Foot Locker 2006 Annual Report Download - page 71

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Beginning with 2001, new retirees were charged the expected full cost of the medical plan and existing retirees
will incur 100 percent of the expected future increase in medical plan costs. Any changes in the health care cost trend
rates assumed would not affect the accumulated benefit obligation or net benefit income, since retirees will incur 100
percent of such expected future increases.
In December 2003, the United States enacted into law the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the “Act”). The Act establishes a prescription drug benefit under Medicare, known as
“Medicare Part D,” and a Federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that
is at least actuarially equivalent to Medicare Part D. The Company has determined that it will qualify for the subsidy,
however the effect of the subsidy was not significant to either the benefit obligation or net benefit income.
In August 2006, the Pension Protection Act of 2006 was signed into law. The major provisions of the statute will
take effect January 1, 2008. Among other things, the statute is designed to ensure timely and adequate funding of
pension plans by shortening the time period within which employers must fully fund pension benefits. The Company is
currently evaluating the effect, if any, that the Pension Protection Act of 2006 will have on funding requirements. The
effect on net periodic benefit cost is not expected to be significant.
The Company’s pension plan weighted-average asset allocations at February 3, 2007 and January 28, 2006, by
asset category are as follows:
2006 2005
Asset Category
Equity securities ........................................... 64% 62%
Foot Locker, Inc. common stock ............................... 1% 2%
Debt securities ............................................ 33% 34%
Real estate ............................................... 1% 1%
Other ................................................... 1% 1%
Total ................................................... 100% 100%
The U.S. defined benefit plan held 396,000 shares of Foot Locker, Inc. common stock as of February 3, 2007 and
January 28, 2006. Currently, the target composition of the weighted-average plan assets is 64 percent equity and 36
percent fixed income securities, although the Company may alter the targets from time to time depending on market
conditions and the funding requirements of the pension plans. The Company believes that plan assets are invested
in a prudent manner with an objective of providing a total return that, over the long term, provides sufficient assets
to fund benefit obligations, taking into account the Company’s expected contributions and the level of risk deemed
appropriate. The Company’s investment strategy is to utilize asset classes with differing rates of return, volatility and
correlation to reduce risk by providing diversification relative to equities. Diversification within asset classes is also
utilized to reduce the effect that the return of any single investment may have on the entire portfolio.
Estimated future benefit payments for each of the next five years and the five years thereafter are as follows:
Pension
Benefits
Postretirement
Benefits
(in millions)
2007 ............................................. $ 64 $2
2008 ............................................. 62 2
2009 ............................................. 61 2
2010 ............................................. 58 2
2011 ............................................. 56 1
2012–2015 ............................................. 259 5
In the fourth quarter of 2006, the Company and its U.S. pension plan, the Foot Locker Retirement Plan, were
named as defendants in a class action in federal court in Illinois. The Complaint alleged that the Company’s pension
plan violated the Employee Retirement Income Security Act of 1974 as a result of the Company’s conversion of its
defined benefit plan to a defined benefit pension plan with a cash balance feature in 1996. In March 2007, the class
action was dismissed without prejudice. In February 2007, the same plaintiff filed a class action in federal court in New
York against the Company and its U.S. pension plan, the Foot Locker Retirement Plan. The Complaint alleged that the