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,
($ in millions)

2020

2019

2020

2019
Pre-tax income:








Income before income taxes

$
369

$
171

$
334

$
490
Pre-tax amounts excluded from GAAP:






Impairment and other charges

4

1

58

16
Other income

(190)

(4)

(190)

(4)
Adjusted income before income taxes (non-GAAP)

$
183

$
168

$
202

$
502

After-tax income:








Net income

$
265

$
125

$
200

357
After-tax adjustments excluded from GAAP:






Impairment and other charges, net of income tax benefit of $-, $-, $9, and $4 million, respectively

4

1

49

12
Other income, net of income tax expense of $50, $-, $50, and $- million, respectively

(140)

(4)

(140)

(4)
Tax (benefit) charge related to revaluation of certain intellectual property rights

(1)

—

24

—
U.S. tax reform

—

—

—

2
Adjusted net income (non-GAAP)

$
128

$
122

$
133

367

Earnings per share:






Diluted earnings per share

$
2.52

$
1.16

$
1.91

3.23
Diluted EPS amounts excluded from GAAP:




Impairment and other charges

0.03

0.01

0.45

0.11
Other Income

(1.33)

(0.04)

(1.33)

(0.04)
Tax (benefit) charge related to revaluation of certain intellectual property rights

(0.01)

—

0.23

—
Tax reform

—

—

—

0.02
Adjusted diluted earnings per share (non-GAAP)

$
1.21

$
1.13

$
1.26

3.32


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
($ in millions, except per share amounts)	2021		2020		2021		2020
Pre-tax income:
Income (loss) before income taxes	$	587	$	70	$	871	$	(35)
Pre-tax amounts excluded from GAAP:
Impairment and other charges		36		38		40		54
Other income, net		(303)		—		(303)		—
Adjusted income before income taxes (non-GAAP)	$	320	$	108	$	608	$	19

After-tax income:
Net income (loss)	$	430	$	45	$	632		(65)
After-tax adjustments excluded from GAAP:
Impairment and other charges, net of income tax benefit of $9, $6, $10, and $9 million, respectively		27		32		30		45
Other income, net - net of income tax expense of $79, $-, $79, and $- million, respectively		(224)		—		(224)		—
Tax charge related to revaluation of certain intellectual property rights		—		(2)		—		25
Adjusted net income (non-GAAP)	$	233	$	75	$	438		5

Earnings per share:
Diluted earnings (loss) per share	$	4.09	$	0.43	$	6.02		(0.62)
Diluted EPS amounts excluded from GAAP:
Impairment and other charges		0.25		0.30		0.28		0.43
Other income, net		(2.13)		—		(2.13)		—
Tax charge related to revaluation of certain intellectual property rights		—		(0.02)		—		0.24
Adjusted diluted earnings per share (non-GAAP)	$	2.21	$	0.71	$	4.17		0.05

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 2219

Table of Contents

During the thirteen weeks and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020,~~2021, we recorded pre-tax charges of $4$36 million and ~~$58~~$40 million, respectively, classified as Impairment and ~~Other Charges. This compares with charges of $1 million and $16 million recognized for the thirteen and thirty-nine weeks ended November 2, 2019, respectively.~~Other. See the Impairment and Other Charges section for further information.

During the thirteen and twenty-six weeks ended July 31, 2021, we recorded non-cash gains of $303 million, or $224 million after-tax, classified in other income, net. One of our minority investments, GOAT, which is measured using the fair value measurement alternative, received additional funding ~~in August 2020~~ at a higher valuation ~~than our initial investment. As~~resulting in a ~~result, we recorded a $190~~$290 million ~~non-cash gain~~fair value adjustment. Additionally, during the ~~third~~ quarter, we acquired a minority stake in a public entity at an initial discount of ~~2020, recorded in Other income.~~ ~~During~~$9 million. Due to the ~~thirteen weeks ended November 2, 2019, we recognized a~~infrequent and nonrecurring nature of the gain ofand discount, respectively, the income was removed to arrive to non-GAAP earnings. Finally, other income includes $4 million ~~in connection with~~related to our insurance recovery from the ~~acquisition of a Canadian distribution center lease and related assets.~~2020 social unrest, which is the amount by which the recovery exceeded the book value losses previously recorded.

Related to the non-GAAP adjustments for income taxes, during the first ~~quarter~~half of 2020 we recorded a ~~$27~~$25 million tax charge related to the revaluation of certain intellectual property rights, pursuant to a non-U.S. advance pricing agreement. During the second and third quarter of 2020, we performed quarterly valuations and due to the improved financial outlook we reduced the charge by $2 million and $1 million, respectively. In connection with U.S. tax reform, we recorded a charge for $2 million for the thirty-nine weeks ended November 2, 2019. The charge reflected an adjustment to U.S. tax on foreign income.

Segment Reporting

We have determined that we have three operating segments, North America, EMEA, and Asia Pacific. Our North America operating segment includes the results of the following banners operating in the U.S. and Canada: Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, and Footaction, including each of their related e-commerce businesses, as well as our Eastbay business that includes internet, catalog, and team sales. Our EMEA operating segment includes the results of the following banners operating in Europe: Foot Locker, Sidestep, and Kids Foot Locker, including each of their related e-commerce businesses. Our Asia Pacific operating segment includes the results of Foot Locker and Kids Foot Locker and the related e-commerce businesses ~~as applicable,~~ operating in Australia, New Zealand, and Asia. We have further aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics.

