Foot Locker 2006 Annual Report Download - page 68

52
Business Risk
The retailing business is highly competitive. Price, quality and selection of merchandise, reputation, store location,
advertising and customer service are important competitive factors in the Company’s business. The Company operates
in 20 countries and purchased approximately 78 percent of its merchandise in 2006 from its top 5 vendors. In 2006,
the Company purchased approximately 50 percent of its athletic merchandise from one major vendor and approximately
14 percent from another major vendor. Each of our operating divisions are highly dependent on Nike, they individually
purchase 40 to 65 percent of their merchandise from Nike. The Company generally considers all vendor relations to be
satisfactory.
Included in the Company’s Consolidated Balance Sheet as of February 3, 2007, are the net assets of the Company’s
European operations totaling $478 million, which are located in 16 countries, 11 of which have adopted the euro as
their functional currency.
21 Retirement Plans and Other Benefits
Pension and Other Postretirement Plans
The Company has defined benefit pension plans covering most of its North American employees, which are funded
in accordance with the provisions of the laws where the plans are in effect. In addition to providing pension benefits,
the Company sponsors postretirement medical and life insurance plans, which are available to most of its retired U.S.
employees. These plans are contributory and are not funded. The measurement date of the assets and liabilities is the
last day of the fiscal year.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans- An Amendment of FASB Statements No. 87, 88, 106, and 132(R),” (“SFAS No. 158”). This new
standard requires an employer to: recognize in its statement of financial position an asset for a plan’s overfunded
status or a liability for a plan’s underfunded status; measure a plan’s assets and its obligations that determine its
funded status as of the end of the employer’s fiscal year (with limited exceptions); and recognize changes in the
funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will
be reported in comprehensive income/loss. The initial effect of the standard, due to unrecognized prior service cost
and net actuarial gains or losses, as well as subsequent changes in the funded status, is recognized as a component of
accumulated comprehensive income/loss within shareholders’ equity. Additional minimum pension liabilities (“AML”)
and related intangible assets are derecognized upon the adoption of SFAS No. 158. The Company adopted this standard
as of February 3, 2007.
The following tables set forth the plans’ changes in benefit obligations and plan assets, funded status and
amounts recognized in the Consolidated Balance Sheets, measured at February 3, 2007 and January 28, 2006:
Pension Benefits
Postretirement
Benefits
2006 2005 2006 2005
(in millions)
Change in benefit obligation
Benefit obligation at beginning of year........ $689 $703 $ 17 $ 24
Service cost ............................ 10 9 — —
Interest cost............................ 36 36 1 1
Plan participants’ contributions ............. — — 5 5
Actuarial gain .......................... (12) — (3) (5)
Foreign currency translation adjustments ...... (2) 7 — —
Plan amendment......................... 1 — — —
Benefits paid ........................... (60) (66) (7) (8)
Benefit obligation at end of year ............ $662 $689 $ 13 $ 17