Foot Locker 2011 Annual Report Download - page 77

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FOOT LOCKER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Financial Instruments and Risk Management − (continued)
The Company enters into diesel fuel forward and option contracts to mitigate a portion of the Company’s
freight expense due to the variability caused by fuel surcharges imposed by our third-party freight
carriers. Changes in the fair value of these contracts are recorded in earnings immediately. The effect was
not significant for any of the periods presented.
Fair Value of Derivative Contracts
The following represents the fair value of the Company’s derivative contracts. Many of the Company’s
agreements allow for a netting arrangement. The following is presented on a gross basis, by type
of contract:
(in millions) Balance Sheet Caption 2011 2010
Hedging Instruments:
Forward foreign exchange contracts Current asset $ — $ 2
Forward foreign exchange contracts Current liability $ 2 $ —
Notional Values and Foreign Currency Exchange Rates
The table below presents the notional amounts for all outstanding derivatives and the weighted-average
exchange rates of foreign exchange forward contracts at January 28, 2012:
Contract Value
(U.S. in millions)
Weighted-Average
Exchange Rate
Inventory
Buy €/Sell British £ $ 65 .8563
Buy US/Sell €2 .7798
Intercompany
Buy €/Sell British £ $ 20 .8471
Buy British £/Sell €9 1.2014
Buy US/Sell CAD$ 3 1.0194
Diesel fuel forwards $7 —
Business Risk
The retailing business is highly competitive. Price, quality, selection of merchandise, reputation, store
location, advertising, and customer service are important competitive factors in the Company’s business.
The Company operates in 23 countries and purchased approximately 82 percent of its merchandise in
2011 from its top 5 vendors. In 2011, the Company purchased approximately 61 percent of its athletic
merchandise from one major vendor, Nike, Inc. (‘‘Nike’’), and approximately 17 percent from another
major vendor. Each of our operating divisions is highly dependent on Nike; they individually purchase
45 to 77 percent of their merchandise from Nike. The Company generally considers all vendor relations to
be satisfactory.
Included in the Company’s Consolidated Balance Sheet at January 28, 2012, are the net assets of the
Company’s European operations, which total $794 million and which are located in 19 countries, 11 of
which have adopted the euro as their functional currency.
57