Results of Operations

Thirteen weeks ended

Thirty-nine weeks ended


October 31,

November 2,

October 31,

November 2,
($ in millions)

2020

2019

2020

2019
Sales

$
2,106

$
1,932

5,359

5,784

Operating Results

Division profit

198

184

244

549
Less: Impairment and other charges ⁽¹⁾

4

1

58

16
Less: Corporate expense ⁽²⁾

16

19

44

60
Income from operations

178

164

142

473
Interest (expense) income, net

(2)

3

(5)

9
Other income, net ⁽³⁾

193

4

197

8
Income before income taxes

$
369

$
171

$
334

$
490


	Thirteen weeks ended					Twenty-six weeks ended
	July 31,			August 1,		July 31,		August 1,
($ in millions)	2021			2020		2021		2020
Sales		$	2,275	$	2,077	$	4,428	$	3,253

Operating Results
Division profit			332		125		647		46
Less: Impairment and other charges ⁽¹⁾			36		38		40		54
Less: Corporate expense ⁽²⁾			32		18		61		28
Income (loss) from operations			264		69		546		(36)
Interest expense, net			(2)		(2)		(4)		(3)
Other income, net ⁽³⁾			325		3		329		4
Income before income taxes		$	587	$	70	$	871	$	(35)

(1)

This caption includes impairment charges, losses related to social unrest, Runners Point shutdown costs, Eastbay reorganization costs, SIX:02 lease termination costs, and administrative costs related to the pension plan reformation. See the Impairment and Other Charges section for further information.

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

(2)

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

Second Quarter 2021 Form 10-Q Page 20

Table of Contents

(3)

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

Sales

All references to comparable-store sales for a given period relate to sales of stores that were open at the period-end and had been open for more than one year. The computation of consolidated comparable sales also includes our direct-to-customers channel. Stores opened or closed during the period are not included in the comparable-store base; however, stores closed temporarily for relocation or remodeling are included. Stores that were temporarily closed due to the COVID-19 pandemic are also included in the computation of comparable-store sales. Computations exclude the effect of foreign currency fluctuations.

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


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended						Twenty-six weeks ended
	October 31,			November 2,			October 31,			November 2,			July 31,			August 1,			July 31,			August 1,
($ in millions)	2020			2019			2020			2019			2021			2020			2021			2020
Stores
Sales	$	1,656		$	1,636		$	3,858		$	4,915		$	1,817		$	1,388		$	3,437		$	2,202
$ Change	$	20					$	(1,057)					$	429					$	1,235		$
% Change		1.2	%					(21.5)	%					30.9	%					56.1	%
% of total sales		78.6	%		84.7	%		72.0	%		85.0	%		79.9	%		66.8	%		77.6	%		67.7	%
Comparable sales (decrease) increase		(0.1)	%		4.7	%		(21.5)	%		2.6	%
Comparable sales increase (decrease)														28.4	%		(7.6)	%		54.0	%		(32.1)	%

Direct-to-customers
Sales	$	450			296		$	1,501		$	869		$	458		$	689		$	991		$	1,051
$ Change	$	154					$	632					$	(231)					$	(60)		$
% Change		52.0	%					72.7	%					(33.5)	%					(5.7)	%
% of total sales		21.4	%		15.3	%		28.0	%		15.0	%		20.1	%		33.2			22.4	%		32.3	%
Comparable sales increase		49.7	%		11.4	%		72.5	%		11.1	%
Comparable sales (decrease) increase														(35.1)	%		172.8			(8.2)	%		84.3	%

For the thirteen weeks ended ~~October~~July 31, ~~2020,~~2021, total sales increased by ~~$174~~$198 million, or ~~9.0~~9.5 percent, to ~~$2,106~~$2,275 million, as compared with the ~~comparable period ended November 2, 2019.~~corresponding prior-year period. For the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020,~~2021, total sales ~~decreased~~increased by ~~$425~~$1,175 million, or ~~7.3~~36.1 percent, to ~~$5,359~~$4,428 million, as compared with the ~~comparable period of the prior year.~~corresponding prior-year period. Excluding the effect of foreign currency fluctuations, total sales increased by ~~7.7~~$151 million, or 7.3 percent, for the thirteen weeks ended ~~October~~July 31, ~~2020~~2021 and ~~decreased~~increased by ~~7.5~~$1,085 million, or 33.4 percent, for the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, 2021.

These comparisons were significantly affected by the closures necessitated by the COVID-19 pandemic, most of the stores were closed during the first quarter of 2020 when our stores were only open for 48 percent of the total available operating days. Our stores were open for 70 percent of the operating days last year as compared with 94 percent this year. By geography, our European and Canadian operations continued to be negatively affected by the required closures during the current year. Europe and Canada were open for 87 percent and 68 percent of the total available operating days, respectively. Our Asia Pacific operating segment was affected in the quarter and operated 81 percent of the available days.

While sales increased significantly compared with the prior-year periods, we also exceeded sales for the corresponding periods of 2019. Excluding the effect of foreign exchange rate fluctuations, as compared with the ~~comparable prior-year periods.~~2019, sales increased by 25.8 percent and by 13.1 percent for the quarter and year-to-date periods, respectively.

Second Quarter 2021 Form 10-Q Page 21

Table of Contents

Total comparable sales represented an increase of ~~7.7~~6.9 percent for the quarter and ~~a decline~~an increase of ~~7.1~~33.4 percent for the year-to-date period. ~~For both periods, our direct-to-customers~~Our stores channel generated significant increases for both the quarter and ~~was offset by sales declines in the stores channel, although it was essentially flat in the stores channel for the third quarter. For the~~ year-to-date ~~period, the overall decrease in sales~~periods, which was a result of the temporary closure of our stores across all of our banners around the world during the first ~~quarter. Our ongoing investments~~half of 2020. Partially offset by a decline in our ~~omnichannel ecosystem, including supply chain capabilities, have been instrumental in delivering a seamless customer experience resulting in~~direct-to-customer channel as shopping navigated back to physical locations. While our digital ~~business representing 21.4 percent of~~penetration declined as compared with 2020, our ~~sales for the third quarter and 28.0 percent for the year-to-date period of 2020. Our investments allowed us~~penetration is higher than our historical levels. We continue to leverage our ~~direct-to-customers business~~technology platforms to ~~continue to serve our customers achieving record daily volume levels.~~improve the digital experience. Our significant improvement also reflected increased consumer demand for exciting and new product offerings and the effect of government stimulus.

