Foot Locker 2007 Annual Report Download - page 68

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52
by $20 million and $5 million, net of tax at February 2, 2008 and February 3, 2007. At January 28, 2006, the amount
recorded to foreign currency translation was not significant. The effect on the Consolidated Statements of Operations
related to the net investments hedges was income of $1 million for 2007 and $3 million for 2006.
Foreign Exchange Risk Management — Derivative Holdings Designated as Non-Hedges
The Company mitigates the effect of fluctuating foreign exchange rates on the reporting of foreign currency
denominated earnings by entering into a variety of derivative instruments including option currency contracts. Changes
in the fair value of these foreign currency option contracts, which are designated as non-hedges, are recorded in
earnings immediately. The premiums paid and changes in the fair market value recorded in the Consolidated Statement
of Operations were not significant for the years ended February 2, 2008 and February 3, 2007, respectively.
The Company also enters into forward foreign exchange contracts to hedge foreign-currency denominated
merchandise purchases and intercompany transactions. Net changes in the fair value of foreign exchange derivative
financial instruments designated as non-hedges were substantially offset by the changes in value of the underlying
transactions, which were recorded in selling, general and administrative expenses. The amount recorded during 2006
was not significant.
Foreign Currency Exchange Rates
The table below presents the fair value, notional amounts, and weighted-average exchange rates of foreign
exchange forward and option contracts outstanding at February 2, 2008.
Fair Value
(US in millions) Contract Value
(US in millions) Weighted-Average
Exchange Rate
Inventory
Buy €/Sell British £ ......................... $2$48 .7239
Earnings
Buy CAD$/Sell $US . . . . . . . . . . . . . . . . . . . . . . . . . $— $ 71.0000
Buy €/Sell $US . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 34 1.4200
Intercompany
Buy US/Sell € . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $ —.6808
Buy €/ Sell British £ . . . . . . . . . . . . . . . . . . . . . . . . 1 16 .6918
Buy €/Sell SEK . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 9.4712
Buy AUD/Sell NZD . . . . . . . . . . . . . . . . . . . . . . . . . . — 2 .8883
Buy US/Sell CAD$ . . . . . . . . . . . . . . . . . . . . . . . . . . — 6 .9861
Buy CAD$/Sell US . . . . . . . . . . . . . . . . . . . . . . . . . . — 6 .9971
Interest Rate Risk Management
The Company has employed various interest rate swaps to minimize its exposure to interest rate fluctuations. These
swaps, which mature in 2022, have been designated as a fair value hedge of the changes in fair value of $100 million
of the Company’s 8.50 percent debentures payable in 2022 attributable to changes in interest rates and effectively
convert the interest rate on the debentures from 8.50 percent to a 1-month variable rate of LIBOR plus 3.45 percent.
The following table presents the Company’s outstanding interest rate derivatives:
2007 2006 2005
(in millions)
Interest Rate Swaps:
Fixed to Variable ($US) — notional amount .................. $100 $100 $100
Average pay rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.22%8.53%8.00%
Average receive rate ................................. 8.50%8.50%8.50%
Variable to variable ($US) — notional amount ................ $100 $100 $100
Average pay rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.39%5.57% 4.82%
Average receive rate ................................. 3.02%5.32% 4.79%