Foot Locker 2006 Annual Report Download - page 20

4
Our operations may be adversely affected by economic or political conditions in other countries.
Approximately 24 percent of our sales and a significant portion of our operating profits for 2006 were attributable
to our sales in Europe, Canada, New Zealand, and Australia. As a result, our business is subject to the risks associated with
doing business outside of the United States, such as foreign governmental regulations, foreign customer preferences,
political unrest, disruptions or delays in shipments, and changes in economic conditions in countries in which we
operate. Although we enter into forward foreign exchange contracts and option contracts to reduce the effect of
foreign currency exchange rate fluctuations, our operations may be adversely affected by significant changes in the
value of the U.S. dollar as it relates to certain foreign currencies.
In addition, because we and our suppliers have a substantial amount of our products manufactured in foreign
countries, our ability to obtain sufficient quantities of merchandise on favorable terms may be affected by governmental
regulations, trade restrictions, and economic, labor, and other conditions in the countries from which our suppliers
obtain their product.
Our business is subject to economic cycles and retail industry conditions. Purchases of discretionary athletic
footwear, apparel, and related products, tend to decline during recessionary periods when disposable income is low and
customers are hesitant to use available credit.
Complications in our distribution centers and other factors affecting the distribution of merchandise may affect
our business.
We operate three distribution centers worldwide to support our athletic business. If complications arise with
any facility or any facility is severely damaged or destroyed, the other distribution centers may not be able to support
the resulting additional distribution demands. This may adversely affect our ability to deliver inventory on a timely
basis. We depend upon UPS for shipment of a significant amount of merchandise. An interruption in service by UPS for
any reason could cause temporary disruptions in our business, a loss of sales and profits, and other material adverse
effects.
Our freight cost is affected by changes in fuel prices through surcharges. Increases in fuel prices and surcharges
and other factors may increase freight costs and thereby increase our cost of sales.
A major failure of our information systems could harm our business.
We depend on information systems to process transactions, manage inventory, operate our website, purchase,
sell and ship goods on a timely basis and maintain cost-efficient operations. Any material disruption or slowdown
of our systems could cause information to be lost or delayed which could have a negative effect on our business. We
may experience operational problems with our information systems as a result of system failures, viruses, computer
“hackers” or other causes. We cannot be assured that our systems will be adequate to support future growth.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The properties of the Company and its consolidated subsidiaries consist of land, leased and owned stores, and
administrative and distribution facilities. Gross operating square footage and total selling area for the Athletic Stores
segment at the end of 2006 was approximately 14.55 and 8.74 million square feet, respectively. These properties are
located in the United States, Canada, various European countries, Australia, and New Zealand.
The Company currently operates three distribution centers, of which one is owned and two are leased, occupying
an aggregate of 2.12 million square feet. Two of the three distribution centers are located in the United States and one
is in Europe.
Item 3. Legal Proceedings
Information regarding the Company’s legal proceedings are contained in the “Legal Proceedings” footnote under
“Item 8. Consolidated Financial Statements and Supplementary Data.”