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

For the combined channels, ~~our~~sales excluding foreign currency fluctuations, for the second quarter of 2021 for the operating segments of North America and EMEA increased by 5.1 percent and by 14.9 percent, respectively, as compared with the corresponding prior-year period. For the year-to-date period, North America increased by 35.4 percent and EMEA increased by 20.3 percent as compared to the prior year. Asia Pacific generated significant increases in the quarter and year-to-date periods from both continued success in Australia and New Zealand, coupled with growth in Asia, based on expansion in that region. All our operating segments generated significant sales increases ~~while EMEA declined~~as compared to the first half of last year, which was negatively affected by the temporary store closures necessitated by the pandemic. Our North American operating segment’s sales strength was across all banners, except for ~~the thirteen weeks ended October 31, 2020. In~~Footaction as we are winding down that business. Sales growth in North America ~~comparable sales increases for the thirteen weeks ended October 31, 2020 were~~was led by ~~Footaction, Champs Sports,~~ Kids Foot Locker and Champs Sports. Within EMEA, sales from the Foot Locker ~~partially~~banner increased, offset by a ~~decrease in Eastbay. The Eastbay business has been negatively affected by declines~~decline in sales ~~of performance-related styles~~ due to ~~team sport cancellations. The~~the Runners Point shutdown. Sidestep’s sales ~~increases in Asia Pacific was led by strong sales in our Australia e-commerce business. The sales increases~~for both the quarter and year-to-date periods were relatively unchanged, despite the continued pressure from ~~our North America and Asia Pacific operating segments were offset by a decrease in our EMEA operating segment due to a significant reduction in store traffic.~~COVID-19 closures.

From a product perspective for the combined channels, s~~ales~~the increase for both the quarter and year-to-date periods was across all families of business - footwear, apparel, and ~~apparel increased,~~accessories. Sales of children’s footwear led the sales by wearer segment for the second quarter, while sales of ~~accessories~~men’s footwear declined ~~for~~partially from lower sales due to the ~~thirteen weeks ended October 31, 2020, as compared with~~wind-down of Footaction and the ~~corresponding prior-year period. All~~shutdown of Runners Point. For the year-to-date period, all wearer segments within the footwear category experienced increases, with the largest increases coming from sales of men’s and children’s basketball footwear styles. Apparel sales benefited from increases in ~~men’s apparel, primarily driven~~sales across all wearer segments, led by ~~men’s fleece and outerwear. The decline in the accessories category was primarily from lower~~ sales of ~~bags~~men’s and ~~back packs, due to remote learning because of~~kids’ apparel. The continued athleisure and fitness trend, coupled with exciting product offerings from our suppliers, drove the ~~COVID-19 pandemic.~~

~~For the thirty-nine weeks ended October 31, 2020, our North American and EMEA operating segments had~~ significant ~~declines primarily from the stores channel. The overall decrease~~increase in sales was a result of the temporary closure of our stores across all of our banners around the world beginning in mid-March as well as additional periodic closings for cleaning and disinfecting. Due to the ongoing concerns about the COVID-19 pandemic, store traffic has declined as compared with ~~the prior~~last year. ~~The decreased sales in our North America and EMEA operating segments were partially offset by an increase in Asia Pacific, led by sales in our Australia e-commerce business.~~

~~For the year-to-date period, we experienced a decline across all product categories and wearer segments primarily due to closures necessitated by the pandemic.~~

Gross Margin

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,


2020

2019


2020

2019

Gross margin rate

30.9
%
32.1
%

27.2
%
31.9
%
Basis point decrease in the gross margin rate

(120)

(470)

Components of the change-



Merchandise margin rate decline

(390)

(470)

Lower occupancy and buyers’ compensation expense rate

270

—


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
	2021		2020		2021		2020
Gross margin rate	35.1	%	25.9	%	34.9	%	24.9	%
Basis point increase in the gross margin rate	920				1,000
Components of the change-
Merchandise margin rate improvement	870				640
Lower occupancy and buyers’ compensation expense rate	50				360

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

The gross margin rate ~~decreased~~increased for both the thirteen weeks and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, 2020, as compared with corresponding prior-year periods. The decline in the gross margin rate was due to increased promotions to remain competitive in the marketplace and to clear inventory to ensure we maintained a healthy inventory position, as well as the higher portion of direct-to-customer sales, which bear higher freight costs. The promotional stance was partially necessitated by the temporary COVID-19 related stores closures and our inability to return slow-moving inventory to our suppliers. Offsetting, in part, the higher promotional markdowns taken was increased supplier support, which positively affected both the third quarter and year-to-date gross margin rate by 90 basis points2021, as compared with the corresponding prior-year ~~periods.~~period, reflecting a higher merchandise margin rate since we were significantly less promotional than a year ago, coupled with leverage on the relatively fixed costs.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 2522

Table of Contents

Comparing the gross margin rate to the thirteen weeks ended August 3, 2019, gross margin improved by 500 basis points, reflecting a 170-basis point improvement in the merchandise margin rate and a 330-basis point improvement on occupancy and buyers’ compensation rate. Comparing the gross margin rate to the twenty-six weeks ended August 3, 2019, gross margin improved by 320 basis points, reflecting a 130-basis point improvement in the merchandise margin rate and a 190 basis point improvement on occupancy and buyers’ compensation rate.

The occupancy rate ~~for the third quarter~~ was positively affected byfor both the thirteen weeks and twenty-six weeks ended July 31, 2021, as compared with corresponding prior-year period, reflecting an increase in sales and COVID-19 related rent abatements. Due to completed lease negotiations, we were able to record ~~$32~~$6 million and ~~$38~~$11 million of rent savings due to rent abatements during the thirteen ~~weeks~~ and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020, respectively.~~2021, respectively, as compared to rent abatements of $6 million in both of the corresponding prior-year periods ended August 1, 2020. We record rent abatements in rent expense when the negotiations are completed and the leases are modified. The occupancy and buyers’ compensation expense rate remained flat for the thirty-nine weeks ended October 31, 2020 due to lower sales, primarily due to temporary store closures in the first quarter, which offset the benefit from rent abatements.

Selling, General and Administrative Expenses (SG&A)

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,
($ in millions)

2020

2019


2020

2019
SG&A

$
424

$
411

$
1,127

$
1,220

$ Change

$
13

$
(93)

% Change

3.2
%

(7.6)
%

SG&A as a percentage of sales

20.1
%

21.3
%

21.0
%

21.1
%


	Thirteen weeks ended						Twenty-six weeks ended
	July 31,			August 1,			July 31,			August 1,
($ in millions)	2021			2020			2021			2020
SG&A	$	450		$	387		$	868		$	703
$ Change	$	63					$	165
% Change		16.3	%					23.5	%
SG&A as a percentage of sales		19.8	%		18.6	%		19.6	%		21.6	%

SG&A increased by ~~$13~~$63 million ~~or $4~~and $165 million ~~excluding the effect of foreign currency fluctuations,~~ for the thirteen weeks and the twenty-six weeks ended ~~October~~July 31, ~~2020~~2021, respectively, as compared with the corresponding prior-year period. ~~As a percentage of sales, SG&A decreased by 120 basis points for the thirteen weeks ended October 31, 2020 driven by higher sales in the third quarter.~~

~~SG&A decreased by $93 million, or $98 million excluding~~Excluding the effect of foreign currency fluctuations, SG&A increased by $53 million and $142 million for the ~~thirty-nine~~thirteen weeks and the twenty-six weeks ended ~~October~~July 31, ~~2020~~2021, respectively, as compared with the corresponding prior-year ~~period. For the thirty-nine weeks ended October 31, 2020,~~ periods.

SG&A, as a percentage of sales, ~~decreased~~as compared with the corresponding prior-year periods was affected by ~~10 basis points.~~

the higher sales in the current year and the effect of prior-year COVID-19 related matters. SG&A for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~July 31, 2021 and August 1, 2020 included ~~CARES Act retention credits and similar governmental~~payroll subsidies from local governments of $5$4 million and ~~$62~~$17 million, ~~respectively,~~respectively. On a year-to-date basis, the subsidies were $14 million this year as compared with $57 million last year. The higher prior year amounts related to the fact that we continued to pay our employees throughout most of the first quarter of 2020 despite the temporary store closures. The thirteen weeks and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020~~2021 included ~~incremental expense of $4~~$2 million and ~~$10~~$4 million, respectively, for personal protective ~~equipment. We carefully managed expenses by reducing spending~~equipment expense, a decrease of $4 million and $2 million, respectively, as compared with the corresponding prior-year periods.

Incentive compensation expense was $8 million lower in ~~all areas~~the second quarter of 2021; however, it was $12 million higher for the twenty-six weeks of the ~~business, including marketing~~current year, as compared with the corresponding prior-year periods. For the current year we are outperforming the targeted results. Also, the prior year was affected by the fact that the bonus plan was not established until the second quarter, thus that quarter incurred higher expense.

Excluding the above-mentioned items and ~~travel, among other categories.~~the effect of foreign currency fluctuations, SG&A increased by $52 million or 14.1 percent and $89 million or 12.3 percent primarily representing variable expenses associated with higher sales.

~~Corporate~~Second Quarter 2021 Form 10-Q Page 23

Table of Contents

Depreciation and Amortization


	Thirteen weeks ended					Twenty-six weeks ended
	July 31,			August 1,		July 31,			August 1,
($ in millions)	2021			2020		2021			2020
Depreciation and amortization	$	48		$	44	$	93		$	88
$ Change	$	4				$	5
% Change		9.1	%				5.7	%

Depreciation and amortization expense ~~(a component~~increased by $4 million and $5 million for the thirteen weeks and twenty-six weeks ended July 31, 2021, respectively, as compared with the corresponding prior-year periods. Excluding the effect of ~~SG&A) decreased~~foreign currency fluctuations, depreciation and amortization increased by $3 million for both the ~~thirteen~~quarter and ~~thirty-nine~~year-to-date periods as compared with the corresponding prior-year periods. The increase was primarily related to the acceleration of depreciation and amortization associated with the Footaction closures.

Impairment and Other Charges

During the second quarter of 2021, we conducted an impairment review of certain Footaction stores as a result of the Company’s decision to convert many of the stores to other existing banner concepts and close the remaining stores, either through natural lease expiration or early termination. We evaluated the long-lived assets, including the right-of-use assets and recorded non-cash charges of $39 million to write down store fixtures, leasehold improvements, and right-of-use assets for approximately 60 locations. Additionally, we recorded charges of $4 million primarily in other lease-related termination costs.

Partially offsetting these charges was $11 million of additional insurance recovery related to the prior year social unrest losses, $7 million of which is classified in impairment and other charges as it relates to the book value of losses recorded in 2020, with $4 million recorded in other income.

Also included in the year-to-date period of 2021 is a $2 million charge related to one of our minority investments and charges of $2 million primarily related to severance costs in connection with the reorganization of certain support functions.

Corporate Expense


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
($ in millions)	2021		2020		2021		2020
Corporate expense	$	32	$	18	$	61	$	28
$ Change	$	14			$	33

Corporate expense consists of unallocated general and administrative expenses as well as depreciation and amortization related to our corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items. Depreciation and amortization included in corporate expense was $9 million and $6 million for the thirteen weeks ended ~~October~~July 31, 2021 and August 1, 2020, ~~which primarily reflected a change in allocation of expense. Annually~~respectively, and $16 million and $11 million for the twenty-six weeks ended July 31, 2021 and August 1, 2020, respectively.

The allocation of corporate expense to the operating divisions is adjusted annually based upon an internal ~~study. The~~study; accordingly, the allocation ~~reduced corporate expense~~increased by $7$5 million and ~~$22~~$10 million for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020, respectively.~~2021, respectively, thus reducing corporate expense. Excluding the corporate allocation change, ~~in allocation,~~ corporate expense increased ~~primarily related to higher incentive compensation expense.~~

~~Depreciation~~by $19 million and ~~Amortization~~

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,

($ in millions)

2020

2019


2020

2019

Depreciation and amortization

$
44

$
44

$
132

$
134

$ Change

$
—

$
(2)

% Change

—
%

(1.5)
%

~~Depreciation and amortization expense remained flat~~$43 million for the thirteen and twenty-six weeks ended ~~October~~July 31, ~~2020 and decreased by $2 million for thirty-nine weeks ended October 31, 2020~~2021, respectively, as compared with the ~~corresponding~~ prior-year periods. The ~~effect of foreign currency fluctuations on depreciation~~increases for both periods were primarily due to higher information technology and ~~amortization was not significant for either period.~~support expenses and an increase in professional fees.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 2624

Table of Contents

~~Impairment and Other Charges~~

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,
($ in millions)

2020

2019

2020

2019
Impairment and other charges

$
4

$
1

$
58

$
16

~~Costs and losses related to social unrest represented inventory losses, damages to store property, repairs, and other costs incurred~~Additionally, we recorded higher incentive compensation expense in ~~connection with~~ the riots that affected certain parts of the United States and Canada during 2020. During the third quarter, social unrest continued and resulted in an additional loss of $1 million. Approximately 140 stores were damaged duetwenty-six weeks ended July 31, 2021, as compared to the unrest. Substantially all of the damaged stores reopened during the third quarter. The total charge for the year-to-date period included inventory losses of $15 million, damages to store property of $2 million, and repairs and other costs of $2 million. We are currently working with our insurers to determine the amount of our covered losses under our property insurance policy. Insurance recovery for losses in excess of our deductible will be recorded in the period in which we conclude our settlement discussions with our insurance providers.

The Company and its U.S. pension plan were involved in litigation related to the conversion of the plan to a cash balance plan. The court entered its final judgment in 2018, which required the plan to be reformed as directed by the court order. We recorded charges of $2 million and $3 million for the thirty-nine weeks ended October 31, 2020 and November 2, 2019, respectively, related to administrative expenses in connection with the reformation. For the thirty-nine weeks ended November 2, 2019, we incurred $13 million of lease termination costs related to the closure of our SIX:02 locations.prior-year period.

~~Division Profit~~Operating Results

Thirteen weeks ended

Thirty-nine weeks ended


October 31,

November 2,


October 31,

November 2,

($ in millions)

2020

2019

2020

2019

Division profit

$
198

$
184

$
244

$
549

Division profit margin

9.4
%

9.5
%

4.6
%

9.5
%


	Thirteen weeks ended						Twenty-six weeks ended
	July 31,			August 1,			July 31,			August 1,
($ in millions)	2021			2020			2021			2020
Division profit	$	332		$	125		$	647		$	46
Division profit margin		14.6	%		6.0	%		14.6	%		1.4	%

Division profit margin as a percentage of sales ~~decreased by 10 basis points and 490 basis points~~increased to 14.6 percent of sales for both the thirteen ~~weeks~~ and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020, respectively, as compared~~2021, with ~~the corresponding prior-year periods. For~~ both ~~the quarter and year-to-date period, division profit reflected a~~sales channels generating significant ~~increase~~improvements in ~~the direct-to-customers sales channel, offset by a decline in the stores channel. For the thirteen weeks ended October 31, 2020, higher sales were offset by lower~~both gross margin ~~compared with~~and expense leverage. The results for prior year were negatively affected by the corresponding prior-year period. For the thirty-nine weeks ended October 31, 2020, lower sales and lower gross margin, partially offset by lower SG&A, decreased the results as compared with the corresponding prior-year period.pandemic.

~~Third Quarter 2020 Form 10-Q Page 27~~

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

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,
($ in millions)

2020

2019

2020

2019
Interest expense

$
(3)

$
(3)

$
(10)

$
(8)
Interest income

1

6

5

17
Interest (expense) income, net

$
(2)

$
3

$
(5)

$
9


	Thirteen weeks ended				Twenty-six weeks ended
	July 31,		August 1,		July 31,		August 1,
($ in millions)	2021		2020		2021		2020
Interest expense	$	(3)	$	(4)	$	(6)	$	(7)
Interest income		1		2		2		4
Interest expense, net	$	(2)	$	(2)	$	(4)	$	(3)

We recorded $2 million and $5$4 million of net interest expense for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020,~~2021, respectively, as compared with net interest ~~income~~expense of $3$2 million and $9$3 million for the corresponding prior-year periods. Interest expense ~~increased~~decreased due to the ~~drawdown~~lack of borrowings on the revolving credit facility, as compared to 2020, as well as the retirement of $20 million of our 8.5 percent debentures in ~~March 2020 and higher costs related to~~ the ~~new revolving credit facility.~~fourth quarter of 2020. Additionally, interest income decreased primarily as a result of lower average interest rates on our cash and cash equivalents.

Other Income, Net

Thirteen weeks ended

Thirty-nine weeks ended

October 31,

November 2,

October 31,

November 2,
($ in millions)

2020

2019

2020

2019
Other income, net

$
193

$
4

$
197

$
8

Thirteen weeks ended

Twenty-six weeks ended

July 31,

August 1,

July 31,

August 1,

($ in millions)

2021

2020

2021

2020

Other income, net

325

329

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

~~One~~The change during the thirteen weeks ended July 31, 2021 was primarily due to a $290 million increase in the fair value of our minority ~~investments,~~investment in GOAT, which is measured using the fair value measurement ~~alternative,~~alternative. GOAT received additional funding ~~in August~~ at a higher valuation than the investment amount previously on our balance sheet. Additionally, the Company invested $68 million to acquire a common stock minority stake in a public entity, which is re-measured to fair value each quarter. We recognized income of $24 million for this investment representing a discount in the initial ~~investment. As a result, we recorded a $190~~purchase price of $9 million ~~non-cash gain during~~and appreciation in the ~~third quarter~~value of ~~2020.~~ ~~During the~~stock of $15 million. Other income for thirteen weeks ended ~~November 2, 2019,~~ we ~~recognized a gain of~~July 31, 2021 also includes $4 million ~~in connection with~~related to our insurance recovery from the ~~acquisition~~2020 social unrest, which is the amount by which the recovery exceeded the book value of ~~a Canadian distribution center lease and related assets.~~losses previously recorded.

Second Quarter 2021 Form 10-Q Page 25

Table of Contents

Income Taxes


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended						Twenty-six weeks ended
	October 31,			November 2,			October 31,			November 2,			July 31,			August 1,			July 31,			August 1,
($ in millions)	2020			2019			2020			2019			2021			2020			2021			2020
Provision for income taxes	$	104		$	46		$	134		$	133		$	157		$	25		$	239		$	30
Effective tax rate		28.2	%		27.0	%		40.1	%		27.1	%		26.8	%		35.4	%		27.4	%		(85.5)	%

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

We regularly assess the adequacy of our provisions for income tax contingencies in accordance with applicable authoritative guidance on accounting for income taxes. As a result, we may adjust the reserves for unrecognized tax benefits considering new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitation. ~~During the thirteen weeks ended October 31, 2020, we recognized a benefit of $2 million due to expiration of a statute of limitation.~~ The changes in tax reserves were not significant for any of the periods presented.

During the thirteen weeks and twenty-six weeks ended July 31, 2021, we recorded $1 million and $2 million, respectively, related to ~~other periods were not significant.~~excess tax benefits from share-based compensation.

The ~~effective~~ tax ~~rates~~rate for the ~~thirteen and thirty-nine~~twenty-six weeks ended ~~October 31,~~August 1, 2020 ~~were adversely affected by valuation allowances related to losses in certain foreign jurisdictions. Additionally, the tax rate~~ was negatively affected by a $27 million tax charge ~~recorded during the first quarter of 2020~~ related to the revaluation of certain intellectual property rights pursuant to a non-U.S. advance pricing agreement.

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

During the ~~second and third quarter of~~thirteen weeks ended August 1, 2020, ~~we performed quarterly valuations and~~ due to ~~the~~an improved financial outlook, we reduced this tax charge recognized in the ~~charge~~first quarter of 2020 by $2 ~~million and $1 million, respectively.~~

~~For~~million. Partially offsetting the ~~thirty-nine weeks ended November 2, 2019,~~intellectual property rights charge, we ~~recorded tax expense of~~recognized a $2 million ~~for an adjustment to U.S. tax on foreign income attributable to U.S. tax reform, as well as a~~ tax benefit for the reversal of ~~$3 million due to an adjustment to~~ a ~~foreign~~withholding tax ~~credit valuation allowance.~~

accrual that was no longer required in the year-to-date period of 2020.

Excluding the above-mentioned discrete items, the effective tax rates for the ~~thirteen and thirty-nine weeks ended October 31, 2020 increased,~~current year periods declined, as compared with the corresponding prior-year periods, primarily due to the change in the mix of domestic and foreign earnings and losses. Further, our higher domestic income reduced the effect of non-deductible items.

We currently expect ~~the~~our full-year tax rate to ~~be elevated relative to historical levels due to~~approximate 29 percent excluding the ~~geographic~~effect of any nonrecurring items that may occur. The actual tax rate will vary depending on the level and mix of income ~~and losses, as well as the limits to tax benefits for losses in certain foreign jurisdictions.~~

~~Net Income~~

~~For the thirteen-weeks ended October 31, 2020, we reported net income of $265 million, as compared to net income of $125 million~~earned in the corresponding prior-year period. We reported net income of $200 million for the thirty-nine weeks ended October 31, 2020, as compared to net income of $357 million in the corresponding prior-year period. Diluted earnings per share increased to $2.52 per share for the thirteen weeks ended October 31, 2020 compared with $1.16 in the thirteen-weeks ended November 2, 2019. Diluted income per share was $1.91 and $3.23 for the thirty-nine weeks ended October 31, 2020 and November 2, 2019, respectively.various jurisdictions.

Liquidity and Capital Resources

Liquidity

Our primary source of liquidity ~~continues to be~~has been cash flow from operations, while the principal uses of cash ~~are~~have been to fund inventory and other working capital requirements; finance capital expenditures related to store openings, store remodelings, internet and mobile ~~apps,~~sites, information systems, and other support facilities; make retirement plan contributions, quarterly dividend payments, and interest payments; and fund other cash requirements to support the development of our short-term and long-term operating strategies. We ~~also may make investments in other companies that we believe support our vision of inspiring and empowering youth culture. We~~ generally finance real estate with operating leases. We believe our cash, cash equivalents, ~~and~~ future cash flow from operations, and amounts available under our credit agreement will be adequate to fund these requirements.

Second Quarter 2021 Form 10-Q Page 26

Table of Contents

The Company may also repurchase its common stock or seek to retire or purchase outstanding debt through open market purchases, privately negotiated transactions, or otherwise. Share repurchases and retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, strategic considerations, and other factors. The amounts involved may be material.

During the first and second quarters of 2020, due to the COVID-19 pandemic, and in an effort to conserve cash, we temporarily suspended our share repurchase program and our dividend distribution. Our Board of Directors removed the suspension related to share repurchases effective September 1, 2020. During the third quarter, we repurchased $10 million of our common stock. As of ~~October~~July 31, ~~2020, $857~~2021, approximately $789 million remained available under ~~the~~our current ~~3-year~~$1.2 billion share repurchase program. ~~On August 20, 2020, our Board of Directors approved~~

In January 2022, we will repay the ~~reinstatement~~$98 million principal outstanding of our quarterly dividend program at a rate of $0.15 per share, which was paid on October 30, 2020 to shareholders. Also, on November 17, 2020, the Board of Directors declared a quarterly cash dividend on our common stock of $0.15 per share, which will be payable on January 29, 2021 to shareholders of record on January 15, 2021.

~~Third Quarter 2020 Form 10-Q Page 29~~

8.5 percent debentures.

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

Operating Activities

Thirty-nine weeks ended

October 31,

November 2,
($ in millions)

2020

2019
Net cash provided by operating activities

$
672

$
397
$ Change

$
275

$


	Twenty-six weeks ended
	July 31,		August 1,
($ in millions)	2021		2020
Net cash provided by operating activities	$	402	$	606
$ Change	$	(204)

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

The ~~increase~~decrease in cash provided by operating activities ~~as compared with the same period last year,~~ reflected higher merchandise purchases and payments on accounts payable and accrued and other liabilities, partially offset by ~~decrease in~~higher net income. During the thirty-nine weeks ended November 2, 2019, we contributed $55 million to our U.S. qualified pension plan primarily representing the funds available in the qualified settlement fund established in connectionincome, as compared with the ~~pension matter.~~

same period last year. The increased merchandise purchases were necessitated by our higher sales results and that we ended the prior year with low levels due to supply chain disruptions. As of ~~October~~July 31, ~~2020,~~2021, we have withheld approximately ~~$60~~$24 million of lease and lease-related payments as we continue to negotiate rent deferrals or abatements with our landlords for the period that our stores were closed due to the COVID-19 pandemic.

During the fourth quarter of 2020, we were notified by our property insurance carrier that it had approved, and in 2021 we collected, a $10 million partial settlement on our claim for losses sustained in connection with the social unrest of 2020. During the second quarter of 2021, we received an additional $11 million from our property insurance carrier for the remainder of the claim. The $21 million received during 2021 was classified in the statement of cash flows on the basis of the related insurance coverage. Accordingly, $18 million was related to inventory and other operating costs and was therefore classified in operating activities. The balance of $3 million was related to losses sustained on our property and equipment and was classified in investing activities. We are continuing to work with our insurers to determine if additional incurred losses under our property insurance policy will be covered; however, we do not expect that future recoveries will be significant.

Second Quarter 2021 Form 10-Q Page 27

Table of Contents

Investing Activities

Thirty-nine weeks ended

October 31,

November 2,
($ in millions)

2020

2019
Net cash used in investing activities

$
124

$
174
$ Change

$
(50)

$


	Twenty-six weeks ended
	July 31,		August 1,
($ in millions)	2021		2020
Net cash used in investing activities	$	(159)	$	(91)
$ Change	$	(68)

For the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020,~~2021, net cash used in investing activities increased by $68 million primarily due to a $70 million increase in minority investments. During the second quarter, we invested $68 million in a public entity and $6 million in various limited partner venture capital funds managed by Black fund managers, who are committed to advancing diverse-led business as part of our Leading in Education and Economic Development initiative.

Capital expenditures ~~decreased~~increased by ~~$10~~$4 million to ~~$116~~$87 million, as compared with the corresponding prior-year period. Our full-year capital spending is expected to be ~~$150 million, which is $121 million lower than the target that was established at the beginning of the year and reflects changes in the timing of certain projects due to the COVID-19 pandemic.~~$250 million. The revised forecast includes ~~$86~~$158 million related to the remodeling or relocation of approximately 90165 existing stores and the opening of approximately 70120 new stores, as well as ~~$64~~$92 million for the development of information systems, websites, and infrastructure, including supply chain initiatives. ~~Cash used~~The capital expenditures forecast includes the anticipated costs related to the conversion of the Footaction stores to our other banners, although the timing of these expenditures is being evaluated.

In connection with the shutdown of the Runners Point banner completed last year, during the first quarter of 2021, we sold the former headquarters resulting in ~~investing activities is also lower this period as~~proceeds of $3 million.

As noted above, related to our insurance claim from the ~~current period included $8~~social unrest in 2020, we received proceeds of $3 million ~~in minority investments as compared with $48 million spent in the corresponding prior-year period.~~related to property and equipment loss.

~~Third Quarter 2020 Form 10-Q Page 30~~

Financing Activities

Thirty-nine weeks ended

Twenty-six weeks ended

October 31,

November 2,

July 31,

August 1,

($ in millions)

2020

2019

2021

2020

Net cash used in financing activities

419

(79)

(44)

$ Change

(354)

(35)

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


	Twenty-six weeks ended
	July 31,		August 1,
($ in millions)	2021		2020
Share repurchases	$	41	$	—
Dividends paid on common stock		42		42
Total returned to shareholders	$	83	$	42

During the twenty-six weeks ended July 31, 2021, we repurchased 745,544 shares of common stock for $41 million under our share repurchase program, whereas in the prior year we did not repurchase shares. We also declared and paid $42 million in dividends representing quarterly rates of $0.20 per share during the twenty-six weeks ended July 31, 2021. On August 16, 2021, our Board of Directors declared a quarterly dividend of $0.30 per share to be paid on October 29, 2021 representing an increase of $0.10 per share or 50 percent. In the prior-year period, we paid $42 million of dividends in the first quarter of 2020 ~~we borrowed $330 million of our credit facility which was repaid in full during~~and suspended the second quarter ~~of 2020~~. ~~In July 2020, we entered into~~dividend as a ~~new $600 million credit agreement and in connection with this transaction we paid fees of $4 million.~~

~~During the quarter, we entered into an agreement with one of our franchisors to operate a limited number of Foot Locker stores operating in Europe. We have operational control~~result of the ~~new entity and have continued to consolidate the results~~COVID-19 pandemic.

Second Quarter 2021 Form 10-Q Page 28

Table of ~~the joint venture. We received contributions of $6 million in connection with this agreement.~~Contents

~~During the thirty-nine weeks ended October 31, 2020, we repurchased 308,200 shares for $10 million, as compared with 7,493,100 shares of our common stock repurchased~~ ~~in the corresponding prior-year period~~ ~~for $300 million~~. We also declared and paid dividends of $58 million and $125 million during the thirty-nine weeks ended October 31, 2020 and November 2, 2019, respectively. This represented quarterly rates of $0.40 and $0.15 for the first and third quarter of 2020, respectively, and $0.38 per share for the first three quarters of 2019.

We paid ~~$1 million and $2~~$11 million to satisfy tax withholding obligations relating to the vesting of share-based equity awards during the ~~thirty-nine~~twenty-six weeks ended ~~October~~July 31, ~~2020 and~~ 2021~~November 2, 2019, respectively.~~. Partially offsetting ~~these amounts~~this amount were proceeds received ~~from the issuance of common stock and treasury stock issued~~ in connection with employee stock programs of $2$17 million.

In the first quarter of 2020, we borrowed $330 million ~~and $8 million for~~of our then-existing revolving credit facility, which was repaid in full during the ~~thirty-nine weeks ended~~ ~~October 31, 2020 and~~ ~~November 2, 2019, respectively.~~second quarter of 2020.

Critical Accounting Policies and Estimates

~~Other than the adoption of ASU 2017-04~~~~, Simplifying the test for Goodwill Impairment~~~~, on February 2, 2020 as discussed in Note 1,~~ ~~Summary of Significant Accounting Policies~~~~, and Note 6,~~ ~~Goodwill~~~~, to the Condensed Consolidated Financial Statements, there~~There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Annual Report on Form 10-K for the fiscal year ended ~~February 1, 2020.~~January 30, 2021.

Recent Accounting Pronouncements

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

~~Third Quarter 2020 Form 10-Q Page 31~~

Item 4. Controls and Procedures

During the quarter, the Company’s management performed an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective to ensure that information relating to the Company that is required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

We are currently migrating our e-commerce order management system. All North American e-commerce apps and certain European countries were live on the new system as of ~~August 1, 2020.~~July 31, 2021. In connection with this implementation and resulting business process changes, we may make changes to the design and operation of our internal control over financial reporting. ~~Also, during the first quarter of 2020 we substantially completed the rollout of our new point-of-sale software.~~

During the quarter ended ~~October~~July 31, ~~2020,~~2021, there were no changes in the Company’s internal control over financial reporting, other than the implementation of the new e-commerce order management system (as defined in Rules 13a-15(f) of the Exchange Act), that materially affected or are reasonably likely to affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Second Quarter 2021 Form 10-Q Page 29

Table of Contents

Item 1A. Risk Factors

In addition to the other information discussed in this report, the factors described in Part I, Item 1A. “Risk Factors” in our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on March ~~27, 2020~~25, 2021 should be considered as they could materially affect our business, financial condition, or future results.

There have not been any significant changes with respect to the risks described in our ~~2019 Form 10-K, other than the item noted below.~~

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

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

~~Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.~~

~~Third Quarter~~ 2020 Form ~~10-Q Page 32~~10-K.

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

The ~~following~~ table below provides information with respect to shares of the Company’s common stock for the thirteen weeks ended ~~October~~July 31, ~~2020:~~2021:

Total Number of

Dollar Value of

Total

Average

Shares Purchased as

Shares that may

Number

Price

Part of Publicly

yet be Purchased

of Shares

Paid Per

Announced

Under the
Date Purchased

Purchased ⁽¹⁾

Share ⁽¹⁾

Program ⁽²⁾

Program ⁽²⁾
August 2 to August 29, 2020

—

$
—

—

$
867,215,222
August 30 to October 3, 2020

326,301

33.04

308,200

857,009,892
October 4 to October 31, 2020

—

—

—

857,009,892

326,301

$
33.04

308,200


				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⁾
May 2 to May 29, 2021	25,000	$	63.44	25,000	$	795,460,301
May 30 to June 3, 2021	100,000		62.65	100,000		789,195,238
June 4 to July 31, 2021	3,460		57.73	—		789,195,238
	128,460	$	62.67	125,000

(1)

These columns reflect shares acquired in satisfaction of the tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter. The calculation of the average price paid per share includes all fees, commissions, and other costs associated with the repurchase of such shares.

(2)	The current $1.2 billion share repurchase program extends through January 2022.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 3330

Table of Contents

Item 6. Exhibits


Exhibit No.		Description
~~3.1~~2.1		~~Certificate of Amendment of the Certificate of Incorporation of~~Stock Purchase Agreement, dated August 1, 2021, among Foot Locker Retail, Inc., ~~as filed with~~ the ~~Department of State of New York on December 8, 2020 (Incorporated~~Sellers, Eurostar, Inc., and the Seller Representatives (incorporated by reference to Exhibit ~~3.1~~2.1 to the Form 8-K filed by Foot Locker, Inc. on ~~December 8, 2020)~~August 2, 2021).
~~4.1~~		Rights Agreement dated as of December 7, 2020, between Foot Locker, Inc. and Computershare Trust Company, N.A., as Rights Agent (Incorporated by reference to Exhibit 4.1 to the Form 8-K filed by Foot Locker, Inc. on December 8, 2020).
15*		Accountants’ Acknowledgement.
31.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99*		Report of Independent Registered Public Accounting Firm.
101.INS*		Inline XBRL Instance Document.
101.SCH*		Inline XBRL Taxonomy Extension Schema.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase.
104*		Cover Page Interactive Data File (embedded within the Inline XBRL datafile).

* Filed herewith.

** Furnished herewith.

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 3431

Table of Contents

SIGNATURE

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


Date: ~~December~~September 9, ~~2020~~2021	FOOT LOCKER, INC.


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

~~Third~~Second Quarter ~~2020~~2021 Form 10-Q Page 3532


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


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


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


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

			Page
PART I	FINANCIAL INFORMATION		1
	Item 1.	Financial Statements	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Comprehensive Income (Loss)	3
		Condensed Consolidated Statements of Changes in Shareholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	65
		Notes to the Unaudited Condensed Consolidated Financial Statements	76
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2018
	Item 4.	Controls and Procedures	3229

PART II	OTHER INFORMATION		3229
	Item 1.	Legal Proceedings	3229
	Item 1A.	Risk Factors	3230
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3330
	Item 6.	Exhibits	3431

SIGNATURE			3532


($ in millions)	Runners Point		Eastbay		Total
Balance as of February 1, 2020	$	0	$	0	$	0
Charges		19		3		22
Payments		(9)		(2)		(11)
Balance as of October 31, 2020	$	10	$	1	$	11

Twenty-six weeks ended

($ in millions)

July 31, 2021

August 1, 2020

Outstanding

Outstanding and exercisable